ReSA -The Review School of Accountancy Advanced Financial

Accounting and Reporting

MAY 2023 Batch
AFAR Quiz 2
1. On January 1, 2019, the fair values of Pink Conrad’s net assets were as follows:
Current Assets…………………………………………………………………………P 100,000
Equipment…………………………………………………………………………….. 150,000
Land…………………………………………………………………………………….. 50,000
Buildings………………………………………………………………………………… 300,000
Liabilities………………………………………………………………………………… 80,000

On January 1, 2019, Blue George Company purchased the net assets of the Pink Conrad
Company by issuing 100,000 shares of its P1 par value stock when the fair value of the stock was
P6.20. It was further agreed that Blue George would pay an additional amount on January 1,
2021, if the average income during the 2-year period of 2019-2020 exceeded P80,000 per year.
The expected value of this consideration was calculated as P184,000; the measurement period
is one year.

What amount will be recorded as goodwill on January 1, 2019?

a. Zero. c. P180,000
b. P100,000 d. P284,000

2. Using the same information in No. 1, assuming that on August 1, 2019 the contingent
consideration happens to be P170,000, what amount will then be recorded as goodwill on the
said date?
a. Zero. c. P166,000
b. P86,000 d. P270,000

3. Using the same information in Nos. 1 and 2, assuming that on January 1, 2021, the date of
settlement of the contingent consideration clause agreement for P175,000, the entry should be:
a. Estimated liability for contingent consideration…………………………. 170,000
Loss on estimated contingent consideration…………………………….. 5,000
Cash…………………………………………………………………….. 175,000

b. Estimated liability for contingent consideration………………………….. 175,000

Cash……………………………………………………………………. 175,000

c. Estimated liability for contingent consideration………………………….. 184,000

Gain on estimated contingent consideration……………………… 9,000
Cash…………………………………………………………………………. 175,000

d. No entry required.

4. The Boy George Company acquired the net assets of the Girl Conrad Company on January 1,
20x9, and made the following entry to record the purchase:
Current Asset…………………………………………… 100,000
Equipment ……………………………………………… 150,000
Land ……………………………………………………… 50,000
Buildings ………………………………………………… 300,000
Goodwill ………………………………………………… 100,000
Liabilities ………………………………………, 80,000
Common stock, P 1 par ……………………. 100,000
Paid-in capital in excess of par …………… 520,000
Assuming that additional shares would be issued on January 1, 20x9 to compensate for any fall
in the value of Boy George common stock below P16 per share. The settlement would be to
cure the deficiency by issuing added shares based on their fair value on January 1, 2019. The
fair price of the shares on January 1, 20x9 was P10.
What is the additional number of shares issued on January 1, 20x9 to compensate for any fall in
the value of the stock?
a. 160,000 c. 60,000
b. 100,000 d. 10,000

Page 1 of 20 pages
ReSA - The Review School of Accountancy AFAR Quiz 2
Coverage: AFAR – 07 to 12 (ReSA Batch 45 – May 2023 Batch)

5. Using the same information in No. 4, what is the amount of paid-in capital in excess of par on
January 1, 20x9 immediately after the additional shares were issued?
a. P520,000 c. P420,000
b. P460,000 d. No effect.
6. Major Corporation acquired Problem Company through an exchange of common shares. All of
Problem's assets and liabilities were immediately transferred to Major. Major's common stock was
trading at P20 per share at the time of exchange. Following selected information is also
available.
Before Acquisition After Acquisition
Par value of shares outstanding……. P 200,000 P 250,000
Additional paid-in capital………….. P 350,000 P 550,000
Based on the preceding information, what number of shares was issued at the time of the
exchange?
a. P 5,000 c. P12,500
b. 10,000 d. 17,500
7. Using the same information in No. 6, what is the par value of Major's common stock?
a. P10 c. P 4
b. P 5 d. P 1
8. Using the same information in No. 6, what is the fair value of Problem's net assets, if goodwill of
P56,000 is recorded?
a. P194,000 c. P300,000
b. 244,000 d. 306,000
9. Selected information from the trial balances for the home office and the branch of Gerty
Company at December 31, 20x4 is provided. These trial balances cover the period from
December 1 to December 31, 20x4. The branch acquires some of its merchandise from the
home office (the branch is billed at 20% above the cost to the home office and some of it from
outsiders. Differences in the shipments accounts result entirely from the home office policy of
billing the branch at 20% above cost.
Home Office Branch
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 60,000 P 30,000
Shipments to branch . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,000 -0-
Shipments to branch – loading / Unrealized profit
in branch inventory . . . . . . . . . . . . . . . . . . . . . . . . 3,600 -0-
Purchases (outsiders) . . . . . . . . . . . . . . . . . . . . . . . . 35,000 5,500
Shipments from home office . . . . . . . . . . . . . . . . . . -0- 9,600
Merchandise inventory, December 1, 20x4 . . . . . . . . 20,000 15,000
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,000 6,000
Additional information:
Merchandise inventory, December 31, 20x4:
Home office……………………………………………………………P20,000
Branch………………………………………………………………… 10,000
How much of the December 1, 20x4 inventory of the branch represents purchases from
outsiders and how much represents goods acquired from the home office?
Outsiders Home Office Outsiders Home Office
a. P -0- P15,000 c. P12,000 P 3,000
b. P5,000 P10,000 d. P 3,000 P12,000
Used the following information for question 10 and 11:
The Best Corporation operates a branch in Dagupan City. The home office ships merchandise to
the branch at 125 percent of its cost. Selected information from the December 31, 20x4 trial
balance are as follows:
Home Branch
Office Books
Books
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 600,000 P300,000
Shipments to branch . . . . . . . . . . . . . . . . . . . 200,000
Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . 350,000
Shipments from home office . . . . . . . . . . . . - 250,000
Inventory, January 1, 20x4 . . . . . . . . . . . . . . 100,000 40,000
Allowance for overvaluation of branch
inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . 58,000
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120,000 50,000
Inventory at December 31, 20x4: Home office, P30,000; Branch, P60,000

Page 2 of 20 pages
ReSA - The Review School of Accountancy AFAR Quiz 2
Coverage: AFAR – 07 to 12 (ReSA Batch 45 – May 2023 Batch)

10. The realized profit on sales made by the branch or overvaluation of cost of goods sold is:
a. P40,000 c. P46,000
b. P 86,000 d. None of the above.
11. The combined net income of the home office and the branch after adjustment is:
a. P226,000 c. P496,000
b. P326,000 d. P500,000
12. The Brooke Corporation has two branches, Branch P and Branch Q. The home office shipped
P80,000 in merchandise to Branch P and prepaid the freight charges of P500. A short time
thereafter, Branch P was instructed to ship this merchandise to Branch Q at a prepaid freight
cost of P700. Freight charges for this merchandise normally cost P800 when shipped from the
home office directly to Branch Q. Compute the excess freight on transfers of merchandise:
a. P700 c. P500
b. P800 d. P400
Use the following information for 13 and 14:
Ping Company acquires all of Sun Corp. in an asset acquisition. Ping paid P1,000,000 more than
Sun's book value, and this excess was attributed entirely to goodwill, as all of Sun's assets and
liabilities were carried at amounts equivalent to fair value. At the time of the combination, a
lawsuit was pending against Sun, which Sun had not recorded on its books. It was felt at the time
that Sun would win the lawsuit, so no provision for it was made when Ping recorded the asset
acquisition.
13. Six months after the acquisition, new information reveals that the expected value of the lawsuit
at the date of acquisition was P400,000. The appropriate entry on Ping's books to record this
new information.
a. Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 400,000
Estimated lawsuit liability . . . . . . . . . . . . . . . . . . . . . . . 400,000
b. Loss on lawsuit . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . 400,000
Estimated lawsuit liability . . . . . . . . . . . . . . . . . . . . . . . 400,000
c. Goodwill. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . 400,000
Estimated lawsuit liability . . . . . . . . . . . . . . . . . . . . . . . 400,000
d. No entry required.
14. Assume the same information as above, except that the value change is a result of events
occurring subsequent to acquisition. The appropriate entry on Ping's books to record the new
information.
a. Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 400,000
Estimated lawsuit liability . . . . . . . . . . . . . . . . . . . . . . . 400,000
b. Loss on lawsuit . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . 400,000
Estimated lawsuit liability . . . . . . . . . . . . . . . . . . . . . . . 400,000
c. Goodwill. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . 400,000
Estimated lawsuit liability . . . . . . . . . . . . . . . . . . . . . . . 400,000
d. No entry required.
Use the following information for questions 15 and 16:
On January 1, 20x4, Pamela Company purchased 75% of the common stock of Snicker Company.
Separate balance sheet data for the companies at the combination date are given below:
Snicker Co. Snicker Co.
Pamela Co. Book Values Fair Values
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 18,000 P155,000 P155,000
Accounts receivable . . . . . . . . . . . . . . . . . . . . 108,000 20,000 20,000
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99,000 26,000 45,000
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60,000 24,000 45,000
Plant assets . . . . . . . . . . . . . . . . . . . . . . . . . . 525,000 225,000 300,000
Accumulated depreciation . . . . . . . . . . . . . (180,000) (45,000)
Investment in Snicker Co . . . . . . . . . . . . . . . . 330,000
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . P960,000 P405,000 P565,000
Accounts payable . . . . . . . . . . . . . . . . . . . . P156,000 P105,000 P105,000
Capital stock . . . . . . . . . . . . . . . . . . . . . . . . . . 600,000 225,000
Retained earnings . . . . . . . . . . . . . . . . . . . . . . 204,000 75,000
Total liabilities & equities . . . . . . . . . . . . . . . . . . P960,000 P405,000
Determine below what the consolidated balance would be for each of the requested accounts on
January 2, 20x4.

