ReSA - THE REVIEW SCHOOL OF ACCOUNTANCY
CPA Review Batch 44  Oct 2022 CPALE  25 September 2022  03:00 PM – 06:00 PM
ADVANCED FINANCIAL ACCOUNTING and REPORTING
FINAL PRE-BOARD EXAMINATION
INSTRUCTIONS: Select the correct answer for each of the questions.
Mark only one
answer for each item by shading the box corresponding to the letter of your choice on
the answer sheet provided. STRICTLY NO ERASURES ALLOWED. Use pencil no. 2 only.
Set A
1. On October 2, 2028, Tamayao, Inc. ordered a custom-built passenger van from a
Japanese firm. The purchase order is noncancelable. The purchase price is 1,000,000
yens with delivery and payment to be made on March 31, 2029. On October 2, 2028,
Tamayao, Inc. entered into a forward contract to buy 1,000,000 yens on March 31,
2029 for P.57. On March 31, 2029, the custom-built passenger van was delivered.
10/2/28
P .50
.53
Spot rate (yen)
Forward rate (yen)
12/31/28
P .56
.58
3/31/29
P .57
.57
The December 31, 2028 profit and loss statement, foreign exchange gain or loss (on
hedged item / commitment) amounted to:
Fair Value
Cash Flow
Fair Value
Cash Flow
Hedge
Hedge
Hedge
Hedge
a. P60,000 loss
P50,000 loss
c. P50,000 loss
P
0
b. P
0
P50,000 loss
d. P50,000 gain
P
0
2. Using the same information in No. 1. compute the December 31, 2028, foreign exchange
gain on forward contract amounted to (income statement or equity):
Fair Value
Cash Flow
Fair Value
Cash Flow
Hedge
Hedge
Hedge
Hedge
a. P50,000 I/S
P50,000 equity c. P50,000 I/S
Not applicable
b. P50,000 equity
P50,000 I/S
d. Not applicable
P50,000 equity
3. Certain balance sheet accounts of a foreign subsidiary of Rose Company have been
stated in Philippine pesos as follows:
Accounts receivable, current
Accounts receivable, long-term
Prepaid insurance
Goodwill
Stated
Current Rates
Historical Rates
P 200,000
P 220,000
100,000
110,000
50,000
55,000
80,000
85,000
P 430,000
P 470,000
I. The subsidiary’s functional currency is the local currency unit. What amount
should Rose’s balance sheet include for the preceding items?
a. P430,000
b. P435,000
c. P440,000
d. P450,000
II. The subsidiary’s functional currency is peso. What total amount Rose’s balance
sheet include for the preceding items?
a. P430,000
b. P435,000
c. P440,000
d. P450,000
a.
b.
I – c; II – a
I – a; II – d
c.
d.
I – a; II – c
None of the above
4. The following are information regarding partnership business:
I. A partnership has the following capital balances:
Allen, capital
Burns, capital
Costello, capital
P60,000
30,000
90,000
Profits and losses are split as follows: Allen (20%), Burns (30%), and Costello
(50%). Costello wants to leave the partnership and is paid P100,000 from the
business based on provisions in the articles of partnership. If the partnership
uses the bonus method, what is the balance of Burns’s capital account after
Costello withdraws?
a. P24,000
b. P27,000
c. P33,000
d. P36,000
Page 1 of 28
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ADVANCED FINANCIAL ACCOUNTING & REPORTING
ReSA Batch 44 – October 2022 CPALE Batch
25 September 2022  03:00 PM to 06:00 PM
II. At year-end, the Cisco partnership
AFAR Final Pre-Board Exam
Exam
has the following capital balances:
Montana, capital
Rice, capital
Craig, capital
Taylor, capital
P130,000
110,000
80,000
70,000
Profits and losses are split on a 3:3:2:2 basis, respectively. Craig decides to
leave the partnership and is paid P90,000 from the business based on the original
contractual agreement. If the goodwill method is to be applied, what is the
balance of Montana’s capital account after Craig withdraws?
a. P133,000
b. P137,500
c. P140,000
d. P145,000
a.
b.
I – a; II – d
I – b; II – c
c.
d.
I – b; II – d
None of the above
5. The following are information regarding a partnership undergoing liquidation:
I. A local partnership is liquidating and is currently reporting the following
capital balances:
Angela, capital (50% share of
all profits and losses)
P 19,000
Woodrow, capital (30%)
18,000
Cassidy, capital (20%)
(12,000)
Cassidy has indicated that a forthcoming contribution will cover the P12,000
deficit. However, the two remaining partners have asked to receive the P25,000
in cash that is presently available. How much of this money should each of the
partners be given?
a. Angela, P13,000; Woodrow, P12,000
b. Angela, P11,500; Woodrow, P13,500
c. Angela, P12,000; Woodrow, P13,000
d. Angela, P12,500; Woodrow, P12,500
II. A partnership has the following balance sheet just before the final liquidation
is to begin:
Cash
P26,000
Liabilities
P 50,000
Inventory
31,000
Art, capital (40%)
18,000
Other assets
62,000
Raymond, capital (30%)
25,000
Darby, capital (30%)
26,000
Total
P119,000
Total
P119,000
Liquidation expenses are estimated to be P12,000. The other assets are sold
for P40,000. What distribution can be made to the partners?
a. P-0- to Art, P1,500 to Raymond, P2,500 to Darby.
b. P1,333 to Art, P1,333 to Raymond, P1,334 to Darby.
c. P-0- to Art, P1,200 to Raymond, P2,800 to Darby.
d. P600 to Art, P1,200 to Raymond, P2,200 to Darby.
a.
b.
I – b; II – b
I – c; II – a
c.
d.
I – b; II – a
None of the above
6. Components of the December 17, 2028, statement of affairs of Liquo Company, which
was undergoing liquidation, included the following:
Assets pledged to fully secured creditors,
at current fair value……………………………………………………………………………………
Assets pledged to partially secured creditors,
at current fair value……………………………………………………………………………………
Free assets, at current fair value……………………………………………………………
Fully secured liabilities……………………………………………………………………………………
Partially secured liabilities…………………………………………………………………………
Unsecured liabilities with priority…………………………………………………………
Unsecured liabilities without priority……………………………………………………
P150,000
104,000
80,000
60,000
120,000
14,000
224,000
Determine the estimated payment to partially secured liabilities?
a.
b.
P 78,000
P114,400
Page 2 of 28
c.
d.
P115,333
P115,143
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ADVANCED FINANCIAL ACCOUNTING & REPORTING
ReSA Batch 44 – October 2022 CPALE Batch
25 September 2022  03:00 PM to 06:00 PM
7. Agency NNN paid the final billing for
as follows:
AFAR Final Pre-Board Exam
Exam
the construction of a building was computed
Final billings: 30% x P10,000,000………………………………………………………
Less: Liquidated damages………………………………………………………………………………
Net cost…………………………………………………………………………………………………………………………
Less: Recoupment of advances……………………………………………………………………
Accounts payable balance………………………………………………………………………………
Less: Withholding tax (10% x P2,990,000) …………………………………
Net amount…………………………………………………………………………………
P 3,000,000
10,000
P 2,990,000
450,000
P 2,540,000
299,000
P 2,241,000
The entry to record the final payment of billings would be:
a. Accounts payable…………………………………………………………………………
2,540,000
Due to BIR…………………………………………………………………………
Cash-disbursing officer………………………………………
b. Accounts payable…………………………………………………………………………
2,540,000
Due to BIR…………………………………………………………………………
Cash-MDS, Regular………………………………………………………
c. Accounts payable…………………………………………………………………………
2,241,000
Cash-MDS, Regular ……………………………………………………
d. Buildings……………………………………………………………………………………………
2,241,000
Cash-MDS, Regular ……………………………………………………
299,000
2,241,000
299,000
2,241,000
2,241,000
2,241,000
8. A chemical company manufactures joint products Pep and Vim, and a by-product. Zest.
Costs are assigned to the joint products by the market value method, which considers
further processing costs in subsequent operations. For allocating joint costs to the
by-product, the market value or reversal cost method is used. The total manufacturing
costs for 10,000 units were P172,000 during the quarter. Production and cost data
follow:
Units produced
Sales price per unit
Further processing cost per unit
Selling and administrative expense per unit
Operating profit per unit
Pep
5,000
P50
10
Vim
4,000
P40
5
Zest
1,000
P 5
2
1
I. The value of Zest to be deducted from the joint costs is:
a. P5,000
b. P3,000
c. P2,000
d. Zero
II. Compute the gross profit for Pep:
a. P
0
b. P70,000
a.
b.
I – c; II – a
I – d; II – d
c.
P 80,000
c.
d.
d.
P100,000
I – c; II – d
None of the above
9. The following are information regarding parent and subsidiary:
I.
Clark Company had the following transactions with affiliated parties during 2028:
•
Sales of P60,000 to Dean, with P20,000 gross profit. Dean had P15,000 of this
inventory on hand at year-end. Clark owns a 15% interest in Dean and does not
exert significant influence.
• Purchases of raw materials totaling P240,000 from Kent Corporation, a whollyowned subsidiary. Kent’s gross profit on the sale was P48,000. Clark had
P60,000 of this inventory remaining on December 31, 2028.
Before eliminating entries, Clark had consolidated current assets of P320,000.
What amount should Clark report in its December 31, 2028, consolidated balance
sheet for current assets?
a. P320,000
b. P317,000
c. P308,000
d. P303,000
II. Par Company owns 60% of Sub Corp.’s outstanding capital stock. On May 1, 2028,
Par advanced Sub P70,000 in cash, which was still outstanding at December 31,
2028. What portion of this advance should be eliminated in the preparation of
the December 31, 2028 consolidated balance sheet?
a. P70,000
b. P42,000
c. P28,000
d. P
0
a.
b.
I – c; II – a
I – d; II – d
Page 3 of 28
c.
d.
I – c; II – d
None of the above
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ADVANCED FINANCIAL ACCOUNTING & REPORTING
ReSA Batch 44 – October 2022 CPALE Batch
25 September 2022  03:00 PM to 06:00 PM
10.
