iCARE BATCH 9 AFAR FINAL PREBOARDS

1. Under IFRS 15, when shall the incremental cost of obtaining a contract with a customer be
recognized as an asset?
a. When it is probable that future economic benefits will flow to the entity and the cost can
be measured reliably.
b. When the entity expects to recover those costs.
c. When the costs will provide economic benefits for a period less than 12 months.
d. When the costs will decrease the revenue in the future periods.

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

3. If the total contributed capital of all the partners is equal to the total agreed capitalization of new
partnership in admission of new partner by investment, which is true?
a. Asset revaluation is recognized.
b. Impairment loss is recognized.
c. Bonus to or from new partner is recognized.
d. Any of the above.

4. In admission of new partner by investment, the total contributed capital of all the partners is more
than the total agreed capitalization of new partnership but the capital credit of new partner is less
than his capital contribution. Which of the following statements is correct?
a. There has been asset revaluation with bonus to new partner.
b. There has been asset impairment with bonus to old partners.
c. There has been bonus given to old partners without any revaluation or impairment.
d. There has been asset revaluation with bonus to old partners.

5. In the statement of activities, expenses of nonprofit organization shall be recorded only as reduction
from
a. Temporarily restricted net assets
b. Unrestricted net assets
c. Permanently restricted net assets
d. Current liability

6. Last year, a nonprofit organization received a contribution with a donor restriction for educational
scholarship of its members. In the current year, the nonprofit organization fully spent the said
contribution for the intended purpose. What is the effect of this expenditure to current year’s change
in net assets?
a. It will increase the temporarily restricted net assets.
b. It will not affect the unrestricted net assets.
c. It will not affect the total net assets.
d. It will decrease the permanently restricted net assets.

7. Under IFRS 11, when the joint arrangement is structured through a separate vehicle, it shall be
properly classified as
 a. Always joint venture
b. Always joint operation
c. Joint venture or joint operation depending on the accounting policy of the venture.
d. Joint venture or joint operation depending the structure and form of the arrangement,
the terms agreed by the parties in the contractual arrangement and other facts and
circumstances.

8. Under IFRS 11, how shall the cash or property dividend received by a joint venturer from its venture
be accounted for?
a. It shall be treated as dividend income presented in profit or loss.
b. It shall be treated as dividend income presented in other comprehensive income.
c. It shall be treated as addition to investment in joint venture account.
d. It shall be treated as deduction from investment in joint venture account.

9. Under IFRIC 12, if the concession arrangement provides that the operator has an unconditional
contractual right to receive a specified or determinable amount of cash or another financial asset
from the government in return for constructing or upgrading a public sector asset, and then
operating and maintaining the asset for a specified period of time, the infrastructure asset shall be
accounted for by the operator as
a. Property, plant and equipment
b. Intangible asset
c. Financial asset
d. Prepaid asset

10. Under IFRIC 12, if the concession arrangement provides that the operator has a right to charge for
use of a public sector asset that it constructs or upgrades and then must operate and maintain for a
specified period of time but the right is not an unconditional right to receive cash because the
amounts are contingent on the extent to which the public uses the service, the infrastructure asset
shall be accounted for by the operator as
a. Property, plant and equipment
b. Intangible asset
c. Financial asset
d. Prepaid asset

11. Which of the following transactions will decrease the normal balance of the Pasay branch account in
the book of the home office?
a. Net income recognized by Pasay branch
b. Collection by Panay branch of Pasay branch’s receivable
c. Debit memo received by the home office from Panay branch
d. Credit memo received by the home office from Pasay branch

12. Which of the following is the best reason why the net income reported by the branch is less than the
net income computed by the home office concerning the branch’s operation?
a. Overstatement of goods in the beginning inventory of the branch for the goods coming
from the home office.
b. Understatement of goods in the beginning inventory of the branch for the goods coming
from the outside supplier.
c. Understatement of cost of goods sold reported by the branch for the goods coming from
the outside supplier.
d. Overstatement of cost of goods sold reported by the branch for the goods coming from
the home office.
13. Which of the following cash in bank accounts is used by national government agencies for
disbursement?
a. Cash Treasury/Agency Deposit Regular
b. Cash – Modified Disbursement System – Regular
c. Cash in Bank Land Bank of the Philippines
d. Cash in Bank Bangko Sentral ng Pilipinas

14. Which of the following cash in bank accounts is used by national government agencies for cash
remittances to Bureau of Treasury?
a. Cash Treasury/Agency Deposit Regular
b. Cash – Modified Disbursement System – Regular
c. Cash in Bank Land Bank of the Philippines
d. Cash in Bank Bangko Sentral ng Pilipinas