Page 3 of 20 pages
ReSA - The Review School of Accountancy AFAR Quiz 2
Coverage: AFAR – 07 to 12 (ReSA Batch 45 – May 2023 Batch)

15. What amount of inventory will be reported?

a. P125,000 c. P139,250
b. P132,750 d. P144,000

16. What is the amount of total assets?

a. P 921,000 c. P1,525,000
b. P1,185,000 d. P1,195,000
17. Betzler Company’s branch in Malate began operations on January 1, 20x4. During the first year
of operations, the home office shipped merchandise to the Malate branch that cost P250,000
at a billed price of P300,000. One-fourth of the merchandise remained unsold at the end of
20x4. The home office records the shipments to the branch at the P300,000 billed price at the
time shipments are made. Freight-in of P2,000 on the shipments from the home office was paid
by the branch. The home office should make an adjusting entry for freight-in as follows:
a. A year-end adjusting entry debiting the branch account for P500.
b. A year-end adjusting entry debiting the branch account for P2,000.
c. A year-end adjusting entry crediting the branch account for P500.
d. No year-end adjusting entry for the freight charge.
Use the following information for questions 18 to 20:
Wren Corporation acquired 80% ownership of Arid Incorporated, at a time when Wren’s investment
and Arid’s book values were equal. During 20x4, Wren sold goods to Arid for P200,000 making a
gross profit percentage of 20%. Half of these goods remained unsold in Arid’s inventory at the end
of the year. Income statement information for Wren and Arid for 20x4 were as follows:

Wren Arid
Sales Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . P1,000,000 P 600,000
Cost of Goods Sold . . . . . . . . . . . . . . . . . . . . . . . . 500,000 400,000
Operating Expenses . . . . . . . . . . . . . . . . . . . . . . 500,000 __ 80,000
Separate incomes . . . . . . . . . . . . . . . . . . . . . . . . P 250,000 P 120,000

18. The 20x4 consolidated income statement showed cost of goods sold of
a. P720,000 c. P900,000
b. P880,000 d. P920,000

19. Assuming the dividend declared by Arid for 20x4 amounted to P60,000, 5he 20x4 consolidated
income statement showed investment income of:
Cost Model Equity Method
a. P76,000 P80,000
b. P48,000 P56,000
c. P76,000 P28,000
d. P48,000 P76,000

20. The 20x4 consolidated income statement showed non-controlling income of

a. P2,000 c. P20,000
b. P8,000 d. P24,000

21. Kestrel Company acquired an 80% interest in Reptile Corporation on January 1, 20x4. On
January 1, 20x5, Reptile sold a building with a book value of P50,000 to Kestrel for P80,000. The
building had a remaining useful life of ten years and no salvage value. The separate balance
sheets of Kestrel and Reptile on December 31, 20x5 included the following balances:

Kestrel Reptile
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 400,000 P 250,000
Accumulated Depreciation – Buildings . . . . . . . . . . . . . . 120,000 75,000

The consolidated amounts for Buildings and Accumulated Depreciation - Buildings that
appeared, respectively, on the balance sheet at December 31, 20x5, were
a. P620,000 and P192,000. c. P650,000 and P192,000.
b. P620,000 and P195,000. d. P650,000 and P195,000.

Page 4 of 20 pages
ReSA - The Review School of Accountancy AFAR Quiz 2
Coverage: AFAR – 07 to 12 (ReSA Batch 45 – May 2023 Batch)

Use the following information for questions 22 to 24:

On 1/3/x6, Sayex (an 80%-owned subsidiary of Payex) sold equipment costing P100,000 to Payex for
P45,000. At the time of the sale, the equipment had a book value of P20,000 (having been
depreciated using the straight-line method, an original life of 10 years, and no estimated salvage
value). Payex continued depreciating the equipment by using the straight-line method but
assigned a remaining life of 5 years.
22. What are the cost and accumulated depreciation, respectively, of this equipment in the
12/31/x7—not 12/31/x6—consolidated balance sheet?
a. P100,000 and P20,000. d. P100,000 and P100,000.
b. P100,000 and P18,000. e. None of the above.
c. P100,000 and P88,000.
23. What is the amount of the intercompany profit or loss that must be deferred at 12/31/x7—not
12/31/x6?
a. P25,000 c. P15,000 e. P8,000
b. P20,000 d. P12,000
24. What is the adjustment to Depreciation Expense in preparing the consolidation worksheet at
12/31/x7?
a. A debit of P5,000. c. A debit of P12,500. e. N/A
b. A credit of P5,000. d. A credit of P12,500.
Items 25 to 27 are based on the following information:
The Petite Branch of Dainty Company submitted trial balance as of December 31, 2019, after the
first year of operations:
Debit Credit
Cash P 10,400
Accounts receivable 63,200
Shipments from home office 168,000
Expenses 10,800
Sales P134,400
Home office current ________ 118,000
P252,400 P252,400
Merchandise inventory, P50,400.
Shipments to the branch are billed at 140% of cost.
25. The adjustment to the cost of goods sold of the Branch account amounts to:
a. P -0- c. P33,600
b. P14,400 d. P48,000
26. The true net income of the branch during 2019 was:
a. P 6,000 c. P39,600
b. P33,600 d. P54,000
27. The overstatement in the Branch inventory at December 31, 2019 was:
a. P -0- c. P14,400
b. P 6,000 d. P33,600
28. Connie Corporation had a realized foreign exchange loss of P15,000 for the year ended
December 31, 2019 and must also determine whether the following items will require year-end
adjustment:
• Connie had an P8,000 loss resulting from the translation of the accounts of its wholly-
owned foreign subsidiary for the year ended December 31, 2019.
• Connie had an account payable to an unrelated foreign supplier payable in the
supplier’s local currency. The Philippine peso equivalent of the payable was P64,000 on
the October 31, 2014 invoice date, and it was P60,000 on December 31, 2019. The
invoice is payable on January 30, 2020.
.

In Connie’s 2019 consolidated income statement, what amount should be included as foreign
exchange loss?
a. P11,000 c. P19,000
b. 15,000 d. 23,000
Items 29 to 31 are based on the following information:
On September 1, 2019, Ramus Company purchased machine parts from Jacky Chan Company for
6,000,000 Hong Kong dollars to be paid on January 1, 2020. The exchange rate on September 1 is
HK $7.7 = P1. On the same date, Ramus enters into a forward contract and agrees to purchase HS
$6,000,000 on January 1, 2020, at the rate of HK $7.7 = P1. On December 31, 2019 and on January 1,
2020, the exchange rate is HK $8.0 = P1.