AFAR Final Pre-Board Exam
On December 1, 20x8, a Philippine firm, Aldrin Inc. estimates that at leastExam
5,000
units of inventory will be purchased from a company in Taiwan during January of
20x9 for 500,000 Nt dollars. The transaction is probable, and it is to be
denominated in Nt dollar. Sales of the inventory are expected to occur in the six
months following the purchase.
The company enters into a forward contract to purchase 500,000 Nt dollars on
January 31, 20x9 for P1.01.
Spot rates and forward rates at the January 31, 20x9, settlement were as follows
(pesos per Nt dollar):
Forward Rate
Spot Rate
for 1/31/x9
December 1, 20x8
P 1.03
P 1.01
December 31, 20x8
1.00
.99
January 31, 20x9
.98
The December 31, 20x8, foreign exchange loss on forward contract amounted to
(indicate whether income statement or equity section):
a. P30,000 separate component of equity/OCI
b. P30,000 current earnings
c. P10,000 current earnings
d. P10,000 separate component of equity/OCI
11. Using the same information in No. 10, the foreign exchange gain or loss on forward
contract on January 31, 20x9 amounted to (indicate whether income statement or
equity section)
a. P15,000 separate component of equity/OCI (debit balance)
b. P10,000 separate component of equity/OCI (debit balance)
c. P 5,000 separate component of equity/OCI (debit balance)
d. P15,000 current earnings
12.
A company has identified the following overhead costs and cost drivers for the
coming year:
Overhead Item
Cost Driver
Budgeted Cost
Budgeted Activity Level
Machine Setup
Number of setups
P 20,000
200
Inspection
Number of Inspections
P 130,000
6,500
Material
Number of Material moves
handling
P 80,000
8,000
Engineering
Engineering Hours
P 50,000
1,000
P 280,000
The following information was allocated on three jobs that were completed during
the year:
Job 101
Job 102
Job 103
Direct materials
P 5,000
P12,000
P 8,000
Direct labor
P 2,000
P 2,000
P 4,000
Units completed
100
50
200
Number of setups
1
2
4
Number of inspections
20
10
30
Number of material moves
30
10
50
Engineering hours
10
50
10
Budgeted direct labor cost was P100,000 and budgeted direct material cost
was P280,000.
Compute the cost of each unit of Job 102 using Activity-Based Costing:
a. P340
c. P440
b. P392
d. P520
13. Lucille Inc. manufactures a product that gives rise to a by-product called "Robon."
The only costs associated with Robon are additional processing costs of P1.00 for
each unit. Lucille accounts for "Robon" sales first by deducting its separable
costs from such sales and then by deducting this net amount from the cost of sales
of the major product. For the past year 2,000 units of Robon were produced which
were sold for P3.00 each.
Page 4 of 28
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ADVANCED FINANCIAL ACCOUNTING & REPORTING
ReSA Batch 44 – October 2022 CPALE Batch
25 September 2022  03:00 PM to 06:00 PM
AFAR Final Pre-Board Exam
Exam
from the main product were P500,000
and
Sales revenue and cost of goods sold
P400,000 respectively. Compute the gross margin after considering the by-product
sales and costs.
If Lucille changes its method of accounting for Robon sales by showing the net
amount as "Other Income," the effect on the gross margin would be:
a. P
0
c. P4,000
b. P2,000
d. P6,000
14. On July 1, 20x4, Andres, Bantug, and Carlos formed a joint operation for the sale
of merchandise. Andres was designated as the managing operator. Profits or losses
are to be divided as follows: Andres, 50%; Bantug, 25%; and Carlos, 25%. On October
1, 20x4, though the joint operation was still uncompleted, the operators agreed to
recognize profit or loss on the operation to date. The cost of inventory on hand
was determined at P25,000. The joint operation account has a debit balance of
P15,000 before distribution of profit and loss. No separate books is maintained
for the joint operation and the operators record in their individual books all
operation transactions.
The joint operation profit or loss on October 1, 20x4 is:
a. P10,000 profit
c. P15,000 loss
b. P25,000 profit
d. No profit or loss.
15. On December 20, 20x8, United Appeal, a voluntary health and welfare organization,
received a donation of computer equipment valued at P25,000 from a local computer
retailer. The equipment is expected to have a useful life of 3 years. The donor
placed no restrictions how long the computer equipment was to be used and United
has an accounting policy which does not imply a time restriction on gifts of longlived assets. On United’s statement of activities prepared for the year ended
December 31, 20x8, the donation of computer equipment should be reported:
a. As an increase in temporary restricted net assets
b. Only in the notes to the financial statements
c. As an increase in unrestricted net assets
d. As either an increase in temporary restricted net assets or as an increase
in unrestricted net assets.
16. Falcon Corporation sold equipment to its 80%-owned subsidiary, Rodent Corp., on
January 1, 20x4. Falcon sold the equipment for P110,000 when its book value was
P85,000 and it had a 5-year remaining useful life with no expected salvage value.
Separate balance sheets for Falcon and Rodent included the following equipment and
accumulated depreciation amounts on December 31, 20x4:
Falcon
Rodent
Equipment . . . . . . . . . . . . . . . . . .
P 750,000
P 300,000
Less: Accumulated depreciation . . . . . .
( 200,000)
(
50,000)
Equipment-net . . . . . . . . . . . . . . . . . P 550,000
P
250,000
Consolidated amounts for equipment and accumulated depreciation at December 31,
20x4 were respectively,
a. P1,025,000 and P245,000
c. P1,050,000 and P245,000
b. P1,025,000 and P250,000
d. P1,050,000 and P250,000
17.On March 1, 20x8, Evan and Helen decide to combine their business and form a
partnership. The balance sheets of Evan and Helen on March 1, 20x8 before
adjustments show the following:
Evan
Helen
Cash
P 9,000
P 3,750
Accounts receivable
18,500
13,500
Inventories
30,000
19,500
Furniture and fixtures (net)
30,000
9,000
Office equipment (net)
11,500
2,750
Prepaid expenses
6,375
3,000
P105,375 P 51,500
Accounts payable
P 45,750 P 18,000
Evan, capital
59,625
Helen, capital
________
33,500
P105,375 P 51,500
Page 5 of 28
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ADVANCED FINANCIAL ACCOUNTING & REPORTING
ReSA Batch 44 – October 2022 CPALE Batch
25 September 2022  03:00 PM to 06:00 PM
AFAR Final Pre-Board Exam
Exam
doubtful accounts of their accounts
They agreed to provide 3% for
receivables and found Helen’s furniture and fixtures to be under-depreciated
by P900.
If each partner’s share in equity is to be equal to the net assets invested, the
capital accounts of Evan and Helen would be:
a. P58,170 and P33,095, respectively
c. P 59,070 and P32,195, respectively
b. P58,320 and P32,495, respectively
d. P104,820 and P50,195, respectively
18. The Pinoy Company acquired a foreign subsidiary on August 15, 20x4. Goodwill
arising on the acquisition was Nt Dollar 175,000. Consolidated financial statements
are prepared at the year end of December 31, 20x4 requiring the translation of all
foreign operations' results into the presentation currency of peso.
The following rates of exchange have been identified:
Rate at August 15, 20x4 Nt Dollar 1.321: P1
Rate at December 31, 20x4 Nt Dollar 1.298: P1
Average rate for the year ended December 31, 20x4 Nt Dollar 1.302: P1
Average rate for the period from August 15 to December 31, 20x4
Nt Dollar 1.292: P1
According to PAS 21 (The effects of changes in foreign exchange rates), at what
amount should the goodwill be measured in the consolidated statement of financial
position?
a. P134,409
c. P134,823
b. P135,449
d. P312,449
19. The Pinay Company acquired The Kanchengjunga Company, a foreign subsidiary, on
September 10, 20x4. The fair value of the assets of Kanchengjunga was the same
as their carrying amount except for land where the fair value was Nt dollar 50,000
greater than carrying amount. This fair value adjustment has not been recognized
in the separate financial statements of Kanchengjunga. Consolidated financial
statements are prepared at the year end of December 31, 20x4 requiring the
translation of all foreign operations' results into the presentation currency of
peso. The following rates of exchange have been identified:
Rate at 10 September 20x4 Nt Dollar 1.62: P1
Rate at 31 December 20x4 Nt Dollar 1.56: P1
Average rate for the year ended December 31, 20x4 Nt Dollar 1.60: P1
Average rate for the period from 10 September to December 31, 20x4
Nt Dollar 1.58: P1
According to PAS 21 (The effects of changes in foreign exchange rates), what fair
value adjustment is required to the carrying amount of land in the consolidated
statement of financial position?
a. P30,864
c. P31,250
b. P32,051
d. P31,646
20. The Witley Company has the peso as its functional currency. On October 16, 20x4
Witley ordered some inventory from a foreign supplier and agreed a purchase price
of 160,000 yens. The inventory was received on November 15, 20x4.
On December 31, 20x4 the inventory remained on hand and the trade payable balance
for the inventory purchase remained outstanding. The supplier was paid on January
27, 20x5 and the inventory was sold on January 31, 20x5.
The following information about exchange rates is available:
October 16, 20x4 P1 = 2.60 yens
November 15, 20x4 P1 = 2.50 yens
December 31, 20x4 P1 = 2.40 yens
January 27, 20x5 P1= 2.25 yens
According to PAS 21 (The effect of changes in foreign exchange rates), at what
amount should the trade payable balance due to the supplier be presented in the
statement of financial position of Witley on December 31, 20x4?
a. P61,538
c. P66,667
b. P64,000
d. P71,111
Page 6 of 28
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ADVANCED FINANCIAL ACCOUNTING & REPORTING
ReSA Batch 44 – October 2022 CPALE Batch
25 September 2022  03:00 PM to 06:00 PM
AFAR Final Pre-Board Exam
Exam
products, R, S, and T, in a joint process.
For
21. Comely Company manufactures three
every 10 kilos of raw material input, the output is 5 kilos of R, 3 kilos of S and
2 kilos of T. During August, 50,000 kilos of raw material costing P120,000 were
processed and completed, with joint conversion costs of P200,000. Conversion costs
shall be allocated to the production on the basis of market values.
