ACT151
SPECIAL TOPICS & UPDATES: ADVANCED FINANCIAL ACCOUNTING AND REPORTING
MOCK BOARD EXAMINATION
ITEM NO. 1: The balance sheet of Partnership of D, K, and R on December 31, 2022 before
liquidation shows the following:
ASSETS
LIABILITIES & CAPITAL
Cash
P 120,000 Accounts Payable
P 150,000
Other Assets
560,000 Notes Payable
100,000
Loan to R
20,000 Loan from K
10,000
D, Capital (50%)
170,000
K, Capital (30%)
170,000
R, Capital (20%)
100,000
The partnership decided to liquidate as soon as possible after December 31, 2022 and all cash
on hand, except for P 10,000 contingency balance, is to be distributed at the end of each month
until the liquidation is completed. If in the first month of realization and distribution, the partnership
pays liquidation expenses of P 5,000 and K receives P 60,000. Compute the cash proceeds from
the initial sale of other assets?
A. P 160,000
C. P 200,000
B. P 180,000
D. P 205,000
ITEM NO. 2: On March 1, 2022, E and H decide to combine their business and form a partnership.
The balance sheets of E and H on March 1, 2022 before adjustments:
E
H
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
?
?
Accounts Payable
E, Capital
H, Capital
P 45,750
59,625
?
P 18,000
33,500
?
They agreed to provide 3% for doubtful accounts of their accounts receivable and found H’s
furniture and fixtures to be under-depreciated by P 900. If each partner’s share in equity is to be
equal to the net assets invested capital, the capital accounts of E and H would be:
A. P 58,170 and P 33,095 respectively
C. P 59,070 and P 32,195 respectively
B. P 58,320 and P 32,495 respectively
D. P 104,820 and P 50,195 respectively
ITEM 3: If existing partners acquire the equity of a withdrawing partner, in what manner do they
divide the equity?
A. In any manner they choose
B. Equally
C. Proportionate to their residual profit and loss ratios
D. Existing partners are not permitted to acquire the equity of a withdrawing partner
ITEM 4: A partnership in liquidation has converted all assets into cash and paid all liabilities. The
order of payment
A. will have amounts due to partners with respect to their capital accounts take precedence over
amounts owed by partners other than for capital and profits.
B. will be according to the partners’ residual profit and loss sharing ratios.
C. will have amounts owed by partners other than for capital and profits take precedence
over amounts due to partners with respect to their capital accounts.
D. will be any manner that is both reasonable and rational for the partnership.
ITEM 5: B and C share profits and losses in ratio of 2:3 respectively. B and C receive salary
allowances of P 10,000 and P 20,000, also respectively, and both partners receive 10% interest
based upon the balance in their capital accounts on January 1. Partners’ drawings are not used
in determining the average capital balances. Total net income for 2022 is P 60,000. If net income
after deducting the interest and salary allocations is greater than P 20,000, C receives a bonus of
5% of the original amount of net income.
B
C
January 1 capital balances
P 200,000
P 300,000
Yearly drawings (P 1,500 a month)
18,000
18,000
What are the total amounts for the allocation of interest, salary, and bonus, and how much overallocation is present?
A. P 60,000 and P 0
C. P 83,000 and P 0
B. P 80,000 and P 20,000
D. P 83,000 and P 23,000
ITEM 6: The following account balances were available for the P, Q, and R partnership just before
it entered into liquidation:
Cash
P 90,000 Accounts Payable
P 170,000
Noncash Assets
300,000 P, Capital
70,000
Q, Capital
50,000
R, Capital
100,000
P 390,000
P 390,000
P, Q, and R had shared profits and losses in a ratio of 2:4:4. Liquidation expenses were expected
to be P 8,000. Assume that Q was insolvent and could not contribute assets to cover any deficit
in her capital account. For what amount must be the non-cash assets have been sold, so that R
would have received some cash from the liquidation?
A. Any amount in excess of P 58,000
C. Any amount in excess of P 201,600
B. Any amount in excess of P 108,000
D. Any amount in excess of P 50,000
ITEM 7: Which of the following statements is true concerning the distribution of safe payments?