Page 5 of 20 pages
ReSA - The Review School of Accountancy AFAR Quiz 2
Coverage: AFAR – 07 to 12 (ReSA Batch 45 – May 2023 Batch)

29. What is the fair value of the forward contract on December 31, 2019?
a. P 0 c. P750,000
b. P 29,221 d. P779,221

30. What is the nominal value of the HK $ forward contract on December 31, 2019?
a. P 0 c. P750,000
b. P 29,221 d. P779,221

31. What is the notional value of the HK $ forward contract?

a. P 0 c. P750,000
b. P 29,221 d. P779,221

Use the following information for questions 32 and 33:

On 8/3/x6, Buyox entered into a noncancellable purchase agreement with a foreign vendor
involving a custom-made machine. Buyox took delivery of the machine on 12/1/x6 (120 days
later). The purchase price was 100,000 foreign currency units (FCUs), which Buyox remitted to the
vendor on l/30/x7 (60 days after delivery). Direct exchange rates on the respective dates are as
follows:

8/3/x6 12/1/x6 12/31/x6 1/30/x7

Spot rate ............................................. …. P1.60 P1.64 P1.67 P1.70
Forward rate ...................................... …. P1.60 P1.64 P1.67 P1.70

Also on 8/3/x6, Buyox entered into a 180-day FX forward to buy 100,000 FCUs.

32. What should be the capitalized cost of the equipment?

a. P160,000 c. P167,000
b. P164,000 d. P170,000
33. What is the FX gain or loss recognized in earnings for 20x6 on the foreign currency
commitment?
a. P0 c. P4,000 loss
b. P4,000 gain. d. P7,000 gain
e. P7,000 loss

Items 34 to 37 are based on the following information:

On December 12, 2020, Imp Company entered into three forward exchange contract to purchase
100,000 FC (foreign currency) in 90 days. The relevant exchange rates are as follows:
Forward Rate
Spot Rate (for March 12, 2021)
November 30, 2020……………………… P .87 P .89
December 12, 2020……………………… .88 .90
December 31, 2020……………………… .92 .93

34. Imp entered into the first forward contract to hedge a purchase of inventory in November 2010,
payable in March 2021. At December 31, 2020, what amount of foreign currency transaction
gain from this forward contract should Imp include in net income?
a. P 0 c. P 5,000
b. P 3,000 d. P10,000

35. At December 31, 2020, what amount of foreign currency transaction loss should Imp include in
income from the revaluation of the Accounts Payable of 100,000 foreign currencies incurred as
a result of the purchase of inventory at November 30, 2020 payable in March 2021?
a. P 0 c. P 4,000
b. P 3,000 d. P 5,000

36. Imp entered into the second forward contract to hedge a commitment to purchase
equipment being manufactured to Imp’s specifications. The expected delivery date is March
2021 at which time settlement is due to the manufacturer. The hedge qualifies as a fair value
hedge. At December 31, 2020, what amount of foreign currency transaction gain from this
forward contract should Imp include in net income?
a. P 0 c. P 5,000
b. P 3,000 d. P10,000

Page 6 of 20 pages
ReSA - The Review School of Accountancy AFAR Quiz 2
Coverage: AFAR – 07 to 12 (ReSA Batch 45 – May 2023 Batch)

37. Imp entered into the third forward contract for speculation. At December 31, 2030, what
amount of foreign currency transaction gain from this forward contract should Imp include in
net income?
a. P 0 c. P 5,000
b. P 3,000 d. P10,000

Use the following information for questions 38 and 39:

Certain balance sheet accounts of a foreign subsidiary of Parker Company at December 31, 20x4,
have been restated into pesos as follows:
Restated at
Current Rates Historical Rates
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 47,500 P 45,000
Accounts receivable . . . . . . . . . . . . . . 95,000 90,000
Inventory, at market . . . . . . . . . . . . . . 76,000 72,000
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57,000 54,000
Equipment (net) . . . . . . . . . . . . . . . . . . 142,500 135,000
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . P418,000 P396,000
38. Assuming the functional currency of the subsidiary is the peso, what total should be included in
Parker's consolidated balance sheet at December 31, 20x4, for the above items?
a. P407,500 c. P396,000
b. P418,000 d. P403,500
e. P398,500
39. Assuming the functional currency of the subsidiary is the local currency, what total should be
included in Parker's consolidated balance sheet at December 31, 20x4, for the above items?
a. P407,500 c. P396,000
b. P418,000 d. P403,500
e. P398,500
40. LL Corporation owns a foreign subsidiary with 2,600,000 local currency units (LCU) of property,
plant, and equipment before accumulated depreciation on December 31, 20x4 of this
amount. 1,700,000 LCU were acquired in 20x2 when the rate of exchange was 1.5 LCU = P1,
and 900,000 LCU were acquired in 20x3 when the rate of exchange was 1.6 LCU = P1. The rate
of exchange in effect on December 31, 20x4, was 1.9 LCU = P1. The weighted average of
exchange rates that were in effect during 20x4 was 1.8 LCU = P1. Assuming that the property,
plant, and equipment are depreciated using the straight-line method over a 10-year period
with no salvage value.
How much depreciation expense relating to the foreign subsidiary’s property, plant, and
equipment should be charged in LL’s statement of income for 20x4?
Functional Currency – LCU Functional Currency is Peso
a. P144,444 P169,583
b. P144,444 P144,444
c. P169,583 P144,444
d. P169,583 P169,583
41. On January 1, 20x4, PP Company formed a foreign subsidiary. On February 15, 20x4, PP’s
subsidiary purchased 100,000 local currency units (LCU) of inventory. Of the original inventory
purchased on February 15, 20x4, 25,000 LCU made up the entire inventory on December 31,
20x4. The exchange rates were 2.2 LCU= P1 from January 1, 20x4, to June 30, 20x4, and 2 LCU =
P1 from July 1, 20x4, to December 31, 20x4. The December 31, 20x4, inventory balance for PP’s
foreign subsidiary should be restated in pesos in the amount of:
Functional Currency – LCU Functional Currency is Peso
a. P12,500 P11,364
b. P12,500 P12,500
c. P11,364 P12,500
d. P11,364 P11,364
42. The balance in SM Corp.’s foreign exchange loss account was P15,000 on December 31, 20x2,
before any necessary year-end adjustment relating to the following:
(1) SM had a P20,000 debit resulting from the restatement in pesos of the accounts of its wholly
owned foreign subsidiary for the year ended December 31, 20x2.
(2) SM had an account payable to an unrelated foreign supplier, payable in the supplier’s
local currency on January 27, 20x3. The Philippine peso equivalent of the payable was
P100,000 on the November 28, 20x2, invoice date, and P 106,000 on December 31, 20x2.