To make the product salable, however, further processing which does not require
additional material was done at the following costs: R, P30,000; S, P20,000 and T,
P30,000. Unit selling prices are R, P10; S, P12; and T, P15. The unit cost of
Product R is:
a. P7.12
c. P10.00
b. P8.00
d. P25.32
22. Kuchen Manufacturing uses backflush costing to account for an electronic meter it
makes. During August 2014, the firm produced 16,000 meters of which it sold 15,800.
The standard cost for each meter is:
Direct material
P 20
Conversion costs
44
Total
P 64
Assume that the company had no inventory on August 1. The following event took
place in August:
1. Purchased P320,000 of direct materials.
2. Incurred P708,000 of conversion costs.
3. Applied P704,000 of conversion costs to Raw and In Process Inventory.
4. Finished 16,000 meters.
5. Sold 15,800 meters for P100 each.
Compute the Finished Goods, ending and the amount of Cost of Goods Sold after the
adjustment of over-under applied conversion cost:
Finished Goods, ending
P
-012,800
-012,800
a.
b.
c.
d.
Cost of Goods Sold as adjusted
P 1,015,200
1,011,200
1,024,000
1,015,200
23. Hartwell Company distributes the service department overhead costs to producing
departments and the following information for the month of January is presented
as follows:
Maintenance Utilities
Overhead costs incurred
P18,700
P 9,000
Services provided to:
Maintenance department
10%
Utilities department
20%
Producing department A
40%
30%
Producing department B
40%
60%
Hartwell Company distributes service department overhead costs based on the
reciprocal method, what would be the formula to determine the total maintenance
costs?
a. M = P18,700 + .10U
c. M = P18,700 + .30U +.40A + .40B
b. M = P 9,000 + .20U
d. M = P27,700 + .40A + .40B
24. Cobb Company’s current receivables from affiliated companies at December 31, 20x9
are: (1) a P75,000 cash advance to Hill Corporation (Cobb owns 30% of the voting
stock of Hill and accounts for the investment by the equity method), (2) a
receivable of P260,000 from Vick Corporation for administrative and selling
services (Vick is 100% owned by Cobb and included in Cobb’s consolidated financial
statements), and (3) a receivable of P200,000 from Ward Corporation for merchandise
sales on credit (Ward is 90%-owned unconsolidated subsidiary of Cobb accounted for
the equity method). In the current assets section of its December 31, 20x9
consolidated balance sheet, Cobb should report accounts receivable from investees
in the amount of:
a.
b.
P180,000
P255,000
Page 7 of 28
c.
d.
P275,000
P535,000
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ADVANCED FINANCIAL ACCOUNTING & REPORTING
ReSA Batch 44 – October 2022 CPALE Batch
25 September 2022  03:00 PM to 06:00 PM
AFAR Final Pre-Board Exam
Exam
for KC Company for the month of June:
25. The following information is available
Started this month…………………………………………………………………
Beginning, WIP (40% complete)……………………………………
Normal spoilage (discrete)……………………………………………
Abnormal Spoilage (discrete)………………………………………
Ending WIP (70% complete) ……………………………………………
Transferred –out………………………………………………………………………
Beginning Work-in-Process costs:
Materials……………………………………………………………………………
Conversion costs…………………………………………………………
Current Costs: (added)
Materials……………………………………………………………………………
Conversion costs…………………………………………………………
80,000
7,500
1,100
900
13,000
72,500
P
units
units
units
units
units
units
10,400
13,800
P 120,000
350,000
All materials are added at the start of the production.
equivalent unit for materials:
FIFO
Average
FIFO
a.
P1.50
P1.49
c.
P1.49
b.
P1.50
P1.50
d.
P1.49
Compute the cost per
Average
P1.50
P1.49
26. Manila Sales Company established a branch in Baguio City early last year to which
it shipped merchandise before the branch opening with a billing price of P300,000.
During the year, the home office billed the branch a total of P120,000 for additional
shipments of merchandise. Some defective merchandise was shipped back by the branch
and was given credit for P7,500 on the return. The branch also made purchases of
merchandise totaling P72,500 from outside suppliers. At the end of the year, a
physical count disclosed a branch ending inventory of P185,000 which included
P20,000 of merchandise acquired from outside suppliers. If merchandise shipments
from the home office were billed at 20% above cost, what was the total cost of
merchandise available for sale, net of returns, at the branch during the year?
a.
b.
P300,000
P343,750
c.
d.
P412,500
P416,250
Items 27 and 28 are based on the following information:
The following information is available for K Co. for June:
Started this month
80,000
Beginning WIP
(40% complete)
7,500
Normal spoilage (discrete)
1,100
Abnormal spoilage
900
Ending WIP
(70% complete)
13,000
Transferred out
72,500
Beginning Work in Process Costs:
Material
Conversion
Current Costs:
Material
Conversion
Units
Units
Units
Units
Units
Units
P 10,400
13,800
P120,000
350,000
All materials are added at the start of production and the inspection
point is at the end of the process.
27. What is the cost assigned to ending inventory using FIFO?
a. P75,920
c. P56,420
b. P58,994
d. P53,144
28. What is the cost assigned to normal spoilage and how is it classified using weighted
average?
a. P6,193 allocated between WIP and Transferred Out
b. P6,424 assigned to units WIP
c. P6,193 assigned to loss account
d. P6,424 assigned to units Transferred Out
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interest in Shelly Corporation acquired several
29. Parcon Corporation owns an 80%
years ago. Shelly Corporation regularly sells merchandise to its parent at 125%
of Shelly’s cost. Gross profit data of Parcon and Shelly for the year 20x8 are as
follows:
Sales
Cost of goods sold
Gross profit
Parcon
P1,000,000
800,000
P
200,000
Shelly
P 800,000
640,000
P 160,000
During 20x8, Parcon purchased inventory items from Shelly at a transfer price of
P400,000. Parcon’s December 31, 20x7 and 20x8 inventories included goods acquired
from Shelly of P100,000 and P125,000, respectively.
Consolidated cost of goods sold of Parcon Corporation and Subsidiary for 20x8 was:
a. P1,024,000
c. P1,052,800
b. P1,045,000
d. P1,056,000
30. Splat Company filed a voluntary bankruptcy petition, and the statement of affairs
reflected the following amounts:
Estimated
Assets
Book Value
Current Value
Assets pledged with fully secured creditors…
P 900,000
P 1,110,000
Assets pledged partially secured creditors…………
540,000
360,000
Free assets……………………………………………………………………………………………
1,260,00
960,000
Liabilities
Liabilities with priority………………………………………………………
210,000
Fully secured creditors……………………………………………………………
780,000
Partially secured creditors…………………………………………………
600,000
Unsecured creditors………………………………………………………………………
1,620,000
Assume the assets are converted to cash at their estimated current values. What
amount of cash will be available to pay unsecured non-priority claims?
a. P720,000
c. P 960,000
b. P840,000
d. P1,080,000
31. Mt. Carmel Hospital, a not profit hospital affiliated with a religious group,
reported the following information for the year ended December 31, 20x8:
Gross patient service revenue at the hospital’s full
established rates………………………………………………………………………………………
Bad debts expenses…………………………………………………………………………………………………
Contractual adjustments with third-party payors……………………
Allowance for discounts to hospital employees…………………………
P 980,000
10,000
100,000
15,000
On the hospital’s statement of operations for the year ended December 31, 20x8,
what amount should be reported as net patient service revenue?
a. P865,000
c. P855,000
b. P880,000
d. P955,000
32. Some units of output failed to pass final inspection at the end of the manufacturing
process. The production and inspection supervisors determined that the incremental
revenue from reworking the units exceeded the cost of rework. The rework of the
defective units was authorized, and the following costs were incurred in reworking
the units:
Materials requisitioned from stores:
Direct materials…………………………………………………………………
Miscellaneous supplies…………………………………………………
Direct labor……………………………………………………………………………………
P
5,000
300
14,000
The manufacturing overhead budget includes an allowance for rework.
predetermined manufacturing overhead rate is 150% of direct labor cost.
account(s) to be charged and the appropriate charges for the rework cost would
a. Work-in-process inventory control for P19,000.
b. Work-in-process inventory control for P5,000 and factory overhead control
P35,300.
c. Factory overhead control for P19,300.
d. Factory overhead control for P40,300.
Page 9 of 28
The
The
be:
for
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33. The Porthos Manufacturing Company has a cycle of 3 days, uses a raw and in process
(RIP) account, and charges all conversion costs to Costs of Good Sold. At the end
month, all inventories are counted, their conversion cost components are estimated
and inventory account balances are adjusted. Raw material cost is back flushed from
RIP to Finished Goods. The following information is for June:
Beginning balance of RIP account, including P2,000 of conversion cost…
Beginning balance of finished goods account, including P3,000 of
conversion cost……………………………………………………………………………………………………………………………………
Raw materials credit on credit……………………………………………………………………………………………………
Ending RIP inventory per physical count, including P2,500 conversion
cost estimate…………………………………………………………………………………………………………………………………………
Ending finished good inventory per physical count, including P1,000
conversion cost estimate……………………………………………………………………………………………………………
P 15,000
23,000
500,000
22,500
16,000
Compute the amount of materials to be backflushed from Finished Goods to Cost of
Goods Sold:
a. P499,500
c. P498,000
b. P493,000
d. P500,000
34. Aguilar Sweets Factory manufactures a coconut candy, Coco, which is sold for P5.00
a box. The manufacturing process also results in a by-product Soloc. Without further
processing, Soloc sells for P1.00 per pack, with further processing, it sells for
P3.00 per pack.
During the month of April, the total joint manufacturing costs up to the point of
separation consisted of the following charges to work-n-process:
Raw materials……………………………………………………………………………………………………………
Direct labor………………………………………………………………………………………………………………
Factory overhead……………………………………………………………………………………………………
P 225,000
100,000
45,000
During the month, the production for the two products was as follows: Coco. 591,000
boxes; Soloc, 45,000 packs.