15. Under IAS 21, in which of the following items will foreign currency gain or loss not be recognized?
a. Accounts receivable
b. Interest payable
c. Sales
d. Dividends payable

16. Under IAS 21, foreign exchange differences arising from translating foreign currency denominated
transactions to functional currency shall be recognized in
a. Other comprehensive income with reclassification adjustment
b. Other comprehensive income without reclassification adjustment
c. Retained earnings
d. Profit or loss

17. In a manufacturing company, which of the following product costs shall be considered as conversion
cost but not prime cost?
a. Irrecoverable import duties of direct materials
b. Employee benefits of factory worker
c. Foreign exchange difference on inventory loan
d. Amortization cost of the patent covering a machinery used for production

18. In a manufacturing company, which of the following shall be considered as period cost?
a. Employee benefits of factory security guard
b. Freight out, warranty cost and sales commission
c. Costs of normal waste
d. Storage costs of work in process inventory

19. Under IFRS 3, in a business combination through acquisition of less than 100% of common stocks of
the subsidiary, the noncontrolling interest in the net assets of the acquiree shall be measured initially
at
a. fair value
b. the present ownership instruments' proportionate share in the recognised amounts of the
acquiree's identifiable net assets
c. Either A or B
d. Neither A nor B
20. Under IFRS 3, what is the proper treatment of contingent liability assumed in a business
combination?
a. It shall be ignored because it is a possible obligation that arises from past events and
whose existence will be confirmed only by the occurrence or non-occurrence of one or
more uncertain future events not wholly within the control of the entity.
b. It shall be disclosed only because it is not probable that an outflow of resources
embodying economic benefits will be required to settle the obligation.
c. It shall be accrued or recognized as of acquisition date if it is a a present obligation that
arises from past events and its fair value can be measured reliably even it is not probable
that an outflow of resources embodying economic benefits will be required to settle the
obligation.
d. None of the above.

21. XYZ Corporation, a financially distressed corporation, provided the following estimates in preparing its
deficiency statement:
Share Capital P400,000

Retained Earnings (300,000)

Estimated amounts related to the entity’s liquidation:

Estimated gain from realization 200,000

Estimated loss from realization 520,000

Unrecognized assets 250,000

Unrecognized liabilities 150,000

How much is the estimated deficiency?

A) P120,000
B) P320,000
C) P480,000
D) P280,000

Estimated gains on realization of assets 200,000

Estimated losses on realization of assets (520,000)

Contingent assets / Unrecognized Assets 250,000

Contingent liabilities / Unrecognized Liabilities (150,000)

 Total (220,000)

SHE, Beg 100,000

SHE, End (120,000)

22. Statement 1: The statement of realization and liquidation contains a complete record of the receiver’s
transactions for a period of time.
Statement 2: The statement of realization and liquidation reports estimated realizable values rather
than actual liquidation results
A) True, True
B) True, False
C) False, True
D) False, False

23. ABC Corporation has an outstanding note payable to XYZ Bank amounting to P500,000 secured by an
asset worth P625,000. At the middle of the year, ABC Corporation experienced severe financial
difficulties that was expected to eventually result into corporate liquidation. As of this date, interest of
P25,000 on the notes remained unpaid. Based on the statement of affairs prepared by ABC Corporation,
the pledged asset can be sold for only P515,000 and that the expected recovery percentage for
unsecured liabilities without priority is only at 40%. How much is the estimated amount to be received
by XYZ Bank from the expected liquidation?
A) P500,000
B) P519,000
C) P525,000
D) P515,000

Principal 500,000

Accrued Interest 25,000

Total Receivable 525,000

Secured portion 515,000 100% 515,000.00

 Unsecured portion 10,000 40% 4,000.00

Estimated Recoverable Claim by ABC Bank 519,000.00

24. Under IFRS 11, a joint operation is a type of joint arrangement whereby the parties that have joint
control of the arrangement have
A) rights to the net assets of the arrangement.
B) rights to the assets and net assets of the arrangement.
C) rights to the assets, and obligations for the liabilities, relating to the arrangement.
D) rights to the assets, obligations for the liabilities, and rights to the net assets of the arrangement.
25. On January 1, 20x7 the Entity G and Entity O each acquired 25 percent of the equity of Entity D for
P270,000. The two entities are to have joint control over entity D. At year-end, D declared P85,000 of
dividends and reported a profit of P150,000.