Page 7 of 20 pages
ReSA - The Review School of Accountancy AFAR Quiz 2
Coverage: AFAR – 07 to 12 (ReSA Batch 45 – May 2023 Batch)

In SM’s 20x2 consolidated income statement, what amount should be included as foreign
exchange loss in computing net income?
Functional Currency – LCU Functional Currency is Peso
a. P21,000 P41,000
b. P21,000 P21,000
c. P41,000 P21,000
d. P41,000 P41,000

43. On October 1, 20x4, The Tingling Company acquired the net assets of The Greenbank
Company when the fair value of Greenbank's net assets was P116 million and their carrying
amount was P120 million. The consideration transferred comprised P200 million in cash
transferred at the acquisition date, plus another P60 million in cash to be transferred 11 months
after the acquisition date if a specified profit target was met by Greenbank. At the acquisition
date there was only a low probability of the profit target being met, so the fair value of the
additional consideration liability was P10 million. In the event, the profit target was met and the
P60 million cash was transferred. What amount should Tingling present for goodwill in its
statement of consolidated financial position on December 31, 20x4, according to PFRS3
Business combinations?
a. P80 million c. P 94 million
b. P84 million d. P144 million
Items 44 and 45 are based on the following information:
The balance sheet of San Jacinto Company as of December 31, 2018 is as follows:
Assets Liabilities and Stockholders’ Equity
Cash………………………P 175,000 Current liabilities……………P 250,000
Accounts receivable… 250,000 Mortgage payable………… 450,000
Inventories……………. 725,000 Common stock…………….. 200,000
Property, plant and Additional paid-in capital 400,000
Equipment…………… 950,000 Retained earnings………… 800,000
Total Assets…………… P2,100,000 Total Liabilities and SHE… P2,100,000

On December 31, 2018 the Sta. Clara, Inc. bought all of the outstanding stock of San Jacinto
Company for P1,800,000 cash. On the date of purchase, the fair market value of San Jacinto’s
inventories was P675,000, while the fair value of San Jacinto’s property, plant and equipment was
P1,100,000. The fair values of all other assets and liabilities of San Jacinto Company were equal to
their book values.
44. The consolidated balance sheet of Sta. Clara and San Jacinto, after the acquisition of San
Jacinto should reflect goodwill in the amount of –
a. P300,000 c. P500,000
b. P400,000 d. Zero

45. The amount of goodwill recorded in the books of Sta. Clara amounted to:
a. P300,000 c. P500,000
b. P400,000 d. Zero

46. On January 1, 2019, Gold Rush Company acquires 80 percent ownership in California
Corporation for P200,000. The fair value of the non-controlling interest at that time is
determined to be P50,000. It reports net assets with a book value of P200,000 and fair value of
P230,000. Gold Rush Company reports net assets with a book value of P600,000 and a fair
value of P650,000 at that time, excluding its investment in California. What will be the amount
of goodwill that would be reported immediately after the combination under current
accounting practice if the option of full-goodwill method is used?
a. P50,000 c. P30,000
b. P40,000 d. P20,000
47. Lauren Corporation acquired Sarah, Inc. on January 1, 2019, by issuing 13,000 shares of
common stock with a P10 per share par value and a P23 market value. This transaction
resulted in recording P62,000 of goodwill. Lauren also agreed to compensate Sarah’s former
owners for any difference if Lauren’s stock is worth less than P23 on January 1, 2020. On
January 1, 2020, Lauren issues an additional 3,000 shares to Sarah’s former owners to honor the
contingent consideration agreement. Under which of the following is true?

Page 8 of 20 pages
ReSA - The Review School of Accountancy AFAR Quiz 2
Coverage: AFAR – 07 to 12 (ReSA Batch 45 – May 2023 Batch)

a. The fair value of the expected number of shares to be issued for the contingency increases
the Goodwill account balance at the date of acquisition.
b. The Investment account balance is not affected, but the parent’s Additional Paid-In Capital
is reduced by the par value of the extra 3,000 shares when issued.
c. All of the subsidiary’s assets and liability accounts must be revalued for consolidation
purposes based on their fair values as of January 1, 2021.
d. The additional shares are assumed to have been issued on January 1, 2019, so that a
retrospective adjustment is required.
48. Baning, Inc. buys 60% of the outstanding stock of Gra, Inc. in an acquisition that resulted in the
acquisition of goodwill. Gra owns a piece of land that cost P200,000 but was worth P500,000 at
the acquisition date. What value should be attributed to this land in a consolidated balance
sheet at the date of takeover?
a. P120,000 c. P380,000
b. P300,000 d. P500,000
49. Seminarian, Inc. has 100,000 shares of P2 par value stock outstanding. Priests Corporation
acquired 30,000 shares of Seminarian’s shares on January 1, 2015 for P120,000 when
Seminarian’s net assets had a total fair value of P350,000. On July 1, 2018, Priests agreed to buy
an additional 60,000 shares of Seminarian from single stockholder for P6 per share. Although
Seminarian’s share s were selling in the P5 range around July 1, 2018, Priests forecasted that
obtaining control of Seminarian would produce significant revenue synergies to justify the
premium price paid. If Seminarian’s net identifiable assets had a fair value of P500,000 on July 1,
2018, how much goodwill on full fair value basis should Priests report in its post-combination
consolidated balance sheet?
a. P 0 c. P 90,000
b. P60,000 d. P100,000
50. On January 1, 20x1, Turner, Inc. reports net assets of P480,000 although a building (with a 10-year
life) having a book value of P260,000 is now worth P300,000. Renrut Corporation pays P540,000
on that date for a 90 percent ownership interest in Turner. On December 31, 20x3, Turner reports
a Building account of P182,000 and Renrut reports a Building account of P510,000. What is the
consolidated balance of the Building account?
a. P720,000 c. P780,000
b. P724,000 d. P810,000
51. On January 1, 20x1, Harry, Inc. reports net assets of P880,000 although a patent (with a 10-year
life) having a book value of P330,000 is now worth P400,000. Newt Corporation pays P840,000 on
that date for an 80 percent ownership in Harry. On December 31, 20x2, Harry reports total
expenses of P621,000 while Newt reports expenses of P714,000. What is the consolidated total
expense balance on December 31, 20x2?
a. P1,197,800 c. P1,342,000
b. P1,335,000 d. P1,349,000
52. At the end of 2009, Paper Company’s stockholders’ equity includes common stock of P500,000
and additional paid-in capital of P300,000. Paper purchased a 70 percent interest in Slick
Company on January 1, 2009, when the non-controlling interest in Slick had a fair value of
P90,000. No differential arose from the business combination. During 2009, Slick reports net
income of P20,000 and declares dividend of P5,000. The 2009 consolidated balance sheet
includes retained earnings of P630,000 (controlling interest portion).
Determine the consolidated equity on December 31, 2009:
a. P1,430,000 c. P1,524,500
b. P1,457,000 d. P1,526,000
Items 53 through 56 are based on the following information:
The separate incomes (which do not include investment income) of Pell Corporation and Sell
Corporation, its 80% owned subsidiary, for 2016 were determined as follows:
Pell Sell
Sales . . . . . . . . . . . . . . . . . . . . . . P400,000 P100,000
Less Cost of Sales. . . . . . . . . . . . 200,000 60,000
Gross profit . . . . . . . . . . . . . . . . P200,000 P40,000
Other expenses . . . . . . . . . . . . . 100,000 30,000
Separate incomes . . . . . . . . . . P100,000 P10,000
During 2016 Pell sold merchandise that cost P20,000 to Sell for P40,000, and at December 31, 2016
half of these inventory items remained unsold by Sell.

Page 9 of 20 pages
ReSA - The Review School of Accountancy AFAR Quiz 2
Coverage: AFAR – 07 to 12 (ReSA Batch 45 – May 2023 Batch)

53. The Non –controlling interest in net income for 2016:

a. P 0 c. P 8,000
b. 2,000 d. 10,000
54. The Consolidated sales for 2016:
a. P500,000 c. P460,000
b. 480,000 d. 400,000
55. The Consolidated cost of sales for 2016:
a. P230,000 c. P270,000
b. 248,000 d. 300,000
56. The Profit attributable to Equity Holders of Parent or CNI Contributable to controlling Interests for
2016:
a. P108,000 c. P 98,000
b. 100,000 d. 80,000
57. On October 1, 2011, Mud Company a Philippine Company purchased parts from Terra, a
Portuguese Company with payment due on December 1, 2011. If Mud’s 2011 operating
income included no foreign exchange gain or loss, the transaction could have:
a. Resulted in an extraordinary gain
b. Been denominated in Philippine pesos
c. Generated a foreign exchange gain to be reported as a deferred charge on the balance
sheet
d. Generated a foreign exchange loss to be reported as a separate component of stockholders’
equity
58. A Philippine exporter has a Thai baht account receivable resulting from an export sale on April 1
to a customer in Thailand. The exporter signed a forward contract on April 1 to sell Thai baht and
designated it as a cash flow hedge of a recognized Thai baht receivable. The spot rate was
P0.022 on that date, and the forward rate was P0.023. Which of the following did the Philippine
exporter report in net income:
a. Discount expense c. Premium expense
b. Discount revenue d. Premium revenue
Items 59 to 61 are based on the following items:
Norton Co., a Philippine Corporation, sold inventory on December 1, 2018, with payment of 10,000
foreign currencies to be received in sixty days. The pertinent exchange rates were as follows:
(2ndQz-18th)
December 1 Spot Rate: P1.7241
December 31 Spot Rate: P1.8182
January 30 Spot Rate: P1.6666
59. For what amount should Sales be credited on December 1?
a. P 5,500 c. P18,182 e. P16,667
b. P16,949 d. P17,241
60. What amount of foreign exchange gain or loss should be recorded on December 31?
a. P300 gain c. P941 loss
b. P300 loss d. P941 gain
61. What amount of foreign exchange gain or loss should be recorded on January 30?
a. P1,516 gain c. P575 loss
b. P1,516 loss d. P500 loss