The following additional costs are necessary for further processing to complete
Soloc, in order to obtain a selling price of P3.00 per pack, during the month of
April:
Raw materials…………………………………………………………………………………………………………………
Direct labor……………………………………………………………………………………………………………………
Factory overhead…………………………………………………………………………………………………………
P 30,000
22,500
7,500
Assuming that the by-product Soloc, is further processed and then transferred to
the stockroom at net realizable value with a corresponding reduction of Coco’s
manufacturing costs, the journal entry would be:
A. By-product inventory – Soloc………………………………………………………… 45,000
Work-in-Process – Coco…………………………………………………………………
45,000
B. By-product inventory – Soloc………………………………………………………… 135,000
Raw materials…………………………………………………………………………………………
30,000
Direct labor……………………………………………………………………………………………
22,500
Factory overhead…………………………………………………………………………………
7,500
Work-in-Process – Coco…………………………………………………………………
75,000
C. Work-in-Process – Soloc………………………………………………………………………
Work-in-Process – Coco…………………………………………………………………
6,750
D. Work-in-Process – Soloc………………………………………………………………………
Raw materials…………………………………………………………………………………………
Direct labor……………………………………………………………………………………………
Factory overhead…………………………………………………………………………………
60,000
6,750
30,000
22,500
7,500
35. Following are situations regarding business combinations:
I. On June 1, 20x8, Cline Company paid P800,000 cash for all of the issued and
outstanding common stock Renn Corp. The carrying values for Renn’s assets and
liabilities on June 1, 20x8 follow:
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Cash………………………………………………………………………………………………………………………………………
P150,000
Accounts receivable………………………………………………………………………………………………
Capitalized software costs……………………………………………………………………………
Goodwill……………………………………………………………………………………………………………………………
Liabilities……………………………………………………………………………………………………………………
Net assets………………………………………………………………………………………………………………………
180,000
320,000
100,000
(130,000)
P 620,000
On June 1, 20x8, Renn’s accounts receivable had a fair value of P140,000.
Additionally, Renn’s in-process and development costs was estimated to have a
fair value of P200,000. All other items were stated at their fair values. On
Cline’s June 1 balance sheet. How much is reported for goodwill?
a.
P320,000
b.
P120,000
c.
P80,000
d.
P20,000
II. Prior to being united in a business combination, Atkins, Inc. and Waterson
Corporation had the following stockholders’ equity figures:
Atkins
P180,000
90,000
300,000
Common stock, P1 par value
Additional paid-in capital
Retained earnings
Waterson
P 45,000
20,000
110,000
Atkins issues 51,000 new shares of its common stock valued at P3 per share for
all of the outstanding stock of Waterson. Assume that Atkins acquires Waterson.
Immediately afterward, what are consolidated Additional Paid-In Capital and
Retained Earnings, respectively?
a. P104,000 and P300,000
b. P110,000 and P410,000
a.
b.
I – b; II – a
I – b; II – c
c. P192,000 and P300,000
d. P212,000 and P410,000
c.
d.
I – c; II - d
None of the above
36. For Job Order No. 369, Escalera Company incurred the following costs for the
manufacture of 200 units of a novelty gadget:
Original cost accumulation:
Direct materials………………………………………………………………………………………………
Direct labor…………………………………………………………………………………………………………
Factory overhead (150% of direct labor)…………………………………
Total……………………………………………………………………………………………………………………………
Direct costs of ten reworked units:
Direct materials………………………………………………………………………………………………
Direct labor…………………………………………………………………………………………………………
Total……………………………………………………………………………………………………………………………
P 13,200
16,000
24,000
P 53,200
P
P
2,000
3,200
5,200
The rework cost was attributable to exacting specifications required by the job
and was charged to the specific order. The units cost of Job Order No. 369 is:
a. P266
c. P292
b. P280
d. P316
37. The following are information regarding a non-profit organization:
I. On December 30, 20x8, Leigh Museum, a not-for-profit organization received a
P7,000,000 donation of Day Company shares with donor-stipulated requirements as
follows:
• Shares valued at P5,000,000 are to be sold, with the proceeds used to erect
a public viewing building.
• Shares valued at P2,000,000 are to be retained (invested indefinitely), with
the dividends used to support current operations.
As a consequence of the receipt of the Day shares, how much should Leigh report
as temporarily restricted net assets on its 20x8 statement of financial position
(balance sheet)?
a. P
0
b. P2,000,000
c. P5,000,000 d. P7,000,000
Page 11 of 28
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seniors performs a volunteer services
for
II. An organization of high school
patients at a nearby nursing home. The nursing home would not otherwise provide
these services, such as wheeling patients in the park and reading to them. At
the minimum wage rate, these services would amount to P21,320, but their actual
value is estimated to be P27,400. In the nursing home’s statement of revenues
and expenses, what amount should be reported in public support?
a. P 27,400
b. P 21,320
c. P 6,080
d. P
0
a.
b.
I – b; II – b
I – d; II – d
c.
d.
I – c; II – d
None of the above
Items 38 and 39 are based on the following information:
The income statement submitted by the Pampanga Branch to the Home Office for the month
of December 2020 is shown below. After effecting the necessary adjustments, the true
net income of the Branch was ascertained to be P156,000.
Sales …………………………………………………………………………………………………
P 600,000
Cost of sales:
Inventory, December 1……………………………………………………
P 80,000
Shipments from Home Office………………………………………
350,000
Local purchases……………………………………………………………………
30,000
Total available for sale……………………………………………
P460,000
Inventory, December 31…………………………………………………
100,000
360,000
Gross margin ………………………………………………………………………………
P240,000
Operating expenses ………………………………………………………………
180,000
Net income
P 60,000
The branch inventories were:
12/01/2020
12/31/2020
Merchandise from home office………………………………………
P 70,000
P 84,000
Local purchases…………………………………………………………………………
10,000
16,000
Total …………………………………………………………………………………………………
P 80,000
P100,000
38. The billing price based on cost imposed by the home office to the branch;
a. 140%
c. 40%
b. 100%
d. 29%
39. The balance of allowance for overvaluation of branch December 31, 2020 after
adjustment.
a. P10,000
c. P16,000
b. P24,000
d. None of the above
40. Pasig Garment Company operates a branch in Cabanatuan City. At the end of the year,
the Branch account in the books of the home office at Manila shows a balance of
P150,000. The following information are ascertained:
1.
2.
3.
4.
5.
The home office has billed the branch the amount of P37,500 for the merchandise,
which was in transit on December 31.
A home office accounts receivable for P10,500 was collected by the branch.
Said collection was not reported to the home office by the branch.
Supplies of P4,500 was returned by the branch to the home office but the home
office has not yet reflected in its records the receipt of the supplies.
The branch made profit of P10,100 for the month of December but the home office
erroneously recorded it as P11,180.
The branch has not received the cash in the amount of P25,000 sent by home
office on December 31. This was charged to General Expense account.
All transactions are presumed to have been properly recorded.
What is the balance of the Home Office account on the books of the branch as of
December 31, before adjustments?
a. P121,920
c. P117,420
b. P123,000
d. P106,920
41. On May 1, RR Products Company ships five (5) of its appliances to SZ Company on
consignment. The cost of the appliances shipped is P155 per unit. The consignor
paid shipping costs totaling P50. Each unit is to be sold at P250 payable P50 in
the month of purchase and P10 per month thereafter. The consignee is entitled to
20% of all amounts collected on consignment sales.
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appliances in May and 1 in June. Regular monthly
SZ Company was able to sell 3
collections by the consignee, and appropriate cash remittances have been made to
the consignor at the end of each month. The profit on consignment is:
a. P294
c. P150
b. P160
d. P140
42. The Carly Company owns 75% of The Halley Company. The following figures are
from their separate financial statements:
Carly: Trade receivables P1,040,000, including P30,000 due from Halley.
Halley: Trade receivables P215,000, including P40,000 due from Carly.
According to PAS 27 Consolidated and separate financial statements, what figure
should appear for trade receivables in Carly's consolidated statement of financial
position?
a. P1,215,000
c. P1,255,000
b. P1,225,000
d. P1,185,000
43. The White Company acquired an 80% interest in The Pulley Company when Pulley's
equity comprised share capital of P100,000 and retained earnings of P500,000.
Pulley's current statement of financial position shows share capital of P100,000,
a revaluation reserve of P400,000 and retained earnings of P1,400,000.
Under PAS 27 Consolidated and separate financial statements, what figure in respect
of Pulley's retained earnings should be included in the consolidated statement of
financial position?
a. P 720,000
c. P1,040,000
b. P1,440,000
d. P1,520,000
44. The Snipes Company owns 65% of The Genie Company. On the last day of the accounting
period Genie sold to Snipes a non-current asset for P200,000. The asset originally
cost P500,000 and at the end of the reporting period, its carrying amount in Genie's
books was P160,000. The group's consolidated statement of financial position has
been drafted without any adjustments in relation to this non-current asset.
Under PAS27 Consolidated and separate financial statements, what adjustments should
be made to the consolidated statement of financial position figures for non-current
assets and retained earnings?
Non-current assets
Retained earnings
a. Increase by P300,000
Increase by P195,000
b. Reduce by P40,000
Reduce by P26,000
c. Reduce by P40,000
Reduce by P40,000
d. Increase by P300,000
Increase by P300,000
45. Wynn, Inc. has a contract to construct a large hotel for P12,000,000. The contract
was signed on January 2, 20x4 and it was expected that the hotel would be complete
on December 31, 20x7. At the date the contract was signed, Wynn, Inc. anticipated
the costs of construction would total P11,000,000. At the end of 20x5 the total
cost estimate rose to P11,870,000 and at the end of 20x6 the total cost estimate
rose to P12,400,000. Due to certain circumstances, Wynn, Inc. believes there are
inherent hazards in the contract beyond the normal, recurring business risks. Wynn,
Inc. expects to recover all its costs under the contract. Under these conditions,
what amount of loss, if any, should Wynn, Inc. recognize in each of the following
years?
20x5
20x6
20x5
20x6
a.
P870,000
P400,000
c.
P870,000
P530,000
b.
P
-0P400,000
d.
P
-0P
-046. Wynn, Inc. has a contract to construct a large hotel for P12,000,000. The contract
was signed on January 2, 20x4 and it was expected that the hotel would be complete
on December 31, 20x7. At the date the contract was signed, Wynn, Inc. anticipated
the costs of construction would total P11,000,000. At the end of 20x5 the costs
incurred were P3,490,000 and its estimate of total contract costs rose to
P11,870,000. During 20x6, the company incurred costs of P4,020,000 and by the end
of 20x6 the total cost estimate rose to P12,400,000. Due to certain circumstances,
Wynn, Inc. believes there are inherent hazards in the contract beyond the normal,
recurring business risks. Wynn, Inc. expects to recover all its costs under the
contract. Under these conditions, what amount of revenue should Wynn, Inc. recognize
in each of the following years?