Assuming the fair value of the venturer’s investment is at P287,000, how much is the carrying amount
of the investment in joint venture account of each venturer under the equity method?
A) P287,000
B) P286,250
C) P270,000
D) P291,250

Cost 270,000.00

Share 37,500.00

Dividend (ROI) - 21,250.00

Balance 286,250.00

*FV is ignored, impaired if with indicators of impairment

26. 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

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
Cost 1,500,000.00

Share 120,000.00

Dividend (ROI) - 60,000.00

Balance 1,560,000.00

Share - 1,560,000.00 Loss (only until zero) Loss 1,800,000.00

Dividend (ROI) - Recognized -1,560,000.00

Balance - unrecognized 240,000.00

Share 2,760,000.00 (net of unrecognized loss)

Dividend (ROI) - 600,000.00

Balance 2,160,000.00

27. Which one of the following is not one of the five steps for recognizing revenue?
A) identify the contract with a customer
B) recognize revenue when all the performance obligations have been satisfied
C) identify the separate performance obligation(s) in the contract
D) allocate the transaction price to the separate performance obligations

28. Companies recognize revenue only when

A) a contract is reasonably likely to exist.
B) a written contract is in place and payment is variable.
C) a performance obligation is designated in a written contract.
D) control over goods or services has been transferred from the seller to the customer.

29. Which of the following is considered a performance obligation?

A) up-front registration fees for a gym membership
B) extended warranties on electronic products
C) quality assurance warranties on electronic products
D) a processing fee to obtain a bank loan

30. Which of the following contracts will most likely to be result in the recognition of revenue even prior to
the delivery of the goods to the customers?
A) lay away sales
B) bill and hold sales
C) sale with right to return
 D) sale on trial or approval

31. Which of the statements in incorrect?

A) The probability that the customer will pay the seller affects whether a contract exists.
B) A seller may recognize revenue before the customer obtains physical custody of the goods.
C) If the contract contains multiple performance obligations, revenue must be recognized in an
amount equal to the fair value of each of the separate performance obligations.
D) When a contract includes variable consideration, the seller should evaluate expected value
(probability-weighted amount or the most likely amount (the amount with the highest probability),
whichever is more predictive.

32. On November 1, 2024, AA signed a one-year contract to provide handyman services on an as-needed
basis to BB Associates, with the contract to start immediately. BB paid AA P4,800 for the one-year
period on November 1, 2024. AA should recognize revenue in 2024 in the amount of
A) P0
B) P800
C) P2,400
D) P4,800

P4,800/12*2 months 800.00

33. On April 1, AA the Builder entered into a contract of one-month duration to build a barn for BB. AA is
guaranteed to receive a base fee of P5,000 for his services in addition to a bonus depending on when
the project is completed. BB created incentives for AA to finish the barn as soon as he can without
jeopardizing the structural integrity of the barn. BB offered to pay an additional 30% of the base fee if
the project finished two weeks early and 10% if the project finished a week early. The probability of
finishing two weeks early is 30% and the probability of finishing a week early is 60%.

What is the expected transaction price with variable consideration estimated as the expected value?
A) P4,750
B) P5,000
C) P5,500
D) P5,750

The expected value of the transaction price is $5,750, computed as ($5,000 plus [30% × $5,000 × 30%]
+ [10% × $5,000 × 60%] + [0% × $5,000 × 10%]), or $5,000 + 450 + 300 + 0.

34. On January 1, 2024, a franchise contract was signed. The following were the clauses in the franchise
contract:
 Initial franchise fee of P900,000 is to be paid upfront.
 Franchisor will grant the franchisee the right to use the intellectual property of the franchise
for 5 years.
 Franchisor will construct the store of the franchisee. The store has no alternative use for the
franchisor.
  Franchisor will deliver 5,000 units of raw materials.

Before the year end, it was determined that the control over the intellectual property has already
been transferred to the franchisee, the store is already 60% complete, and that 1,000 units of raw
materials have already been delivered.

Assume that the observable selling price of the intellectual property is P492,000. Assume that
competitors construct a similar type of store for P369,000. Assume that the cost of raw materials is
P49.20 per unit, and the company has a normal mark-up rate based on cost of 50%. How much is
the transaction price allocated to the intellectual property?