Items 62 and 63 are based on the following information:

A subsidiary of Salisbury, Inc. located in a foreign country whose functional currency is the foreign
currency (or the local currency). The subsidiary acquires inventory on credit on November 1, 2019,
for 100,000 foreign currencies (FC) that is sold on January 17, 2020 for 130,000 foreign currencies
(FC). The subsidiary pays for the inventory on January 31, 2020. Currency exchange rates for 1
foreign currency (FC) are as follows:
November 1, 2019 P0.16 = 1 FC
December 31, 2019 0.17 = 1
January 17, 2020 0.18 = 1
January 31, 2020 0.19 = 1
Average for 2020 0.20 = 1

Page 10 of 20 pages
ReSA - The Review School of Accountancy AFAR Quiz 2
Coverage: AFAR – 07 to 12 (ReSA Batch 45 – May 2023 Batch)

62. What amount does Salisbury’s consolidated balance sheet report for this inventory at
December 31, 2019?
a. P16,000 c. P18,000
b. P17,000 d. P19,000
63. What amount does Salisbury’s consolidated income statement report for cost of goods sold for
the year ending December 31, 2020?
a. P16,000 c. P18,000
b. P17,000 d. P19,000
Items 64 and 65 are based on the following information:
64. A Clarke Corporation subsidiary buys marketable equity securities and inventory on April 1, 2020,
for 100,000 foreign currencies (FC) each. It pays both items on June 1, 2020, and they are still on
hand at year-end. Inventory is carried at cost under the lower-of-cost-or-market rule. Currency
exchange rates for 1 FC follow:
January 1, 2020……………………………………………… P0.15 = 1 FC
April 1, 2020…………………………………………………… 0.16 = 1
June 1, 2020…………………………………………………… 0.17 = 1
December 31, 2020………………………………………… 0.19 = 1
Assume that the foreign currency is the subsidiary’s functional currency What balances does a
consolidated balance sheet report as of December 31, 2020?
a. Marketable equity securities = P16,000 and Inventory = P16,000.
b. Marketable equity securities = P17,000 and Inventory = P17,000.
c. Marketable equity securities = P19,000 and Inventory = P16,000.
d. Marketable equity securities = P19,000 and Inventory = P19,000.
65. Assume that the peso is the subsidiary’s functional currency. What balances does a
consolidated balance sheet report as of December 31, 2020?
a. Marketable equity securities = P16,000 and Inventory = P16,000.
b. Marketable equity securities = P17,000 and Inventory = P17,000.
c. Marketable equity securities = P19,000 and Inventory = P16,000.
d. Marketable equity securities = P19,000 and Inventory = P19,000.

66. The Roel Company acquired equipment on January 1, 2019 at a cost of P800,000, depreciating
it over 8 years with a nil residual value. On January 1, 2022 The Muldon Company acquired
100% of Roel and estimated the fair value of the equipment at P460,000, with a remaining life
of 5 years. This fair value was not incorporated into Roel's books and the depreciation expense
continued to be calculated by reference to original cost.
What adjustments should be made to the depreciation expense for the year and the
statement of financial position carrying amount in preparing the consolidated financial
statements for the year ended December 31, 2023?
Depreciation expense Carrying amount
a. Increase by P8,000 Increase by P24,000
b. Increase by P8,000 Decrease by P24,000
c. Decrease by P8,000 Increase by P24,000
d. Decrease by P8,000 Decrease by P24,000

67. As January 1, 2019, Par Corp. sold a warehouse with a book value of P80,000 and a 20-year
remaining useful life to its wholly-owned subsidiary, Strata Corporation, for P120,000. Both Par
and Strata use the straight-line depreciation method. On December 31, 2019, the separate
company financial statements contained the following balances connected with the
warehouse:
Par Strata
Gain on sale of warehouse P 40,000
Depreciation expense P 6,000
Warehouse 120,000
Accumulated depreciation 6,000
A working paper entry to consolidate the financial statements of Par and Strata on December
31, 2019 will include:
a. A debit to gain on sale of warehouse for P38,000.
b. A debit to gain on sale of warehouse for P40,000.
c. A debit to accumulated depreciation for P2,000.
d. A credit to depreciation expense for P6,000.

Page 11 of 20 pages
ReSA - The Review School of Accountancy AFAR Quiz 2
Coverage: AFAR – 07 to 12 (ReSA Batch 45 – May 2023 Batch)

Suggested Answers/Solutions

1. d
Consideration transferred:
Shares: (100,000 shares x P6.20)……………………… P620,000
Contingent consideration………………………………. 184,000
Total……………………………………………………. P804,000
Less: Fair value of net identifiable assets acquired:
Current assets………………………………………… P100,000
Equipment……………………………………………… 150,000
Land …………………………………………………… 50,000
Buildings ……………………….……………………… 300,000
Liabilities………………………………………………. ( 80,000) 520,000
Goodwill……………………………………………………. P284,000

The P184,000 is one classical example of contingencies when the future income of the acquirer is regarded
as uncertain; the agreement contains a clause that requires the acquirer to provide additional
consideration to the acquiree if the income of the acquirer is not equal to or exceeds a specified amount
over a specified period.

2. d
Goodwill, 1/1/2019……………………………………………………............ P 284,000
Less: Adjustment on contingent consideration (P184,000 – P170,000) 14,000
Goodwill, 8/1/2019……………………………………………………............. P 270,000
Changes that are the result of the acquirer obtaining additional information about facts and circumstances
that existed at the acquisition date, and that occur within the measurement period (which may be a
maximum of one year from the acquisition date) are recognized as adjustments against the original
accounting for the acquisition (and so may impact goodwill) – see Section 11.3.[PFRS 3 par. 58]

Incidentally, the entry to record the revision of goodwill should be:

Estimated liability for contingent consideration…. 14,000
Goodwill………………………………………… 14,000
3. a – refer to Nos. 1 and 2 for further discussion.

4. c
Deficiency: (P16 – P10) x 100,000 shares issued to acquire…………………….P 600,000
Divided by: Fair value of share………………………………………………………P 10
Added number of shares to issue…………………………………....................... 60,000
An example of contingencies is where the acquirer issues to the acquiree and the acquiree is
concerned that the issue of these shares may make the market price of the acquirer’s shares
decline over time. Therefore, the acquirer may offer additional cash or shares if the market
price falls below a specified amount over a specific period of time.