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20x5
P3,490,000
P
-0-
a.
b.
20x6
P4,020,000
P 400,000
AFAR Final Pre-Board Exam
20x5
20x6 Exam
c.
d.
P3,528,222
P8,380,000
P3,890,323
P4,890,000
47. An entity purchases plant from a foreign supplier for 3 million baht on January 31,
20x6, when the exchange rate was 2 baht = P1. At the entity’s year-end of March 31,
20x6, the amount has not been paid. The closing rate was 1.5 baht = P1. The entity’s
functional currency is the peso.
Which of the following statements is correct?
a.
b.
c.
d.
Cost of plant, P2 million, exchange loss P0.5 million, trade payable
P1.5 million.
Cost of plant P1.5 million, exchange loss P0.6 million, trade payable
P2 million.
Cost of plant P1.5 million, exchange loss P0.5 million, trade payable
P2 million.
Cost of plant P2 million, exchange loss P0.5 million, trade payable P2
million.
48. An entity acquired all the share capital of a foreign entity at a consideration
of 9 million baht on June 30, 20x9. The fair value of the net assets of the foreign
entity at that date was 6 million baht. The functional currency of the entity is
the peso. The financial year-end of the entity is December 31, 20x9. The exchange
rates at June 30, 20x9, and December 31, 20x9, were 1.5 baht = P1 and 2 baht = P1
respectively.
What figure for goodwill should be included in the financial statements for the
year ended December 31, 20x9?
a.
b.
P2 million
3 million baht
c.
d.
P1.5 million
P3 million
49. An entity acquired 60% of the share capital of a foreign entity on June 30, 20x2.
The fair value of the net assets of the foreign entity at that date was 6 million
baht. 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 peso. The financial year-end of
the entity is December 31, 20x2. The exchange rates at June 30, 20x2, and December
31, 20x2, were .5 baht = P1 and 2 baht = P1, respectively.
What figure for the fair value adjustments should be included in the group financial
statements for the year ended December 31, 20x2?
a.
b.
P600,000
P800,000
c.
d.
P2 million
P3 million
50. Property was purchased on December 31, 2019 for 20 million baht. The general price
index in the country was 60.1 on that date. On December 31, 2021, the general price
index had risen to 240.4. If the entity operates in a hyperinflationary economy,
what would be the carrying amount in the financial statements of the property after
restatement?
a.
b.
20 million baht
1,200.2 million baht
c.
d.
80 million baht
4.808 million baht
51. Agency 007 received a request for replenishment of petty cash fund for the
following expenses:
Office supplies
Transportation fares
Repair of aircon
JRS mail
Page 14 of 28
P 500
100
200
160
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AFAR Final Pre-Board Exam
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be:
The entry for this transaction would
a. No entry
b. Memorandum entry to the RAOD-MOOE
c. Office supplies expense……………………………………………………
Travelling expense…………………………………………………………………
Repairs and maintenance……………………………………………………
Other maintenance and operating expenses…………
Cash – National Treasury, MDS……………………
d. Office supplies expense………………………………………………………
Travelling expense……………………………………………………………………
Repairs and maintenance………………………………………………………
Other maintenance and operating expenses…………
Petty Cash Fund…………………………………………………
52.
500
100
200
160
960
500
100
200
160
960
Agency AAA has the following allotment for year 20x8:
Capital Outlay (CO)
Maintenance and Other Operating Expenses (MOOE)
Personal Services (PS)
Financial Expenses (FE)
P 70,000,000
14,000,000
7,000,000
____140,000
P91,140,000
The entry to record the receipt of allotment from DBM would be:
a.
b.
c.
d.
e.
53.
No entry
Memorandum entry/Posting in Registry of Allotments and Obligations
National Clearing Account
91,140,000
Appropriations Allotted
91,140,000
Cash-Modified Disb. System
91,140,000
Subsidy from National Government
91,140,000
None of the above
On January 1, 2021 SME A and B each acquired 30 per cent of the ordinary shares
that carry voting rights at a general meeting of shareholders of entity Z for
P300,000. Entities A and B immediately agreed to share control over entity Z. For
the year ended December 31, 2021 entity Z recognized a profit of P400,000.
On January 2, 2021 entity Z also declared a dividend of P100,000 for the year
2020.
On December 30, 2021 entity Z declared and paid a dividend of P150,000 for the
year 2021. At December 31, 2021 the fair value of each venturers’ investment in
entity Z is P400,000. However, there is no published price quotation for entity
Z.
SME A and B must each recognize dividend income for the year 2021 amounted to:
Cost Model
Fair Value Model
Cost Model
Fair value Model
a.
P 45,000
P75,000
c.
P 75,000
P75,000
b.
P 75,000
P45,000
d.
None
54. In activity-based costing, preliminary cost allocations assign costs to:
a. departments.
c. products.
b. processes.
d. activities.
55. Which of the following costing methods of valuation are acceptable in a job order
costing system?
Actual
Standard
Actual
Predetermined
Material
Material
Labor
Overhead
Cost
Cost
Cost
Cost
a.
yes
yes
no
yes
b.
yes
no
yes
no
c.
no
yes
yes
yes
d.
yes
yes
yes
yes
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56. Job order costing and process costing have which of the following characteristics?
a.
b.
c.
d.
Job Order Costing
homogeneous products
and large quantities
homogeneous products
and small quantities
heterogeneous products
and large quantities
heterogeneous products
and small quantities
Process Costing
heterogeneous products
and small quantities
heterogeneous products
and large quantities
homogeneous products
and small quantities
homogeneous products
and large quantities
57. A hybrid costing system combines characteristics of
a. job order and standard costing systems.
b. job order and process costing systems.
c. process and standard costing systems.
d. job order and normal costing systems.
58. Averaging the total cost of completed beginning inventory and units started and
completed over all units transferred out is known as
a. strict FIFO.
b. modified FIFO.
c. weighted average costing.
d. normal costing.
59. The primary difference between the FIFO and weighted average methods of process
costing is
a. in the treatment of beginning Work in Process Inventory.
b. in the treatment of current period production costs.
c. in the treatment of spoiled units.
d. none of the above.
60. Which of the following has sales value?
By-products
a.
no
b.
yes
c.
yes
d.
no
Waste
no
no
yes
yes
61. Company B acquired the net assets of Company S in exchange for cash. The acquisition
price exceeds the fair value of the net assets acquired. How should Company B
determine the amounts to be reported for the plant and equipment, and for longterm debt of the acquired Company S?
Plant and Equipment
Long-Term Debt
a.
Fair value
S’s carrying amount
b.
Fair value
Fair value
c.
S’s carrying amount
Fair value
d.
S’s carrying amount
S’s carrying amount
62. In 2025, Palex sold inventory costing P45,000 to its 100%-owned subsidiary, Salex,
for P70,000. By 12/31/25, Salex had resold all this inventory for P100,000. Which
of the following accounts would have to be eliminated in consolidation at 12/31/25?
Intercompany Sales
Intercompany Cost of Sales
a.
Yes
Yes
b.
No
No
c.
Yes
No
d.
No
Yes
63. P Corp. owns 90% of the outstanding common stock of S Company. On December 31,
2024, S sold equipment to P for an amount greater than the equipment’s book value
but less than its original cost. The equipment should be reported on the December
31, 2024 consolidated balance sheet at
a. P’s original cost less 90% of S’s recorded gain.
b. P’s original cost less S’s recorded gain.
c. S’s original cost.
d. P’s original cost.
Page 16 of 28
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ADVANCED FINANCIAL ACCOUNTING & REPORTING
ReSA Batch 44 – October 2022 CPALE Batch
25 September 2022  03:00 PM to 06:00 PM
AFAR Final Pre-Board Exam
Exam
64. Philippine based Corporation X has a number of importing transactions with companies
based in UK. Importing activities result in payables. If the settlement currency
is the British Pound, which of the following will happen by changes in the direct
or indirect exchange rates?
Direct Exchange Rate
Indirect Exchange Rate
Increases
Decreases
Increases
Decreases
a.
NA
NA
NA
NA
b.
Loss
Gain
Gain
Loss
c.
Loss
Gain
NA
NA
d.
Gain
Loss
Loss
Gain
65. Hedging a forecasted transaction is a
a. Cash flow hedge.
b. Fair value hedge.
c. Net investment hedge.
d.
e.
Undesignated hedge.
None of the above
66. FX (foreign currency) forwards are valued using
a. The change in the forward rate.
b. The change in the spot rate.
c. The change in the forward rate or the spot rate, depending on whether the
hedge is a fair value hedge or cash flow hedge.
d. The change in the intrinsic value.
e. None of the above.
67. In accordance with PAS 21 (generally accepted accounting principles), which
translation combination is appropriate for a foreign operation whose functional
currency is the U.S. dollar?
Method
Treatment of Translation adjustment
a. Temporal
Other comprehensive income
b. Temporal
Gain or loss in net income
c. Current rate
Other comprehensive income
d. Current rate
Gain or loss in net income
68. At what rates should the following balance sheet accounts in foreign statements be
translated (rather than remeasured) into pesos?
Accumulated
Depreciation—Equipment
Equipment
a.
Current
Current
b.
Current
Average for year
c.
Historical
Current
d.
Historical
Historical
69. Which
a.
b.
c.
70.
of the following accounts is not a monetary item?
Accounts Receivable
d. Accrued liabilities
Inventory
e. None of the above
Accounts payable
Which of the following statements is not correct?
a. Joint arrangements may be entered into to manage risks involved in a project.
b. Joint arrangements may be entered into to provide the parties with access to
new technology or new markets.
c. Joint arrangements require investors to have equal interests in the joint
arrangement.
d. The key feature of a joint arrangement is that the parties involved have
joint control over the decision making in relation to the joint arrangement.
End of Examination
Goodluck and GOD BLESS!!!