A) P270,000
B) P360,000
C) P492,000
D) P400,000

TP 900,000.00

SASP Allocation

PO1 - license (PIT) 492,000.00 360,000.00

Adjusted market assessment

PO2 - Premises (OT) 369,000.00 270,000.00 approach

PO3 - Goods (PIT) 369,000.00 270,000.00 Expected cost plus a margin approach

1,230,000.00 900,000.00
35. In 2024, CARE Construction Co. (CCC) began work on a two-year fixed price contract project. CCC
recognizes revenue over time according to percentage of completion for this contract and provides the
following information (dollars in millions):

Accounts receivable, December 31, 2024 (from construction progress billings) P37.5

Actual construction costs incurred in 2024 P135

Cash collected on project during 2024 P105

Construction in progress, December 31, 2024 P207

Estimated percentage of completion during 2024 60%

What is the fixed contract price for CCC's project?

A) P120,000,000
B) P225,000,000
C) P345,000,000
D) P349,500,000

POC = CITD / TC (input measures, cost to cost)

*Alternative = Revenue / Contract Price

*allowed if with not anticipated loss

CIP = Cost + Profit or

Revenue 207,000,000.00 = 60%

345,000,000.00 (work back)

36. A consignor consigned 10,000 units of inventory to a consignee and the items had a cost of P300 each.
The freight cost of moving the goods from consignor’s place to that of the consignee amounting to
P300,000 was paid by the consignor. Each item will be sold for P500 with a 20% commission to the
consignee for every unit sold. The consignee paid on behalf of the consignor selling expenses of
P72,000 and delivery and installation costs of P120,000.

At the end of the year, the consignee sold 6,000 items to customers and returned 1,000 defective units
to the consignor. The freight on the returned goods amounted to P45,000 which was paid by the
consignee.

How much should be reported as net income of the consignor from the consignment sales?
A) P153,000
 B) P363,000
C) P183,000
D) P228,000

Commission (20%)

Cost (10,000 units) 300 Sales 3,000,000.00

Selling Price 500 Cost of Sales 1,980,000.00

Freight In (consignor) 300,000.00 Gross Profit 1,020,000.00

Operating
Freight Return (consignee) 45,000.00 Expenses 867,000.00

Selling Expenses (consignee) 72,000.00 Net Income 153,000.00

Delivery and Installation Expenses

(consignee) 120,000.00

37. Under IFRS 15 “Revenue from Contracts with Customers”, performance obligations
A) are determined at the end of the contract.
B) with a period can either be suspensive or resolutory.
C) can be satisfied either at a point in time or over time.
D) should be accomplished or satisfied upon the signing of the contract.

38. The accounting statement of affairs is prepared

A) at the end of the liquidation process.
B) at the end of the reorganization process.
C) at the beginning of the liquidation process.
D) at the beginning of the reorganization process.

39. The amount of capital deficiency for a corporation under liquidation can be computed using any of the
following methods/formulas, except
A) pledged assets less secured creditors.
B) net free assets less unsecured debts without priority.
C) total assets at estimated realizable value less total liabilities.
D) beginning shareholders’ equity plus gain (less loss) on realization of assets plus unrecognized assets
(less unrecognized liabilities).

40. When assessing the classification of a joint arrangement that is structured through a separate vehicle,
the entity shall consider all of the following, except:
A) party to a joint arrangement.
B) the legal form of the separate vehicle.
C) the terms of the contractual arrangement.
D) when relevant, other facts and circumstances.
41. ABC Co., DEF Co. and GHI Co. established an arrangement in the form of a joint venture with
corresponding voting rights of 45%, 25% and 30% respectively. The contractual arrangements among
the parties specifies that at least 80% of the voting rights are required to make decisions about the
relevant activities of the arrangement. Under full PFRS/IFRS, which of the following statements is
incorrect?
A) ABC Co., DEF Co. and GHI Co. are considered a party to a joint arrangement.
B) ABC Co., DEF Co. and GHI Co. should account for their respective interest in the joint venture using
the equity method.
C) ABC Co., DEF Co. and GHI Co. are all considered joint venturers.
D) Only ABC Co. and GHI Co. have joint control over of the arrangement because decisions
about relevant activities of the arrangement cannot be made without the agreement of both
parties.

42. Under IFRS 15, when shall an entity recognize revenue from contracts with customers?
A) When the entity and the customers sign the contracts.
B) When the entity collected the cash from the customers.
C) When or as the entity satisfies the performance obligation.
D) When it is probable that future economic benefits will flow to the entity and the revenue can be
measured reliably.

43. Which of the following is false regarding contract revenue by a contractor?

A) Variation in contract work as instructed by the customer regarding the scope of work
to be performed by the contractor decreases the contract price.
B) Claims that the contractor may seek to collect from the customer for customer caused delays or
errors in specification or design increases the contract price.
C) Incentive payments to be paid to the contractor if specified performance standards are met or
exceeded or for early completion of the contract increases the contract price.
D) A penalty decreases the contract price.