5. b – (P520,000 – P60,000 = P460,000), refer to No. 19 for further discussion if market price falls below
a specified amount.
Changes resulting from events after (post-combination changes) the acquisition date (e.g.
meeting an earnings target, reaching a specified chare or reaching a milestone on research
and development project) are not measurement period adjustments. Such changes are
therefore accounted for separately from the business combination. The acquirer accounts for
changes in the fair value of contingent consideration that are not measurement period
adjustments as follows:
1. contingent consideration classified as equity is not remeasured and its subsequent
settlement is accounted for within equity; and
2. contingent consideration classified as an asset or liability…
The problem on hand falls under No. 1, so no adjustment would be required to goodwill but
accounted for within the equity section. Incidentally, the entry would be:
Paid-in capital in excess of par………………………….. 60,000
Common stock, P1 par…………………………….. 60,000

Page 12 of 20 pages
ReSA - The Review School of Accountancy AFAR Quiz 2
Coverage: AFAR – 07 to 12 (ReSA Batch 45 – May 2023 Batch)

6. c
Par value of shares outstanding before issuance P200,000
Par value of shares outstanding after issuance 250,000
Par value of additional shares issued P 50,000
Divided by: No. of shares issued* __12,500
Par value of common stock P 4
*Paid-in capital before issuance (P200,000 + P350,000) P 550,000
Paid-in capital after issuance (P250,000 + P550,00) 800,000
Paid-in capital of share issued at the time of exchange P250,000
Divided by: Fair value per share of stock P 20
Shares issued 12,500
7. c – refer to No. 6

8. a
Consideration transferred: Shares – 12,500 shares P250,000
Less: Goodwill 56,000
Fair value of identifiable net assets acquired P194,000

9. d
Billed Price Cost Allowance
Merch. Inventory, 12/31/20x4 *P12,000 P10,000 P 2,000
Shipments 9,600 8,000 1,600
Cost of Goods Sold P 3,600
*P2,000 / 20% = P10,000 + P2,000 = P12,000.
Merchandise inventory, December 1, 20x4…………………………………P 15,000
Less: Shipments from home office at billed price*………………………… 12,000
Merchandise from outsiders……………………………………………………P 3,000
10. c
125% 100% 25%
Billed Price Cost Allowance
Merchandise inventory, 1/1/x4 40,000
Shipments 250,000
Cost of goods available for sale 290,000
Less: MI, 12/31/x4 (P60,000 x 80%) 60,000
Overvaluation of CGS(230,000x 25/125) 230,000 46,000*

11. b
Sales (P600,000 + P300,000) ……………………………………… P 900,000
Less: Cost of goods sold
Merchandise inventory, beg.
[P100,000 + (P40,000/1.25)] ……………………….…… P 132,000
Add: Purchases…………………………………………… 350,000
Cost of goods available for sale……………………… P 482,000
Less: MI, ending [P30,000 + (P60,000/1.25)] ………… 78,000 404,000
Gross profit……………………………………………………… P 496,000
Less: Expenses (P120,000 + P50,000)………………………. _ 170,000
Net Income …………………………………………………. P 326,000

12. d
Freight actually paid by:
Home Office……………………………………………………………………..P 500
Branch P………………………………………………………………………….. 700
Total………………………………………………………………………………..P 1,200
Less: Freight that should be recorded…………………………………………….. 800
Excess freight……………………………………………………………………………P 400

13. c – within the measurement period, since the term “at the date of…” is an indication that the is
an existing facts and circumstance on the acquisition date.
Goodwill 400,000
Estimated Lawsuit liability 400,000

Page 13 of 20 pages
ReSA - The Review School of Accountancy AFAR Quiz 2
Coverage: AFAR – 07 to 12 (ReSA Batch 45 – May 2023 Batch)

14. b – not within the measurement period and it is considered as a “subsequent event”, then
changes on estimates will course through “gain or loss…”
Loss on lawsuit 400,000
Estimated Lawsuit liability 400,000

15. d [P99,000 + (P26,000 + P19,000 increase)] or (P99,000 + P45,000, FV) = P144,000

Parent Subsidiary
BV BV Dr. Cr. CBS
Inventory 99,000 26,000 *19,000 144,0000
*P45,000 – P24,000 = P19,000
16. d
Total Assets of P P 960,000
Less: Investment in S (330,000)
Book value of assets of P P 630,000
Book value of assets of S (no push-down acctg.) 405,000
Book value reported by P and S P1,035,000
Increase in inventory (P45,000 – P26,000) 19,000
Increase in land (P45,000 - P24,000) 21,000
Increase in plant assets [P300,000 – (P225,000 – P45,000)] 120,000
Goodwill (full) _____0
Total assets reported P1,195,000

If partial-goodwill – same answer with full-goodwill/fair value basis, since there is no goodwill
but a gain to be closed to retained earnings account.

17. d - No entry should be made in the books of the home office, since the freight should be
chargeable to the branch and the payment of the freight was made by the branch.

18. a - P720,000 = P500,000 + P400,000 - P200,000 +P 20,000

19. d
Cost method: P60,000 x 80% = P48,000
Equity Method:
Equity In Subsidiary Income/Investment Income

*UPEI of Parent 20,000 96,000 NI-S (P120,000 x 80%)

76,000
* P200,000 x ½ = P100,000 x 20% = P20,000 x 100% (downstream) = P20,000

20. D - Downstream situation

S Company’s net income from own/separate operations P120,000
x: NCI % 20%
P 24,000
21. a
Combined building amounts P650,000
Less: Intercompany gain __30,000
Consolidated buildings P620,000

Combined Accumulated Depreciation P195,000

Less: Piecemeal recognition of gain ___3,000
Consolidated accumulated depreciation P192,000
22. c
Original cost of P 100,000

Accumulated depreciation, 1/1/20x6 (P100,000 - P20,000) P 80,000

Add: Additional depreciation (P100,000 – P80,000) / 5 years x 2 years ____8,000
Accumulated depreciation, 12/31/20x7 P 88,000

Page 14 of 20 pages
ReSA - The Review School of Accountancy AFAR Quiz 2
Coverage: AFAR – 07 to 12 (ReSA Batch 45 – May 2023 Batch)

23. c
Sales price P 45,000
Less: Book value
Cost P100,000
Less: Accumulated depreciation __80,000 __20,000
Unrealized gain on sale P 25,000
Less: Realized gain - depreciation (P25,000 / 5 years) x 2 years __10,000
Net unrealized gain, 12/31/20x7 P 15,000

24. b
Eliminating entries:
12/31/20x7: subsequent to date of acquisition
Realized Gain – depreciation
Accumulated depreciation 5,000
Depreciation expense 5,000
[P45,000 - (P100,000 - P80,000) = P25,000 / 5 years or P4,000 – P9,000 = P5,000

“Should be in CFS” Parent – Sayex “Recorded as” Subsidiary - Payex

Depreciation expense Depreciation expense
(P20,000 /5 years) 4,000 (P45,000 / 5 years) 9,000
Acc. Depreciation 4,000 Acc. depreciation 9,000

25. c
140% 100% 40%
Billed Price Cost Allowance
Merchandise inventory, beg 0
Shipments 168,000
Cost of goods available for sale 168,000
Less: MI, end 50,400
Overvaluation of CGS/RPBSales 117,600 x 40/140 *33,600

26. c
Sales P 134,400
Less: Cost of goods sold from home office at BP
Inventory, December 1 P 0
Shipment from HO 168,000
COGAS P 168,000
Less: Inventory, December 31 50,400 117,600
GP P 16,800
Less: Expenses 10,800
Net income from own operations P 6,000
Add: Overvaluation of CGS/Real. Profit – Branch Sales * 33,600
True Net Income P 39,600
27. c - P50,400, billed price x 40/140 = P 14,400
28. a
Foreign exchange loss before adjustments…………………………………………………P 15,000
Add (deduct): adjustments
Gain on accounts payable – buyer (P64,000 – P60,000)…………………………....( 4,000)
Adjusted foreign exchange loss in the income statement.………………………………P 11,000
The P8,000 loss resulting from translation of a subsidiary is presented at the stockholders’ equity
section of the consolidated balance sheet.
29. b
Fair value of Forward Contract:
September 1, 2019 (no initial fair value –
PFRS 9 …..…………………………………………………………………………… P 0
December 31, 2019:
9/1/2019: Current (original) Forward rate
(HK$6,000/HK$7.7 ………………………………………………. P779,221
12/31/2019: Spot rate (HK$6,000,000/HK$8.0) …………………… 750,000
Forex loss on forward contract …………………………………………………........ 29,221
Fair value of forward contract, 12/31/20x7 (a payable) …………………………….. P29,221

Page 15 of 20 pages
ReSA - The Review School of Accountancy AFAR Quiz 2
Coverage: AFAR – 07 to 12 (ReSA Batch 45 – May 2023 Batch)

*Under the forward contract, Ramus must pay P779,2921 to purchase HK$6,000,000 on
January 1, 2020. Equivalently, Ramus can make a settlement payment if the peso value of
HK$6,000,000 on January 1, 2020, is less than P779,221, and it can receive a payment if
the value is more. In this case, the value is P750,000 (HK$6,000,000/8.0). So Ramus must
make a payment.