*When GOD measures a man, He puts the tape around the heart instead of the head.*
*Until you make peace with who you are, you’ll never be content with what you have.*
*Only passions, great passions, can elevate the soul to great things.*
*Most of the things worth doing in the world had been declared impossible before they were done.*
*The world belongs to the man who is wise enough to change his mind in the presence of facts.*
*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 makes 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
Page 17 of 28
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ADVANCED FINANCIAL ACCOUNTING & REPORTING
ReSA Batch 44 – October 2022 CPALE Batch
25 September 2022  03:00 PM to 06:00 PM
AFAR Final Pre-Board Exam
Exam
ANSWERS & SOLUTIONS/CLARIFICATIONS
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
C
A
C
A
C
B
B
C
A
D
A
A
C
A
C
A
C
C
B
C
A
D
A
C
A
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
D
B
D
B
D
A
D
C
B
B
D
C
A
B
C
D
D
A
B
B
A
C
C
A
C
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
B
B
C
D
D
D
B
B
A
B
B
A
B
B
A
A
C
A
B
C
1. (C)
Fair value hedge
10/02/2028: Original forward rate (180 days)……………………………………P
.53
12/31/2028: Current (remaining) forward rate (90 days)………………
.58
Forex loss per unit.......…………………………………………………………………………………P
.05
Multiplied by: Number of foreign currencies………………………………………………
1,000,000
Foreign exchange loss due to hedged item/commitment……………………… P
50,000 (C)
The forward rate generally differs from the spot rate, but as one moves closer
to the expiration date (or settlement date), the difference between the spot
rate and the forward rate for the remaining period of the contract becomes
smaller and smaller so that at the expiration date, the forward rate will have
converged with the spot rate.
Protecting against an adverse change in the exchange rate between the order date
(commitment date) and the transaction date is hedging a firm foreign-currencydenominated commitment.
Cash Flow Hedge - Not applicable [No entry yet on October 02, 2028 and December
31, 2028].
2. (A)
Fair value hedge – Income Statement
10/02/2028: Original forward rate (180 days……………………………………P
12/31/2028: Current (remaining) forward rate (90 days………
Forex gain per unit.......…………………………………………………………………………………P
Multiplied by: Number of foreign currencies………………………………………………
Foreign exchange gain due to forward contract – I/S……………… P
Cash flow hedge - Equity
10/02/2028: Original forward rate (180 days)..……………………………….P
12/31/2028: Current (remaining) forward rate (90 days)…………
Forex gain per unit.......………………………………………………………………………………………P
Multiplied by: Number of foreign currencies…………………………………………...
Foreign exchange gain due to forward contract – OCI (Equity)P
Page 18 of 28
.53
.58
.05
1,000,000
50,000 (A)
.53
.58
.05
1,000,000
50,000 (A)
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ReSA Batch 44 – October 2022 CPALE Batch
25 September 2022  03:00 PM to 06:00 PM
AFAR Final Pre-Board Exam
for the exchange of two currenciesExam
at a
The forward rate is the rate quoted
specified future date. It differs from the spot rate because of the difference in
interest rates in the international financial markets.
A premium exists on an foreign exchange forward when a party buys or sells forward
at more than the spot rate. A discount exists on an foreign exchange forward when
a party buys or sells forward at less than the spot rate.
For recording purposes, premiums or discounts have no bearing at all meaning there
is no need to set-up such account. However, for option contracts wherein the
writer assumes the responsibility of incurring a potential loss, the writer charges
a fee called a premium. Thus, the premium is the price paid to acquire the option.
The forward rate generally differs from the spot rate, but as one moves closer to
the expiration date (or settlement date), the difference between the spot rate
and the forward rate for the remaining period of the contract becomes smaller and
smaller so that at the expiration date, the forward rate will have converged with
the spot rate.
To determine if a gain or loss on forward contracts occurred during any two
dates, always view:
(1) the forward rate at the inception date as the buying rate (when buying
forward), or the selling rate (if selling forward), and
(2) all subsequent forward rates as the opposite rate. Because the forward rate
at inception is fixed, merely ask: “Did the opposite rate mover favorably or
unfavorably?” An increase in the selling rate is favorable, whereas an
increase in the buying rate is unfavorable.
It should be noted that on the settlement date, the spot rate will be used since
the spot rate on that date is simply the same with the forward rate also on the
same date. .
3. (C)
I. - a
The foreign currency is the functional currency, so a translation method or
closing rate method is appropriate. All assets are translated at the current
exchange rate of P430,000.
II – c
Because the peso is the functional currency, a remeasurement (temporal method)
is required. All receivables are remeasured at current rates. Assets carried at
historical cost, such as prepaid insurance and goodwill, are remeasured at
historical rates.
4. (A)
I. - a
A P10,000 bonus is paid to Costello (P100,000 is paid rather than the P90,000
capital balance). This bonus is deducted from the two remaining partners according
to their profit and loss ratio (2:3). A reduction of 60 percent (3/5) is assigned
to Burns or a decrease of P6,000 which drops that partner’s capital balance from
P30,000 to P24,000.
Or,
Amount paid…………………………………………………………………………………………………P100,000
Less: Book value of interest of Costello (50%)…… 90,000
Bonus to retiring partners…………………………………………………………P 10,000
Burns, capital: P30,000 - (P10,000 x 3/5)…………………P 24,000
I.
- d
Craig receives an additional $10,000. Since Craig is assigned 20 percent of all
profits and losses, this allocation indicates total goodwill of P50,000.
20% of Goodwill = P10,000
.20 G = P10,000
G = P10,000/.20
G = P50,000
Montana is assigned 30% of all profits and losses and would, therefore, record
P15,000 of this goodwill, an entry that raises this partner's capital balance from
P130,000 to P145,000.
Or,
Page 19 of 28
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ReSA Batch 44 – October 2022 CPALE Batch
25 September 2022  03:00 PM to 06:00 PM
AFAR Final Pre-Board Exam
Exam
paid…………………………………………………………………………………………………P 90,000
Amount
Less: Book value of interest of Craig (20%)…………… 80,000
Excess………………………………………………………………………………………………………………P 10,000
Divided by……………………………………………………………………………………………………
20%
Goodwill – total implied………………………………………………P 50,000
Montana, capital: P130,000 + (P50,000 x 30%)…………P145,000
5. (C)
I. - b
Reported balances
Potential loss from
Cassidy deficit
(split 5/8:3/8)
Cash distributions
Angela
P19,000
Woodrow
P18,000
Cassidy
P(12,000)
( 7,500)
P11,500
(4,500)
P13,500
12,000
P
-0-
II. - a
Art
P18,000
(26,000)
P(8,000)
Possible insolvency (3:3)
8,000
Payment to Partners
Reported balances
Possible loss
Raymond
P25,000
(19,500)
P 5,500
( 4,000)
P 1,500
Darby
P26,000
(19,500)
P 6,500
( 4,000)
P 2,500
Total
P69,000
(65,000)
P 4,000
-0P 4,000
6. (B)
Free Assets:
Assets pledged to fully secured liabilities (P150,000 – P60,000)…P 90,000
Free Assets…………………………………………………………………………..………………………………………………………..
80,000
Total Free Assets…………………………………………..…………………………………………………………………………………P170,000
Less: Unsecured liabilities with priority…………………………………………………………..
14,000
Net Free Assets………………………………………………………………………………………………………………..…………………P156,000
Divided by: Unsecured Liabilities without priority:
Partially secured liabilities (P120,000 – P104,000)P16,000
Add: Unsecured liabilities without priority……….……. 224,000
240,000
Expected Recovery % of Unsecured Liabilities: P156,000/P240,000…………………………65%
Estimated payment to Partially Secured Creditors: P104,000 + 65%(P16,000)=P114,400
7. (B)
8. (C)
I. - c
MV of By-product Zest…………………………………………………………………………………………P
Less: Selling and administrative expense………………………………………
Operating profit…………………………………………………………………………………
Share in Joint Cost per unit………………………………………………………………………P
x: Units produced……………………………………………………………………………………………………
Share in joint cost………………………………………………………………………………………………P
5
2
1
2
1,000
2,000
II. - d
Hyp. MV
Pep:
Vim:
Jt. Costs
5,000 x (P50-P10) = P200,000 x 50% = P100,000
4,000 x (P40-P 5) = 140,000
P340,000
P170,000*
Joint Costs……………………………………………………………………………………………………………………P172,000
Less: Joint costs allocated to By-product……………………………………
2,000
Joint costs to joint products……………………………………………………………………P170,000
Sales of Pep: (P50 x 5,000)………………………………………………………………P 250,000
Less: Cost of Sales:
Joint costs…………………………………………………………………………P100,000
Further processing cost………………………………………… 50,000
150,000
Gross profit………………………………………………………………………………
P 100,000
9. (A)
I. - c
Current Assets before eliminating entries…………………………………P
Less: Unrealized profit in ending inventory
Upstream sales: P60,000 x P48,000/P240,000………__
Consolidated Current Assets………………………………………………………………………P
Page 20 of 28
320,000
12,000
308,000
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ADVANCED FINANCIAL ACCOUNTING & REPORTING
ReSA Batch 44 – October 2022 CPALE Batch
25 September 2022  03:00 PM to 06:00 PM
AFAR Final Pre-Board Exam
Exam
The relationship between Clark and Dean does not give rise to any consolidation
entries, since there is no parent-subsidiary relationship (Clark only owns 15% of
Dean)
II. - a
In a consolidated balance sheet, reciprocal balances, such as receivables and
payables, between a parent and a consolidated subsidiary should be eliminated
in its entire amount regardless of the portion of the subsidiary’s stock held
by the parent. Thus, the entire P70,000 advance should be eliminated in the
preparation of the year-end consolidated balance sheet.
10. (D)
12/01/20x8: Original forward rate (2 months)………………………………….P
12/31/20x8: Current (remaining) forward rate (1month)……… .
Forex loss per unit.......………………………………………………………………………………. P
Multiplied by: Number of foreign currencies……………………………………..
Foreign exchange loss – equity/OCI…………………………………………………………..P
1.01
_.99
.02
500,000
10,000 (D)
11. (A)
January 1, 20x9 beginning balance of foreign exchange loss – equity
(No. 10)…………………………………………………………………………………………………………………………P
10,000
Settlement date of forward contract:
12/31/20x8: Current (remaining) forward rate (1 month)P .99
1/31/20x9: Spot rate………………………………………………………………………..