A. The distribution of safe payments assumes that any capital deficit balances will prove
to be a total loss to the partnership.
B. Safe payments are equal to the recorded capital balances of partners with positive capital
balances.
C. The distribution of safe payments may only be made after all liabilities have been paid.
D. In computing safe payments, partners with positive capital balances are assumed to absorb
on equal share of any deficit balance(s).
ITEM 8: Under the rule of offset, what is the proper disposition of a partnership loan that was
made from a partner who has a debit balance.
A. The loan is first paid to the debtor partner before cash payments are made to partners.
B. The loan is written off as a partnership loss if the partner does not have the cash to
cover the debit balance.
C. The loan is not written off as a partnership loss if the partner does not have the cash to cover
the debit balance.
D. The loan is charged off to the capital account of the debtor partner.
ITEM 9: A balance sheet for the partnership of T, N, and D who share profits in the ratio of 2:1:1
shows the following balances before the liquidation:
Cash
P 12,000 Liabilities
P 20,000
Noncash Assets
59,500 T, Capital
22,000
N, Capital
15,500
D, Capital
14,000
P 71,500
P 71,500
On the first installment of the liquidation, certain assets are sold for P 32,000. Liquidation
expenses of P 1,000 are paid, and additional liquidation expenses are anticipated. Liabilities are
paid amounting to P 5,400, and sufficient cash is retained to ensure payment to creditors before
making payment to partners. On the first payment to partners, T receives P 6,250. The total cash
payment to partners on the first installment is:
A. P 25,000
C. P 12,500
B. P 20,000
D. P 10,000
ITEM 10: A balance sheet for the partnership of T, N, and D who share profits in the ratio of 2:1:1
shows the following balances before the liquidation:
Cash
P 12,000 Liabilities
P 20,000
Noncash Assets
59,500 T, Capital
22,000
N, Capital
15,500
D, Capital
14,000
P 71,500
P 71,500
On the first installment of the liquidation, certain assets are sold for P 32,000. Liquidation
expenses of P 1,000 are paid, and additional liquidation expenses are anticipated. Liabilities are
paid amounting to P 5,400, and sufficient cash is retained to ensure payment to creditors before
making payment to partners. On the first payment to partners, T receives P 6,250. The amount
of cash withheld for anticipated liquidation expenses and unpaid liabilities are:
A. P 2,000
C. P 17,600
B. P 14,600
D. P 16,600
ITEM 11: THE COMPANY had the following amount for its assets, liabilities and stockholders’
equity account just before filing a bankruptcy petition and requesting liquidation:
Book Value
Realizable
Value
Cash
P 10,000
P 10,000
Accounts Receivable
100,000
60,000
Inventory
350,000
350,000
Land
110,000
75,000
Building and Equipment
700,000
300,000
Accounts Payable
100,000
Salaries Payable
75,000
Notes Payable (secured by inventory)
300,000
Employee claims for distribution to pension
10,000
plans
Taxes Payable
80,000
Liability for accrued expenses
20,000
Bonds Payable
500,000
Common Stock
200,000
Additional Paid-in-Capital
100,000
Retained Earnings
(115,000)
Of the salaries payable, P 35,000 was owed to an officer of the company. The remaining amount
was owed to salaried employees who had not been paid within the previous 80 days: John Webb
was owed P 10,600, Samantha Jones was owed P 15,000, Sandra Johnson was owed P 11,900
and Dennis Roberts was owed P 2,500. The maximum owed for any employee claims for
contributions to benefit plans was P 800. Estimated expense for administering the liquidation
amounted to P 40,000. What was the total amount of unsecured liabilities with priority?
A. P 75,000
C. P 165,000
B. P 155,000
D. P 170,000
ITEM 12: THE COMPANY recently petitioned for bankruptcy and is now in the process of
preparing the statement of affairs. The carrying values and estimated fair values of the assets of
the company are as follows:
Book Value
Fair Value
Cash
P 20,000
P 20,000
Accounts Receivable
45,000
30,000
Inventory
60,000
35,000
Land
75,000
70,000
Building (net)
180,000
100,000
Equipment (net)
170,000
80,000
Accounts Payable
Wages Payable
Taxes Payable
Notes Payable (secured by receivable and
inventory)
Interest on Notes Payable
Bonds Payable (secured by land and
building)
Interest on Bonds Payable
What is the estimated dividend percentage?