30. b – refer to No. 29 computation

31. d
HK$6,000,000/HK$7.7 = P 779,221. The notional amount is the total amount of the asset or
liability that underlies the derivative contract. The national amount can be misleading
because the value of a derivative is a function of changes in prices or interest rates and is
normally equal to just a small fraction of the national amount of the underlying asset.
A notional amount may be expressed in the number currency units, shares, bushels, pound
or other units specified in the financial instrument.
The P779,221 is the national amount of the forward contract, but has a fair value of P0 on
the day the forward agreement is signed, e.g. September 1, 2019. In summary, there might
be a possibility that notional amounts grossly overstate/understate both the fair value and
the potential cash flows of the derivative.
32. a
December 1, 20x6: Spot rate – P1.64 x 100,000....…………............. P164,000
Less: Firm Commitment – liability (credit balance)
8/3/20x6: Original (120-day) forward rate…………………….P 1.60
12/1/20x6: Remaining (60-day) forward rate………………… 1.64
Loss on Firm Commitment………………………………………....P 0.04
Multiplied by: No. of FCs…………………………………………… 100,000 4,000
Value of machine...........................……………………………………… P160,000
33. c - refer to No. 32 (Note: There is no more commitment after the date of transaction which is
12/1/20x6)
34. b
12/12/2020: Original forward rate (90 days) ………………………………… P .90
12/31/2020: Current (remaining) forward rate (71 days) ………………… .93
Forex gain per unit ………………………………………………………………. P .03
Multiplied by: Number of foreign currencies ……………………………….. 100,000
Foreign exchange gain due to hedging of exposed liability ………….. P 3,000(b)
Or,
Manage an exposed position:
Value the forward exchange contract (FEC) at its fair value, measured by changes in the
forward exchange rate (FER). Note that the question asks only for the effect on income from
the forward contract transaction; thus, any effect on income from the foreign currency
denominated account payable is not included in the answer.
FER, 12/12/20 P.90
FER, 12/31/20 P.93
AJE:
Forward Contact Receivable 3,000
Foreign Exchange Gain 3,000
Revalue forward contract:
P3,000 = 100,000 FCU x (P.93 - P.90) change in forward rates

Foreign Exchange Loss 10,000

Account Payable 10,000
Revalue foreign currency payable:
P10,000 = 100,000 FCU x (P.98 - P.88) change in spot rates
35. d – (P.87 – P.92) x 100,000 = P5,000 loss;
Or
Importing transaction
12/12/2020: Spot rate (date of transaction) ……………………………………. P .87
12/31/2020: Spot rate (balance sheet date) …………………………………… .92
Forex gain per unit …………………………………………………………………… P .05
Multiplied by: Number of foreign currencies …………………………………… 100,000
Foreign exchange loss due to revaluation of accounts payable ………… P 5,000 (d)

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ReSA - The Review School of Accountancy AFAR Quiz 2
Coverage: AFAR – 07 to 12 (ReSA Batch 45 – May 2023 Batch)

36. b
12/12/2020: Original forward rate (90 days) ………………………………………..... P .90
12/31/2020: Current (remaining) forward rate …………………………………….... .93
Forex gain per unit ………………………………………………………………………... P .03
Multiplied by: Number of foreign currencies ……………………………………….... 100,000
Foreign exchange gain due to foreign currency commitment ………………. P 3,000
Or,
Hedge of a Firm Commitment:
Value FEC based on changes in forward rate.
AJE:
Forward Contract Receivable 3,000
Foreign Exchange Gain 3,000
Revalue forward contract, using the forward rates.
Foreign Exchange Loss 3,000
Firm Commitment 3,000
Recognize loss on firm commitment.
Again, note that the question asks only about the effect on income from the forward contract,
not the underlying firm commitment portion of the transaction
37. b
12/12/2020: Original forward rate (90 days) ………………………………………….. P .90
12/31/2020: Current (remaining) forward rate (71 days) …………………………… .93
Forex gain per unit ………………………………………………………………………… P .03
Multiplied by: Number of foreign currencies ………………………………………… 100,000
Foreign exchange gain due to speculation …………………………………………. P 3,000(b)
Or,
Speculation:
Value forward exchange contract at fair value based on changes in the forward rate
AJE:
Forward Contract Receivable 3,000
Foreign Exchange Gain 3,000
38. a
The peso is the functional currency, so a remeasurement (or temporal method) is appropriate. Cash and
accounts receivable are monetary assets remeasured at current exchange rate of P47,500 and P95,000,
respectively. Inventory is a nonmonetary asset (carried at market value) are remeasured at the current
exchange rate of P76,000. Land and equipment, both nonmonetary assets (carried at cost) are
remeasured at the historical exchange rate of P54,000 and P135,000, respectively.
39. b
Because the functional currency is the local currency, a translation (or current rate method) is required. All
assets accounts are translated at current rates.
40. a
LCU – it is assumed that historical rate is not practicable (despite the presence of it), then PAS 21 requires
the use of average rate [(2,600,000 - 0)/10 years x 1.8LCU per peso = P144,444]
Peso - expense related to nonmonetary asset such as depreciation should be remeasured using the
historical exchange rate (exchange rate when the equipment was acquired), i.e., :
20x2: (1,700,000 LCU – 0)/10 years = 170,000 LCU /1.5 LCU per peso..P113,333
20x3: (900,000 LCU – 0)/10 years = 90,000 LCU /1.6 LCU per peso…… 56,250
Total………………………………………………………………………………P169,583
41. a
LCU – the current rate method is used since the term “translated” was used, a translation (or current rate
method) is required. Inventory account is translated at current rate (25,000 LCU / 2 LCU per peso =
P12,500)
Peso – the peso is the functional currency, so a remeasurement (or temporal method) is appropriate.
Inventory is a nonmonetary asset (carried at cost) is remeasured at the historical exchange rate of 2.2 LCU
per peso (25,000 LCU / 2.2 LCU per peso = P11,364)
42. a
LCU Peso
is Functional Currency is Functional Currency
P15,000 = Preadjusted foreign P15,000 = Preadjusted foreign
exchange loss exchange loss
6,000 = Foreign currency 6,000 = Foreign currency
transaction loss transaction loss
($100,000 - $106,000) 20,000 = Remeasurement gain
P21,000 = Foreign exchange P41,000 = Net foreign
Loss exchange loss

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ReSA - The Review School of Accountancy AFAR Quiz 2
Coverage: AFAR – 07 to 12 (ReSA Batch 45 – May 2023 Batch)

Note: The term “restatement” used by foreign subsidiary is an indication that the
temporal or remeasurement method is used.
43. c
CT: Cash/Monetary asset………………………………………………………………………P 200 million
Add: Fair value of contingent consideration……………..........................................… 10 million
Consideration transferred………………………………………………………………..........P 210 million
Less: FV of identifiable A & L of Homer (100% x P116 million)………………………....... 116 million
Goodwil……………………………………………………………………………………………P 94 million

44. a: [P1,800,000 – (P175,000 + P250,000 + P675,000 + P1,100,000 – P250,000 – P450,000)

= P300,000

45. d – the entry in the books of Parent to record the acquisition:

Investment in Subsidiary...................................................................... 300,000
Cash.......................................................................................... 300,000
46. d
(80%) Fair value of consideration given…………………............. P 200,000
(20%) Fair value of non-controlling interest……......................... 50,000
(100%) Fair value of Subsidiary………………………………………… P 250,000
Less: Book value of Stockholders’
Equity of Subsidiary)……………………………….......... 200,000
Allocated Excess.………………………………………………. P 50,000
Less: Over/Undervaluation of net assets
(P230,000 – P200,000)…………………................... 30,000
Goodwill (Full/Gross-up).….……………………………......... P 20,000
47. a - based on future stock price at the date of acquisition
48. d - The acquisition method consolidates assets at fair value at acquisition date regardless of the
parent’s percentage ownership.