.98
Forex loss per unit………………………………………………………………………………. P
.01
Multiplied by: Number of foreign currencies…………….…… 500,000
Foreign exchange loss – equity/OCI………………………..
5,000
January 31, 20x9 balance – equity/OCI-loss debit balance…
P 15,000 (A)
12. (A)
Job 102:
Direct materials…………………………………………………………………………….
Direct labor…………………………………………………………………………………..
Overhead:
Machine Setup: P20,000/200 = P100 x 2……………P
Inspection: P130,000/6,500 = P20 x 10………………….
Material Moves: P80,000/8,000 = P10 x 10………….
Engineering: P50,000/1,000 = P50 x 50……………………
Production/Manufacturing Costs…………………………………..
Divided by: Units completed…………………………………..
Cost per unit under ABC……………………………………………………
13. (C) - 2,000 x (P3.00
P
200
200
100
2,500
P
P
12,000
2,000
3,000
17,000
50
340
P1.00) = P4,000
14. (A)
before net income or loss
Joint Operations
15,000
25,000 ending inventory
10,000 net income
15. (C) – Gift of long-lived assets should be reported as unrestricted support if the
organization has an accounting policy which does not apply a time restriction on
such gifts.
16. (A)
Combined equipment amounts
Less: gain on sale
Consolidated equipment balance
Combined Accumulated Depreciation
Less: Depreciation on gain
Consolidated Accumulated Depreciation
Page 21 of 28
P1,050,000
25,000
P1,025,000
P
P
250,000
5,000
245,000
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ADVANCED FINANCIAL ACCOUNTING & REPORTING
ReSA Batch 44 – October 2022 CPALE Batch
25 September 2022  03:00 PM to 06:00 PM
AFAR Final Pre-Board Exam
Exam
17. (C)
Unadjusted capital
Add (deduct): adjustments
Doubtful accounts (3% of A/R)
Understatement of depreciation
Adjusted capital
Evan
P59,625
Helen
P33,500
(555)
_______
P59,070
(405)
(900)
P32,195
18. (C) – Nt Dollar 175,000 / Nt Dollar 1.298 = P134,823
Goodwill is translated at the closing (current rate).
19. (B) – Nt 50,000 x P1 / Nt 1.56 = P32,051
PAS 21 par. 47 requires fair value adjustments to the carrying amounts of assets
and liabilities arising on the acquisition of a foreign operation to be treated as
assets and liabilities of the foreign operation. Therefore, they are translated at
the closing rate of exchange.
20. (C) – 160,000 yens x P1 / 2.40 yens = P66,667
PAS 21 par. 23 (a) requires the foreign currency monetary items, such as trade
payables, of an entity to be retranslated at the closing rate at the end of a
reporting period.
21. (A)
Materials
Product
R
S
T
Unit Produced
25,000*
15,000
10,000
50,000
*50,000 x 5/10
Ratio
5/10
3/10
2/10
Conversion Costs
Product Unit Produced
R
S
T
25,000*
15,000
10,000
50,000
Total Cost
Product
R
S
T
Materials
Costs
P 60,000
36,000
24,000
P120,000
22. (D)
Raw and In Process
320,000
320,000
704,000
Actual Conversion Cost
1,024,000
708,000 704,000
Materials Costs
P 60,000
36,000
24,000
P120,000
Final
SP
P10
12
15
Total Ult.
MV
P250,000
180,000
150,000
FPC
Conv. Costs
P30,000
20,000
30,000
P88,000
Finished Goods
FPC
HyMV/NRV
%
P30,000 P220,000 40%
20,000
160,000 40%
30,000
120,000 40%
P500,000
Total
Costs
P178,000
Units
Prod.
25,000
Conv. Costs
P88,000
Unit Cost
P7.12
Cost of Goods Sold
320,000
1,011,200
4,000
1,011,200
1,015,200
* 12,800
4,000
4,000
Applied Conversion Cost
704,000
Unit Cost : P1,024,000 / 16,000 = P64
* P64 x (16,000 – 15,800) = P12,800
704,000
23. (A) – under the reciprocal method, simultaneous equations are developed to determine
the total costs of each service department, taking into account the interactive
effect of other service departments providing service to other departments. For
maintenance, the cost is P18,700 plus 10% of the utilities cost, 40% of this will
be applied to A and 40% to B. The 20% that has already been assigned to the
utilities department is reflected in the set of simultaneous equations.
Page 22 of 28
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ReSA Batch 44 – October 2022 CPALE Batch
25 September 2022  03:00 PM to 06:00 PM
AFAR Final Pre-Board Exam
Exam
24. (C)
Consolidated financial statements should not include intercompany payables and
receivables. Therefore, the P260,000 receivable from Vick Corp. will be eliminated
during the consolidation procedures. The P75,000 advances to Hill is not a
subsidiary of Cobb. Ward Corp. is an unconsolidated subsidiary, and so the P200,000
receivable from Ward will also be included in Cobb’s balance sheet.
25. (A)
In process, beginning…7,500
Started in Process………80,000
87,500
FIFO
IP, beg., F and T
Started, F and T
IP, end
NL
AL
Actual
7,500
65,000
13,000
1,100
900
87,500
WD
0
100%
100%
100%
100%
EP
0
65,000
13,000
1,100
900
80,000
Average
F and T
IP, end
NL
AL
Actual
72,500
13,000
1,100
900
87,500
WD
100%
100%
100%
100%
EP
72,500
13,000
1,100
900
87,500
FIFO: P120,000 / 80,000 = P1.50
AVERAGE : (P120,000 + P10,400) / 87,500 = P1.49
26. (D)
Merchandise:
From HO Available for Sale, at cost
(P300,000 +P120,000 – P7,500)/1.2………………………………………………P 343,750
Purchases from Outsiders, at cost……………………………………………………………
72,500
Merchandise available for sale at cost (net of returns)… P 416,250
The requirement of the problem is vague, but since there is no other answer
available, cost of goods available for sale is assumed to be at cost.
27. (B)
IP, beginning
Started in Process
Actual
7,500
80,000
87,500
FIFO
IP, beginning
Started, Fin. and Transf
IP, ending
NL
AL
Cost per EUP
Actual
7,500
65,000
13,000
1,100
___900
87,500
WD
0
100%
100%
100%
100%
EUP- M
0
65,000
13,000
1,100
___900
80,000
P120,000
80,000
P1.50
WD
60%
100%
70%
100%
100%
EUP-CC
4,500
65,000
9,100
1,100
___900
80,600
P350,000
80,600
P4.34
Cost of IP, ending:
CPD:………………………………………………………………………………………………………………………………………………………………P
-0CTD: (Current)
Materials: 13,000 x P1.50………………………………………………………………………………………
19,500
Conversion cost: 9,100 x P4.34…………………………………………………………………………
39,494
P 58,994
28. (D)
Actual
IP, beginning
7,500
Started in Process
80,000
87,500
FIFO
Actual
WD
EUP- M
WD
EUP-CC
Finished and Transferred
72,500
100% 72,500
100%
72,500
IP, ending
13,000
100% 13,000
70%
9,100
NL
1,100
100%
1,100
100%
1,100
AL
___900
100% ___900
100%
___900
87,500
87,500
83,600
Cost per EUP
(P10,400 + P120,000) (P13,800+P350,000)
87,500
83,600
= P1.49
= P4.35
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ReSA Batch 44 – October 2022 CPALE Batch
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x P1.49) + (1,100 x P4.35)
Cost of NL Units: (1,100 x P0) + (1,100
= P6,424 assigned to units transferred out
Note: No NL lost units allocated to EI since it did not pass through the inspection
point (which happens at the end of the production)
29. (B)
Consolidated Cost of Sales:
Cost of Sales before consolidation:
Parcon……………………………………………………………………………………………………………………………………..P
800,000
Shelly……………………………………………………………………………………………………………………………………….
640,000
Combined Cost of Sales…………………………………………………………………………………………………..P1,440,000
Less: Intercompany Cost of Sales (or Purch) to be eliminated…
400,000
Eliminating entry for 100% RPBI of P** (EI of 20x7)…………….
20,000
Add: Eliminating entry for 100% UPEI of P*** (EI of 20x8)………….
25,000
Consolidated Cost of Sales………………………………………………………………………………………..P 1,045,000
Further, the additional eliminating entries are as follows: (Cost Method)
**100% RPBI of P:
Retained Earnings – P, beginning (Cost Model)/
Investment in S Company(Equity Method)…………………………………16,000
Retained Earnings – S, beginning…………………………………………
4,000
Cost of Sales (Beginning Inventory in Income Statement)… 20,000
***100% UPEI of P:
Cost of Sales (Ending Inventory in Income Statement) 25,000
Inventory (Ending Inventory in Balance Sheet)……………………
25,000
30. (D) – [(P1,110,000 – P780,000) + P960,000] – P210,000 = P1,080,000
31. (A)
Gross patient service revenue………………………………………………………………………..P 980,000
Less: Contractual adjustments……………………………………………………………………….
100,000
Allowance for discounts to hospital employee…………….
15,000
Net Patient Service Revenue…………………………………………………………………………..P 865,000
Bad debts expense is classified as expenses. (refer to AFAR-19 page 9)
32. (D)
Materials: P5,000 + P300……………………………………………………………………………………P
5,300
Direct labor………………………………………………………………………………………………………………..
14,000
Applied factory overhead (150% x P14,000)……………………………………
21,000
P
40,300
Since, the allowance for rework was included in the manufacturing
overhead budget, therefore, the rework cost should be charged to
factory overhead control.