A. 23%
B. 93%
P 60,000
10,000
10,000
120,000
6,000
150,000
7,000
C. 77%
D. 68%
ITEM 13: Which of the following observations concerning claims by general unsecured
creditors is NOT true?
A. They are paid only after secured creditors and unsecured creditors with priority are satisfied
to the extent of any legal limits.
B. They often receive less than the full amount of their claim.
C. They are entitled to "preference payments" at the discretion of the debtor's
management.
D. The amounts to be paid to them are usually stated as a percentage of the total claim.
ITEM 14: Which of the following items are likely to be reported in the supplementary items section
of a statement of realization and liquidation?
A. Creditors' claims settled during the period.
B. Trustee's administration fees.
C. New obligations incurred by the trustee.
D. Assets subsequently acquired by the trustee.
ITEM 15: THE CORPORATION has a branch operating in Iligan City. The branch office sells
merchandise which is shipped to it from the home office. The merchandise is transferred at cost,
but the branch pays reasonable freight charges. The branch office makes sales and incurs and
pays operating expenses. At the end of the current accounting period, the unadjusted balance for
the branch current account on the home office’s books is P 518,575. The following items may or
may not be reconciling items as of the end of 2022:
• The home office has shipped merchandise to the branch office which cost P 10,000 and
which incurs P 500 freight charges paid by the home office but charged to the branch.
This merchandise is received by the branch on January 5, 2023.
• The branch has transmitted P 17,000 in cash back to the home office as a partial payment
on such purchased merchandise. This cash is received by the home office on January
5, 2023.
•
•
•
•
•
The branch office returns some defective merchandise to the home office. The cost of
the returned merchandise is P 750. The branch office pays P 25 of freight costs which
will be charged back to the home office.
On December 1, 2022, the home office sends a check for P 25,000 to replenish the
branch’s working capital. The check is received on January 5, 2023.
The branch pays an advertising expense of P 800 that should have been paid by the
home office since it applied to advertising fees incurred by the home office for its own
benefit.
The home office allocated P 12,000 of general and administrative expenses to the
branch. The branch had not entered the allocated as of the end of the year.
The home office pays insurance premiums on the branch store. The amount paid by the
home office is P 1,000 but the branch erroneously records it as P 776
Compute the unadjusted balance for the home office account on the branch’s books as of
December 31, 2022:
A. P 481,425
C. P 452,276
B. P 500,000
D. P 433,701
ITEM 16: THE CORPORATION has a branch office, named A BRANCH. THE CORPORATION
is performing the end-of-the-period reconciliation. The following items are unsettled at the end of
the accounting period:
• THE CORPORATION has agreed to remove P 750 of excess freight charges charged to
A BRANCH when THE CORPORATION shipped twice as much inventory as A BRANCH
requested.
• A BRANCH mailed a check for P 11,000 to THE CORPORATION as a payment for
merchandise shipped from the CORPORATION to A BRANCH. THE CORPORATION has
not yet received the check.
• A BRANCH returned defective merchandise to THE CORPORATION. The merchandise
was billed to A BRANCH at P 4,000 when its actual cost was P 3,000.
• Advertising expenses attributable to A BRANCH was paid for by THE CORPORATION in
the amount of P 5,000.
Which of the following statements is correct?
A. The Home Office account in A BRANCH’s books is decreased for the P 11,000 of cash in
transit and is decreased for the P 750 of excess freight charges.
B. The Home Office account in A BRANCH’s books is decreased for the P 750 of excessive
freight charges and increased by the P 5,000 of the advertising expenditure.
C. The Home Office account in A BRANCH’s books is decreased for the P 5,000 of advertising
expense and decreased for the P 750 of excess freight charges.
D. The Home Office account in A BRANCH’s books is increased for the P 11,000 of cash payment
to THE CORPORATION and decreased by P 4,000 for the billed cost of the defective
merchandise inventory.