44. In franchise accounting, the best evidence of the stand-alone selling price is
A) Cost of the goods or service plus a modest amount of profit
B) Observable price of the goods or service when sold separately
C) Adjusted market prices of similar products offered by competitors
D) The transaction price divided by the number of performance obligations

45. Under IFRS 15, where a contract with a customer has multiple performance obligations, what will be
the accounting treatment to the transaction price?
A) The transaction price shall be recognized as revenue to the most important performance obligation.
B) The transaction price shall be allocated equally to the different performance obligations.
C) The transaction price shall be allocated to the different performance obligations by
reference to their relative standalone selling prices.
D) The transaction price shall be recognized as revenue only at the end of completion of all
performance obligations.
A, B and C formed a partnership on May 1, 20x1. A contributed cash of P500,000; B contributed an
equipment costing P600,000 with a fair value of P650,000 and cash of P50,000 while C contributed cash
P600,000 and inventories costing P300,000 with fair value of P200,000.

On December 31, 20x1, the partnership reported a net income of P580,000. The following are agreements
on the distribution of net income:
 Salary allowance of P50,000, 60,000 and 40,000 to partners A, B and C, respectively.
 Interest of 12% based on their capital contribution
 A bonus to partner B of 10% of net income after bonus and salary.
 The partners are allowed to withdraw up to P10,000 every year.

The partners withdraw the P10,000 allowed at the end of the year.

46. What is the share in the net income of Partner B on December 31, 20x1?
a. P190,071 c. P147,429
b. P241,446 d. P241,429

500,000 700,000 800,000

8 months A B C Total
Salary 33,333 40,000 26,667 100,000
Interest 40,000 56,000 64,000 160,000
Bonus 51,429 51,429
Balance 67,143 94,000 107,428 268,571
Share 140,476 241,429 198,095 580,000

47. When a new partner is admitted to an existing partnership through the investment by the said partner,
which of the following is the most probable reason if the amount contributed by the new partner is
higher than his capital credit to the new partnership but the existing capital of the incumbent partners
decrease after the admission?

a. Bonus to new partner with positive asset revaluation

b. Bonus to old partners with negative asset revaluation
c. Bonus to old partners with goodwill recognition
d. Asset impairment only

48. At the time of retirement, a retiring partner receives more than the amount of his capital contribution
while the remaining partners capital increase after the retirement. Which of the following is most valid
reason?
a. Goodwill during retirement is recognized.
b. Asset revaluation is recognized.
c. Bonus is given by retiring partner to remaining partners.
d. Bonus is given by the remaining partners to retiring partner.

49. Amori Corp. sold a fast food restaurant franchise to Anton for a five year term on January 2, 20x5 for
P2,500,000. As part of the agreement, Amori shall collect P500,000 down payment and issued a non-
interest note for the balance to paid in five equal annual installment representing the total value of
upfront fee. The down payment was made on January 5, 20x5. The prevailing rate for similar note was
10% (PV of annuity 3.7901)
 The upfront fee covers the delivery of 50,000 units of raw materials costing P500,000 with stand-alone
selling price of P1,200,000; installation of stall costing P800,000, with stand-alone selling price of
P1,000,000 and the use of tradename with stand-alone selling price of P800,000.

In addition, the agreement required the Anton to pay 5% royalty based fee based on the gross revenues.

On February 1, 20x5, the franchise stall was already 100% completed. Amori delivered 30,000 units of raw
materials on February 10, 20x5. On March 1, 20x5, the franchise outlet commence its business operation
and the total gross sales for the year amounted to P600,000.

The franchise contract requires Amori Co, to undertake activities that would significantly affect the franchise
license. Although those activities do not result in the transfer of goods or services to Anton as those
activities occur, it is expected that Anton will benefit from those activities. Amori determines that the
performance obligations are distinct.

Amori paid indirect cost of P50,000, what is the total net income for the year?
a. P598,271 c. P725,078
b. P294,989 d. P277,069

Revenue
Raw materials (30/50 x 806,416) 483,850
Stall 672,013
Tradename (537,611/5 yrs. x 10/12) 89,602
Royalty fee (5% x 600,000) 30,000
Interest income (1,516,040 x 10%) 151,604
Cost
Raw materials (30/50 x 500,000) (300,000)
Stall (800,000)
Indirect cost (50,000)
Net Income 277,069

The following accounts were extracted from the home office and its branch:

Home Office Branch

Sales 2,000,000 1,200,000
Shipment to branch 520,000
Shipment from home
office ?
Purchases 820,000 380,000
Inventory 1/1 320,000 ?
Inventory 12/31 310,000 274,200
Expenses 200,000 75,000
Allowance for mark-up 650,000
On year 20x4, the home office ships inventory to branch at 110% above cost. The 20% of the beginning
inventory of the branch came from outside purchases and the cost per book beginning inventory coming
from home office was P39,000 while 87.5% of ending inventory of the branch came from home office.