33. (C)
Raw and In Process
13,000
500,000 493,000
20,000
Finished Goods
20,000
493,000 498,000
Cost of Goods Sold
498,000
15,000
34. (B)
Incidentally, the entry to record the transactions related to by-product would be
as follows:
Share in Joint Costs (corresponding reduction in Coco, main product as stated in
the problem)
Work in Process – Soloc (by-product)………………
Work in Process – Coco (main product)…
MV of by-product (P3 x 45,000)…
Less: FPC of by-product
(P30,000 + P22,500 + P7,500)…
Net Revenue – reduction in Coco’s costs…
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75,000
75,000
P 135,000
P
60,000
75,000
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Further Processing Costs:
Work in Process – Soloc (by-product)………………………………
Raw materials………………………………………………………………………
Direct labor or Payroll……………………………………………
Factory Overhead – applied……………………………………
Transferred to Warehouse/Stockroom:
By-product Inventory – Soloc…………………………………………………
Work in Process – Soloc…………………………………………
60,000
30,000
22,500
7,500
135,000
135,000
Or, alternatively the following compound entry would be made:
By-product Inventory – Soloc………………………………………………………………………………
Raw Materials……………………………………………………………………………………………………………
Direct labor or Payroll…………………………………………………………………………………
Factory Overhead – applied…………………………………………………………………………
Work in Process – Coco……………………………………………………………………………………
135,000
30,000
22,500
7,500
7,500
35. (B)
I. - b
Consideration transferred (fair value)………………………………………
P800,000
Less: Fair value of net identifiable assets acquired:
Cash……………………………………………………………………………………………………………… P150,000
Accounts receivable……………………………………………………………………… 140,000
Software…………………………………………………………………………………………………… 320,000
In-process R&D…………………………………………………………………………………… 200,000
Liabilities…………………………………………………………………………………………… (130,000) 680,000
Goodwill………………………………………………………………………………………………………………………
P120,000
The application of recognition measurements in business combination means that
an acquirer must, in recognizing separately the acquirer’s intangible assets,
recognize intangible assets that the acquiree has not recognized in its records,
such as in-process research and development that cannot be recognize under PAS
38 as internally generated assets. As noted in par 34, recognition by an acquirer
of an acquiree’s in-process research and development project only depends whether
the project meets the definition of an intangible asset. It can be seen that
intangible assets in a business combination will be able, and in fact are
required, to recognize intangible assets that are not separately recognizable
when acquired by other means. The costs on individual assets acquired are measured
but reference to the fair value of those assets.
Therefore, In-Process Research and Development is capitalized as an asset of the
combination and reported as intangible assets with indefinite lives subject to
impairment reviews.
II. - c
Atkins records new shares at fair value
Value of shares issued (51,000 × P3)
Par value of shares issued (51,000 × P1)
Additional paid-in capital (new shares)
Additional paid-in capital (existing shares)
Consolidated additional paid-in capital
P153,000
51,000
P102,000
90,000
P192,000
At the date of acquisition, the parent makes no change to retained earnings.
36. (D)
Original costs charged to Work-in-Process
Add: Rework Costs
Direct Materials
Direct Labor
Applied Overhead (150% of P3,200)
Total Costs of Job No. 369
Divided by: Good Units
P 53,200
P 2,000
3,200
4,800
10,000
P 63,200
_____200
P
316
37. (C)
I. - c
The P5,000,000 are considered temporary restricted since it has a purpose which
have not yet been fulfilled.
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to be retained (meaning to be held
in
The P2,000,000 principal which had
perpetuity – permanent) is classified as permanently restricted, while the
dividends is classified as temporary restricted because of purpose restriction,
but to no avail, amount is not given.
II. - d
These services do not meet the criteria for donated services that are recognized.
38.(A)
True Branch Net Income …………………………………………………………………
Less: Branch Net Income as reported (by the Branch) …………………
Overvaluation of Cost of goods sold ………………………………………………
Less: Cost of goods sold from home office at billed price:
Inventory, December 1 ………………………………………
P
70,000
Shipments from home office ……………………………….
350,000
Cost of goods from home office available for sale
P420,000
Less: Inventory, December 31 ………………………………
84,000
Cost of goods sold from home office, at cost …………………………………
P156,000
60,000
P 96,000
336,000
P240,000
Billed Price: (P336,000/P240,000) ………………………………………
140%
39.(B)
Allowance for overvaluation after adjustment:
P84,000 x 40/140 …………………………………………………………
40.(C)- use T-accounts for your comfortability,
Home Office Books
(Branch CurrentDr. balance)
Unadjusted balance
P150,000
Add (deduct) adjustments:
In transit
HO A/R collected by br.
10,500
Supplies returned
( 4,500)
Error in recording Br. NI
( 1,080)
Cash sent to branch
to General Expense by HO
25,000
Adjusted balance
P 179,920
P 24,000
Branch Books
(Home Office Current
– Cr. balance)
P117,420
37,500
25,000
P 179,920
41. (D)
Charges Related to
Total
Charges
(5)
Consignor’s charges:
Cost
Freight
Consignee’s charges:
Commission
Total
Sales price (4 units x
P250/unit)
Profit on Consignment
P
775
50
200
P1,025
Consignment
Sales
(4)
P
Inventory on
Consignment
(1)
620
40
P 155
10
P
_
200
860
1,000
____
P165
P
140
42. (D) - refer to PAS 27 par. 20-21.
Carly’s trade receivables……………………………………………………………….P1,040,000
Halley’s trade receivables……………………………………………………………
215,000
Total………………………………………………………………………………………………………………… P1,255,000
Less: Intercompany receivable (due from Halley)…
30,000
Intercompany receivable (due from Carly)……
40,000
Consolidated trade receivables…………………………………………
P1,185,000
43. (A) – refer to PAS 27 par. 26.
This is the parent company's share of the post-acquisition retained earnings of
the subsidiary. This is determined by deducting (i) the parent company's share of
the retained earnings of the subsidiary at the date of acquisition from (ii) the
parent company's share of the retained earnings of the subsidiary at the end of
the current reporting period.
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Pulley’s retained earnings, date of acquisition………………… P 500,000
Less: Pulley’s retained earnings, end of the current
1,400,000
P 900,000
X: Controlling interest %...................... _
80%
Pulley’s RE included in the consolidated SFP
P 720,000
44. (B)
Upstream sales:
Selling price of non-current asset…………………………………………………….P 200,000
Less: Book/carrying value, date of sale………………………………………
160,000
Gain on intercompany sale …………………………………………………………………… P
40,000
Incidentally, the eliminating entry (assuming books are already closed) would
be as follows:
Retained earnings – Parent (65% x P40,000)…………………… ………………26,000
Non-controlling interest (35% x P40,000)………………………………………… 14,000
Non-current asset……………………………………….
40,000
PAS 27 pars. 20-21 require the profit on intragroup assets to be eliminated in
full. Only the group share of the profits of the subsidiary are taken to group
retained earnings.
This is because the subsidiary sold the asset to the parent. This gain is not
realized from a group perspective per PAS 27 par. 21 and must be removed in full.
It is then allocated between the shareholders of the subsidiary, in the form of
retained earnings (group share of the gain) and the non-controlling interest.
45. (B) 20x5: P12,000,000 > P11,870,000, No loss;
20x6: P12,000,000 – P12,400,000 = P400,000 loss.
46. (A)- revenue recognized to the extent of costs incurred
47. (C)
Date of purchase: 3 million baht / 2 baht per peso…………………P 1.5 million
Balance sheet date: 3 million baht / 1.5 baht per peso……… 2.0 million
Exchange loss……………………………………………………………………………………………………………………P 0.5 million
48. (C)
Consideration Transferred……………………………………………………………………………………
Less: Fair value of net assets acquired………………………………………………
Goodwill…………………………………………………………………………………………………………………………………
Divided by: CURRENT RATE on the balance sheet for
purposes of translation on the date of
acquisition.………………………………………………………………………………………
Goodwill in the Consolidated Balance Sheet (date of
Acquisition)…………………………………………………………………………………………………………P
9.0 million
6.0 million
3.0 million
2.0 baht per peso
1.5 million
Examinees may be misled that since the functional currency is peso, the temporal
method (applied only in case of subsequent to date of acquisition) should then be
applied wherein goodwill or any fair value adjustments is considered as a nonmonetary asset carried at historical cost be remeasured (or translated) using
historical rate (which in this problem is 1.5 baht = P1). But the problem do not
fall under this category – the temporal method, instead it is a classical example
of a goodwill and fair value adjustments arising from acquisition of subsidiaries.
Goodwill arising from the Acquisition of Subsidiaries (Date of Acquisition)
When a company acquires a controlling interest in another company, the excess of
the purchase price over the acquirer’s interest in the fair value of the
identifiable net assets of the acquired company is recognized as goodwill on
consolidation. In the context of a foreign company, the issue arises as to whether
goodwill is an asset of the acquired company or an asset in the acquirer’s books.
If it is an asset of the acquired subsidiary, the goodwill is a foreign asset
which should be translated in the same manner as any other asset of the acquired
subsidiary, which may give rise to a translation difference. However, if it is
treated as an asset in the acquirer’s books, there is no need for translation.
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Pas 21 par. 47 states that:
“Any goodwill arising on the acquisition of a foreign operation and any
fair value adjustments to the carrying amount of assets and liabilities
arising on the acquisition of that foreign operation shall be treated as
assets and liabilities of the foreign operations. Thus they shall be
expressed in the functional currency of the foreign operation and shall
be translated at the closing rate…”
Subsequent to date of acquisition, accordingly goodwill has to be measured in the
functional currency of the foreign operation. If the functional currency of the
foreign operation is the local currency, the goodwill on acquisition is to be
translated at the closing rate. On the other hand, if the functional currency of
the foreign operation is the parent’s currency (or the presentation currency),
goodwill on acquisition is treated as a non-monetary asset and remeasured at the
exchange rate of the acquisition of the foreign operation.
49. (A)
Allocated Excess arising from consolidation……………………………
1.2 million baht
Divided by: CURRENT RATE on the balance sheet for
purposes of translation the date of
acquisition….……………………………………………………………………………
2.0 baht per peso
Allocated Excess (over/under valuation)………………………………………P600,000
Refer to No. 48 for further discussion of using closing/current rate on the
acquisition of a foreign operation resulting in fair value adjustments. Again,
the same with No. 48, the functional currency of peso is somewhat misleading; it
does not refer to the use of temporal method on the date of acquisition.
50. (C) – 20 million x 240.4/60.4 = 80 million
51. (B)
52. (B)
53. (C)
Dividends declared in 2021 (P100,000 + P150,000)…………………………………P 250,000
X: ownership percentage……………………………………………………………………………………………………
30%
Dividend income…………………………………………………………………………………………………………………………P 75,000
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