ITEM 17: THE COMPANY is engaged in merchandising both at Home Office in Makati, Metro
Manila and a branch in Davao. Selected accounts in the trial balances of the Home Office and
the Branch at December 31, 2022 follow:
Debit:
Home Office
Branch
Inventory
P 23,000
P 11,550
Davao Branch
58,300
Purchases
190,000
105,000
Freight-In from Home Office
5,500
Sundry Expenses
52,000
28.000
Credit:
Home Office
P 53,300
Sales
P 155,000
140,000
Sales to Branch
110,000
Allowance for Branch Inventory, 1/1/2022
1,000
Additional Information:
• Davao branch receives all its merchandise from the home office. The Home Office bills
the goods at cost plus 10% mark-up. At December 31, 2022, a shipment with a billing
value of P 5,000 was in transit to the branch. Freight on this shipment was P 250 which is
to be treated as part of inventory.
• December 31, 2022 inventories excluding the shipment in transit, are:
Home Office, at cost – P 30,000
Davao Branch, at billed value (excluding freight of P 520) – P 10,400
Net Income of the Home Office was:
A. P 10,000
B. P 15,000
C. P 20,000
D. P 25,000
ITEM 18: THE 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 P 150,000. The
following information is ascertained:
1. The home office has billed the branch the amount of P 37,500 for the merchandise, which
was in transit on Dec ember 31.
2. A home office accounts receivable for P 10,500 was collected by the branch. The said
collection was not reported to the home office by the branch.
3. Supplies of P 4,500 were returned by the branch to the home office, but the home office
has not yet reflected in its records the receipt of the supplies.
4. The branch made a profit of P 10,100 for the month of December, but the home office
erroneously recorded it as P 11,180.
5. The branch has not received the cash in the amount of P 25,000 sent by the home office
on December 31. This was charged to the General Expense account.
All transactions are presumed to have been properly recorded. What is the adjusted balance of
the reciprocal accounts?
A. P 96,420
C. P 117,420
B. P 106,920
D. P 179,920
ITEM 19: A joint arrangement has three parties in which A owns 50% voting rights, while B owns
30% and C owns 20% voting rights in the arrangement. The terms of the contract among the
parties A, B and C state that at minimum 75% of the voting rights are needed to exercise the
control over the arrangement. This joint arrangement is:
A. Joint Operation
C. Business Combination
B. Joint Venture
D. Statutory Consolidation
ITEM 20: Two parties established a joint arrangement in the form of an incorporated separate
legal entity. Each party to the arrangement owns 50% voting rights of the incorporated entity. The
incorporation results in the separation of the joint owners from this entity and this reflects that the
assets and liabilities held in the jointly control entity are the assets and liabilities of the
incorporated entity. In such a case, the parties to the entity have the right to the net assets of the
entity; therefore it will be treated as:
A. Joint Operation
C. Associate
B. Joint Venture
D. Subsidiary
ITEM 21: McKee and Nelson enter a contract to speculate on the stock market, each using
approximately P5,000 of personal cash. The earnings are to be divided equally, and settlement
is to be made at the end of the year after all securities have been sold. A summary of the monthly
brokerage statements for the year follows:
McKee
Nelson
Total of all purchase confirmations
P45,000
P18,000
Total of all sales confirmations
48,700
16,800
Interest
charged
on
margin
80
50
accounts
40
100
Dividends credited to accounts
Final settlement will require payments as follows:
A. McKee pays Nelson P 2,405.
B. McKee and Nelson receive P 1,255 each
C. McKee receives from Nelson P 1,150.
D. None of the choices
ITEM 22: For the purposes of equity accounting for an investment in an associate, it is presumed
that the investor has significant influence over the other entity where the investor holds:
A. between 1% and 5% of the voting power of the investee.
B. between 5% and 10% of the voting power of the investee.
C. 20% or more of the voting power of the investee.
D. 50% or more of the voting power of the investee.
ITEM 23: The Regular Disbursing Officer of Agency X, a national government agency, liquidated
the cash advance for payroll of the agency’s regular employees in the amount of P102,500. The
liquidation was appropriately recognized based on the Report of Cash Disbursements and other
supporting documents. What is the journal entry to record, in the books of the government agency,
the above liquidation of payroll funds?