50. What is the combined net income?

a. P1,787,950 c. P2,416,139
b. P1,792,275 d. P1,137,050

51. What is the total beginning inventory to be presented in the combined financial statements?
a. P1,116,250 c. P957,000
b. P518,250 d. P388,250

HOME Branch
Sales 2,000,000 1,200,000
COGS (310,000) (1,347,050)
OPEX (200,000) (75,000)
NI 1,490,000 (222,050)
Add: RGP 524,325
Total 1,490,000 302,275

BI
HOB 320,000
BB
- HO 39,000
- Outsider 29,250
Total 388,250

52. Under consignment arrangement, the revenue will be recognized by the consignor when:
a. The consignor receives an advance payment from the consignee.
b. The goods were shipped to the consignee.
c. The consignor receives the account sales from the consignee.
d. The consignee sold the goods to customers.
e. The goods were received by the consignee.

53. On October 31, 2024, the Philippine Company entered into a purchase commitment
with a Japanese Company for 5 million Japanese Yen, deliverable on February 28, 2025. On
the same day, the Philippine Company entered into a forward contract to hedge against
unfavorable fluctuations in the foreign exchange rates.

How much is the debit or credit to “firm commitment” account on December 31, 2024?

a. 500,000 credit
b. 500,000 debit
c. 1,550,000 debit
d. 1,550,000 credit
5M x (.90 - .59) = 1,550,000 debit

On January 1, 20x2, Philip Corp. acquired 80% of the outstanding shares of Sync Inc. for P2,000,000.
On the date of acquisition, Sync reported ordinary shares of P1,200,000; share premium of P400,000
and retained earnings of P400,000. The entities found out that the equipment and patent of Sync were
undervalued by P120,000 and P160,000, respectively, each having an estimated remaining useful life
of 5 years. The non-controlling interest is measured at fair value. The following are the net income of
Sync Inc.

20x2 20x3 20x4

Net income 300,000 240,000 520,000
Dividends 120,000 100,000 240,000

54. What is the amount of Investment in Subsidiary at December 31, 20x3, using equity method?
a. P2,144,000 c. P2,166,400
b. P2,256,000 d. P2,000,000

55. What is the amount of non-controlling interest in net asset on December 31, 20x3?
a. P546,400 c. P590,400
b. P581,600 d. P502,400

Investment beg. balance 2,000,000

Share in net income (300K + 240K) x 80% 432,000
Share in Div (120K + 100k) x 80% (176,000)
Amortization 20x2 (56K x 80%) (44,800)
Amortization 20x3 (56K x 80%) (44,800)
Investment 20x3 balance 2,166,400

20x3
NCINAS beg 527,200
NCINIS 39,200
NCI share in Dividend of Subsidiary (20,000)
NCINAS end 546,400

56. On January 1, 20x5, ABC Corp acquired 80% of the ordinary share and 60% of the preferred shares of
XYZ Corp. for P1,200,000 and P180,000, respectively. On the date of acquisition, the fair value held by
the non-controlling interest ordinary shares of XYZ Corp. was P300,000. The statement of shareholders’
equity of shows the following balances:

10% Preferred shares cumulative, P5 par value 300,000

Ordinary share, P10 par value 600,000
Retained Earnings 900,000
Total Shareholders' Equity 1,800,000

On December 31, 20x5, XYZ Corp. reported net income of P300,000 and paid dividends of P120,000
What is the working paper elimination journal entry to assign income to non-controlling interest in the
preparation of consolidated financial statements for ABC Corp as of December 31, 20x5?
a. A credit to Non-controlling interest P36,000
b. A credit to Dividend declared – Ordinary Shares P24,000
c. A debit to Income to Non-controlling interest P60,000
d. A debit to Non-controlling interest P54,000

Net Income P300,000 – Dividend 120,000 = 180,000 x 20%

Perla Corp acquired 80% of the outstanding shares of Soledad Company and 70% of Ginhawa Company
on January 2, 20x4. During the year, Perla sold goods purchased in 20x3 for 60,000 to Soledad for P80,000.
Soledad sold the goods to Ginhawa at its cost. On December 31, 20x4, Ginhawa sold P48,000 of the
inventory to outsiders for P70,000.