49. b – step-acquisition
(60%) Fair value of consideration given:
Shares: 60,000 shares x P6, fair value……….................... P 360,000
(30%) Fair value on previously held equity interest
30,000 shares x P5, fair value………………...................... 150,000
(10%) Fair value of non-controlling interest
(100,000 – 60,000 – 30,000) x P5, fair value......... 50,000
(100%) Fair value of Subsidiary ..…………………............................ P 560,000
Less: Fair value of Net Assets (Stockholders’
Equity of Subsidiary)*….………................................... 500,000
Goodwill (Full/Gross-up).………………………...................... P 60,000
*Alternatively, book value of stockholders’ equity should be deducted (refer to previous problems)
but the difference should be allocated to over/under valuation of assets and liabilities. The
problem on hand does not apply this approach so instead, the fair value of net assets (or
stockholders’ equity) was used. Eventually, both approaches will yield the same results (in this case,
goodwill).
50. a
PP - building ............................................................................................................. P510,000
TT building acquisition-date fair value P300,000
Amortization for 3 years (10-year life) (90,000) 210,000
Consolidated buildings ........................................................................................... P720,000
-OR-
PP - building .............................................................................................................. 510,000
TT building 12/31/x4 P182,000
Excess acquisition-date fair value allocation 40,000
Excess amortization for (P40,000/ 10 x 3 years) (12,000) 210,000
Consolidated buildings ........................................................................................... P720,000
51. c
Harry expense – 20x2…………………………………………………………………… P 621,000
Newt expenses – 20x2…………………………………………………………………… P714,000
Amortization of allocated excess
(P400,000 – P330,000) / 10 years…………………… 7,000 721,000
Consolidated total expense for 20x2..…………………….. P1,342,000

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ReSA - The Review School of Accountancy AFAR Quiz 2
Coverage: AFAR – 07 to 12 (ReSA Batch 45 – May 2023 Batch)

52. c
Consolidated Equity:
Attributable to Equity Holders’ of Parent / Controlling Interest:
Common stock………………………………… P 500,000
Additional paid-in capital.....…………………. 300,000
Retained earnings………………………………. 630,000
Equity Holders’ of Parent/Controlling Interest… P 1,430,000
Non-controlling interest:
[P90,000 + (P20,000 – P5,000) x 30%................. 94,500
Consolidated Equity………..…………………………….. P 1,524,500
53. b
Parent Subsidiary
(CI) (NC-CNI)
Net Income from own operations (Separate Income):
P 100,000
S 8,000 2,000
UPEI of S (P1,200,000 x 50/150) - downstream ( 10,000) _____
98,000 2,000
54. c
Consolidated Sales:
Sales before consolidation:
Pell………………………………………………………………………………………………..P 400,000
Sell………………………………………………………………………………………………… 100,000
Combined Sales…………………………………………………………………………………………..P 500,000
Less: Intercompany Sales to be eliminated*………………………………………………….. 40,000
Consolidated Sales Revenue…………………………………………………………………………P 460,000

*Incidentally, the eliminating entry for Sales and Purchases would be as follows:
Sales…………………………………………………………………………………….. 40,000
Cost of Sales (or Purchases)………………………………………… 40,000

55. a
Consolidated Cost of Sales:
Cost of Sales before consolidation:
Pell…………..……………………………………………………………………………………..P 200,000
Sell…………………… ……………………………………………………………………………. 60,000
Combined Cost of Sales……………………………………………………………………………….P 260,000
Less: Intercompany Cost of Sales (or Purchases) to be eliminated*………………….. 40,000
Add: Eliminating entry for 100% UPEI of S**..……………………………………………….. 10,000
Consolidated Cost of Sales…………………………………………………………………………….P 230,000

Further, the additional eliminating entries are as follows:

**100% UPEI of S:
Cost of Sales (Ending Inventory in Income Statement)………………… 10,000
Inventory (Ending Inventory in Balance Sheet)……………….. 10,000
P40,000 x 50% = P20,000 x (P20,000/P40,000) = P10,000

56. c – refer to No. 53

57. b

58. d – (forward rate > spot rate – premium) seller’s point of view considered as premium revenue
since it was sold at a higher rate.

59. d – (P1.7241, spot rate on the date of transaction x 10,000 foreign currencies = P17,241.)

60. d – (P1.7241 – P1.8182 = P.0941 gain x 10,000 foreign currencies = P941 gain)

61. b – (P1.8182 – P1.6666 = P.1516 loss x 10,000 foreign currencies = P1,516 loss)

62. b – (P.17, current rate x 100,000 foreign currencies = P17,000)

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ReSA - The Review School of Accountancy AFAR Quiz 2
Coverage: AFAR – 07 to 12 (ReSA Batch 45 – May 2023 Batch)

63. c – [100,000 foreign currencies x P.18, Note: (PLEASE be careful) since the historical rate for
January 17, 2020 is given) = P18,000 – in case there is no Historical Rate given then Average
Rate should be applied]

64. d The foreign currency is the functional currency, so a translation (or current rate method) is
appropriate. All assets are translated at the current exchange rate of P.19.

65. c The peso is the functional currency, so a remeasurement (or temporal method) is
appropriate. Inventory is a nonmonetary asset (carried at cost) is remeasured at the
historical exchange rate of P.16. Marketable equity securities is a nonmonetary asset
(carried at market value) are remeasured at the current exchange rate of P.19.

66. d
Fair value adjustments under PFRS 3 par. 36 not reflected in the books of the parent but it must
be adjusted for purposes of consolidation.
Annual depreciation expense:
Roel’s depreciation: (P800,000 – P0)/8 years……………………………………P 100,000
Muldon’s depreciation: P460,000 /5……………………………………………… 92,000
Decrease……………………………………………………………………………….P 8,000
Net carrying/book value, 12/31/2013:
Roel’s book value: [P800,000 – (P800,000/8 years x 5 years)]……………….. P 300,000
Muldon’s book value (note): [P460,000 – (P460,000/5 x 3 years)]…………... 276,000
Decrease……………………………………………………………………………… P 24,000

67. c
The eliminating entries are:
a. 100% unrealized gain and restore the original book value, date of sale, 1/1/2019:
Gain on sale……………………………………………………………………………………………… 40,000
Warehouse……………………………………………………………………………………… 40,000

b. 100% realized gain thru depreciation, 12/31/2019:

Accumulated depreciation……………………………………………………………… 2,000
Depreciation expense (P40,000/20 years)……… 2,000

The entry made in the books of Strata (Downstream Sales):

Depreciation expense (P120,000/20 years)…………………… 6,000
Accumulated depreciation……………………………………………… 6,000

The entry should be made in the books of Par (correct entry for purposes of consolidation):
Depreciation expense…………………………………………………….………………… 4,000
Accumulated depreciation……………………………………………… 4,000

Therefore, the depreciation appearing in the books of Strata is overstated, so there’s a need to
reduce it by P2,000.

Goodluck and GOD BLESS!!!

*There are only two things in the world to worry over; the things you can control,
and the things you can’t control. Fix the first, forget the second.*
*No act of kindness, no matter how small is ever wasted. *
*One individual plus courage is a majority. *
*There is no great and no small To the Soul that make s it all:
And where it comes, all things are equal; And it comes everywhere.*
***Ask not for a larger garden, but for a finer seeds***
***Ask not for a lighter burden, but for a broader shoulder***
***There are divine things more beautiful than words can tell***
*The only thing that stands between a man and what he wants from life is often merely the will to try it
and the faith to believe that it is possible*
*In every trial, there’s a treasure waiting to be unearthed*
*Never take direction from a crowd for your personal life. And never choose to quit just because
somebody disagrees with you*
*Opportunities are usually disguised as hardwork, so most people don’t recognize them*

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