57. What is the total cost of goods sold to be reported in the consolidated financial statement?
a. P42,000 c. P48,000
b. P36,000 d. P60,000

Original Purchase price 60,000 x 48,000/80,000 = 36,000

58. What is the total amount of cost of goods sold to be eliminated from the consolidation working paper?
a. P152,000 c. P188,000
b. P140,000 d. P128,000

Perla 60,000
Soledad 80,000
Ginhawa 48,000
Total per books 188,000
Consolidated COGS (36,000)
COGS to be eliminated 152,000

59. At December 31, 20x5, the following information has been collected from the interoffice account of
Paul’s Home Office and its branch in Mindoro for reconciling the investment in branch and home office
account. The home office branch account balance at December 31, 20x5 is P825,000.
A. The home office transfers equipment to branch amounting to P20,000 to be use by the branch.
The home office will record the equipment. The equipment is still in transit.

B. The branch sent a check for P24,000 to the home office to settle its account. The branch debited
accounts payable. The check was recorded twice by the home office amounting to P4,200 one on
December 5, 20x5 and another one on December 15, 20x5.

C. A charge of P1,050 was made by the Home Office for freight on merchandise; but the amount was
recorded by the branch as P1,500.

D. The branch by mistake sent to Home Office a debit memo for P5,000. The Home Office did not
record it.

E. A shipment of P32,000 charged by Home Office to Mindoro branch but was actually sent to and
retained by Manila branch.
 F. A charge for salary by the Home Office, P12,000 was recorded twice by the branch amounting to
P1,200 on one December 28, 20x5 and one on January 5, 20x6.

G. The home office failed to take up P6,200 debit memo from the branch representing defective
merchandise returned by the branch.

What is the unadjusted balance of Home Office account in the books of the branch at December
31, 20x5?
a. P755,650 c. P756,850
b. P775,650 d. P779,850

HOB BB
Unadjusted Balance 825,000 775,650
a. - -
b. (19,800) (24,000)
c. (450)
d. 5,000
e. (32,000)
f. 10,800
g. (6,200)
Adjusted Balance 767,000 767,000

60. Manny Corp. makes a single product in two departments and uses process costing to accumulate its
costs. The production data for Department 1 for the month of August 20x5 follows:

Quantities:
In process, August 1 (35% completed) 6,200
Started in process 14,000
Completed and Transferred 17,000
In process end (60% completed) ?

Compute the EUP using FIFO and W. Average:

Materials are added at the start of the process and conversion costs are applied evenly throughout the
process.

Which of the following statements is correct?

a. The actual units to be accounted for is 14,000 units using FIFO and W. average.
b. The EUP for materials is 20,200 units using FIFO and W. average.
c. The EUP of conversion costs is 16,750 using FIFO
d. The EUP of materials is 14,000 using W. Average.

FIFO Actual M CC
WIP bed F&T 6,200 0% - 65% 4,030
SIP FT 10,800 100% 10,800 100% 10,800
WIP end 3,200 100% 3,200 60% 1,920
Total units accounted for 20,200 14,000 16,750
61. JC Corp manufactures bikes and uses processing costing to accumulate the costs of the products. The
following information is available for JC Corp for the month of October:

Units
Beginning WIP (60% complete) 20,000
Started this month 500,000
Ending WIP (30% complete) 12,000
Normal spoilage 3,200
Abnormal spoilage 1,000

Costs
Beginning WIP
Materials 100,000
Conversion 160,000

Current costs
Materials 400,000
Conversion 624,500

Materials are added 25% at the start of the process and the balance when the process is 80% completed.
The inspection point is at the end of the process. (Round off the unit cost to five decimal places)

What is the transferred out unit cost using weighted average?

a. P2.52784 c. P2.51081
b. P2.24263 d. P2.51351

M CC Total
F&T 492,953 772,537 1,265,490
NL 3,131 4,907 8,038
1,273,528
TO units 503,800
2.52784

62. On January 1, 20x1, the Department of Public Works and Highways (DPWH) received a P10,000,000
appropriation from the national government for the acquisition of machinery. On February 1, 20x1,
DPWH received the allotment from the Department of Budget and Management. On March 1, 20x1,
DPWH entered into a contract with CAT Inc. for the acquisition of the machinery with a price of
P8,000,000. On April 1, 20x1, 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, 20x1, CAT Inc. delivered the machinery to DPWH. On June 1, 20x1,
DPWH paid the obligation to CAT Inc. On July 1, 20x1, DPWH remitted the withheld income tax and
final VAT to BIR.

What is the account to be credited upon remittance of withholding income tax and final tax?
a. Cash-MDS, regular c. Cash-Tax remittance advice
b. Subsidy from national government d. Due to BIR
63. On October 1, 20x7, the partners Sex Pistols Company decided to liquidate the partnership. The
statement of financial position and profit and loss sharing ratio prior to liquidation is shown below:

Cash 600,000 Accounts payable 250,000

Non-cash assets 1,800,000 Loan from Mike 30,000
Loan to Bryce 20,000 Huey, capital (25%) 580,000
Bryce, capital (43%) 720,000
Mike, capital (32%)) 830,000
Huey, drawing 10,000
Total 2,420,000 2,420,000

 The loss on realization was P620,000 from the sales of certain assets.
 Liquidation expenses were paid for P28,000.
 Accounts payable of P180,000 were paid.
 An amount of P50,000 of the accounts payable were condone by the creditor.
 P8,000 cash was withheld to pay future liquidation expenses.
 Mike received P320,000 from the first installment payment.

What is the remaining total interest of Huey after the first installment payment?
a. P440,500 c. P259,875
b. P421,875 d. P272,375

Huey
Unadjusted Capital 580,000
Drawings 10,000
Adjusted capital 590,000
Loss on realization (620,000)
Payment of liquidation expense (28,000)
Condone liability 50,000
Total (598,000)
x Interest of Bryce 25% (149,500)
Payment to Huey on 1st installment (168,125)
Remaining total Interest 272,375

64. Which of the following is incorrect?

a. Temporary drawing is not included in the computation of average capital.
b. Permanent drawing is included in the computation of ending capital.
c. If the net income is insufficient to compute bonus, there is no bonus.
d. If there is no agreement in the distribution of loss to capitalist partners, the loss will be distributed
using profit ratio.

65. A Philippine entity acquired 60% of the share capital of a foreign entity on June 30, 20x1. The fair
value of the net assets of the foreign entity at that date was $4.5 million. This value was $1.2 million
higher than the carrying amount of the net assets of the foreign entity. The excess was due to the
increase in value of non-depreciable land. The functional currency of the entity is the Php (Peso). The
financial year-end of the entity is December 31, 20x1. The exchange rates at June 30, 20x1, and
December 31, 20x1 were $1 = 40 Php and $1 = 45 Php, respectively. What figure for the fair value
 adjustment should be included in the consolidated financial statements for the year ended December
31, 20x1?

a. Php 202.5 million

b. Php 54.0 million
c. Php 121.5 million
d. Php 32.4 million

Answer: B 1.2 x 45 = P54 million

66. On December 1, 2029, Marang, Inc. entered into a 120-day forward contract to purchase 250,000 US
dollars for speculative purposes. Marang, Inc. fiscal year ends on December 31. The exchange rates
are as follows:
Date Spot rate Forward rate (3/31/30)
December 1, 2009 P45.00 P45.50
December 31, 2009 46.00 46.50
January 30, 2030 45.60 45.30
March 31, 2030 45.10

How much is the forex gain or (loss) to be reported from this forward contract in 2030?
a. P(50,000) b. (P350,000) c. P300,000 d. (P225,000)

46.5 -45.1 = 1.4 loss x 250000 = 350,000

67. Y hospital, a Not for Profit hospital affiliated with a religious group, reported the following information
for the year ended December 31, 2030:

Patient service rendered P2,400,000

Bad debts expense 50,000
Contractual adjustments with third party payors 200,000
Charity care 150,000
Allowance for discounts to hospital employees 90,000

Net patient service revenues for Y hospital for the year ended December 31, 2030 is

a. P2,250,000 b. P2,110,000 c. P1,960,000 d. P1,910,000

2400,000 – 150,000 - 200,000 – 90,000= 1960,000

68. PFRS 3 does not apply to:

a. The formation of joint venture/joint arrangement
b. The acquisition of assets or group of assets that does not constitute a business
c. A combination of entities or business under common control
d. All of the above

On December 1, 2030, Entity A imported goods at a price of $1,000 payable on March 1, 2031. 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, 2030 December 31, 2030 March 1, 2031
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

69. What is the foreign currency gain or (loss) on the hedged item for the year ended December 31, 2030?
a. (P2,000)
b. P1,000
c. P3,000
d. P4,000

45 – 44 = 1 gain x 1,000

70. What is the foreign currency gain or (loss) on the hedging instrument for the year ended December
31, 2031?
e. P4,000
f. (P2,000)
g. (P1,000)
h. P3,000

42 – 45 = 3 x 1,000 = 3,000 gain