A. Debit - Due to officers and employees (102,500); Credit - Advances for payroll (102,500)
B. Debit - Due from disbursing officer (102,500); Credit - Advances for payroll (102,500)
C. Debit - Salaries and wages - Regular (102,500); Credit - Advances for payroll (102,500)
D. Debit - Salaries and wages - Regular (102,500); Credit - Advances to disbursing officer
(102,500)
ITEM 24: The Department of Budget and Management, Department of Finance, Bureau of
Treasury, and Commission on Audit are collectively responsible for the Unified Accounts Code
Structure (UACS). Who is responsible for the consistency of account classification and coding
structure with the Revised Chart of Accounts?
A. Commission on Audit
C. Bureau of Treasury
B. Department of Finance
D. Department of Budget ang Management
ITEM 25: THE CORPORATION operates a branch operation in a foreign country. Although this
branch deals in foreign currency (FC), the peso is viewed as its functional currency. Thus, a
remeasurement is necessary to produce financial information for external reporting purposes. The
branch began the year with 100,000 FCs in cash and no other assets or liabilities. However, the
branch immediately used 60,000 FCs to acquire equipment. On May 1, it purchased inventory
costing 30,000 FCs for cash that it sold on July 1 for 50,000 FCs cash. The branch transferred
10,000 FCs to the parent and recorded depreciation on the equipment of 6,000 FCs for the year.
Currency exchange rates for 1 FC follow:
January 1
P 0.16
May 1
P 0.18
July 1
P 0.20
October 1
P 0.21
December 31
P 0.22
What is the remeasurement gain to be recognized in the consolidated income statement?
A. P 2,100
C. P 2,700
B. P 2,400
D. P 3,000
ITEM 26: A foreign subsidiary of THE COMPANY (a Philippine firm) has certain balance sheet
accounts on December 31, 2022. The functional currency is the peso and currency of record is
the US dollars and the parent’s books are kept in pesos. Information relating to these accounts in
pesos is as follows:
Remeasured at
Current Rates
Historical
Rates
Accounts Receivable
P 175,000
P 190,000
Inventories
400,000
450,000
Prepaid Insurance
40,000
45,000
Land
30,000
100,000
P 645,000
P 785,000
What amount should be included as total assets on THE COMPANY’s balance sheet on
December 31, 2022 as the result of the above information?
A. P 645,000
C. P 770,000
B. P 765,000
D. P 785,000
ITEM 27: THE COMPANY established a subsidiary in a foreign country on January 1, 2022. The
subsidiary engaged in the following transactions during 2022:
▪ January 1 - sold common stock to A COMPANY for 5,000,000 foreign currencies (FC).
Purchase inventory throughout the year, 8,000,000 FC (1/4 remained at year end).
▪ December 31 - sales throughout the year totaled 12,000,000 FC. Purchased equipment
for 1,000,000 FC
THE COMPANY concluded that the subsidiary’s functional currency was FC. Exchange rate for
2022 were:
▪ January 01
: 1FC = P 0.20
▪ January 31
: 1FC = P 0.19
▪ December 31
: 1FC = P 0.16
▪ Weighted Average
: 1FC = P 0.18
What amount of foreign exchange gain or loss would have been recognized on THE COMPANY’s
consolidated income statement for 2022?
A. P 200,000 loss
C. P 235,600 loss
B. P 226,000 loss
D. P 280,000 loss
ITEM 28: Mr. Conrad makes an unconditional promise to donate a painting to THE LIBRARY on
June 1, 2022 for delivery on July 31, 2022. His cost basis in the painting is P250,000 and the
current market value of the painting is P500,000. THE LIBRARY will record the donation as an
asset and contribution revenue:
A. On June 1, 2022 at P250,000
C. On July 31, 2022 at P250,000
B. On June 1, 2022 at P500,000
D. On July 31, 2022 at P500,000
ITEM 29: The general-purpose financial statements of nongovernment not-for-profit organizations
would include the following statements:
A. Balance sheet; operating statement; sources and uses statement and statement of functional
expenses
B. Statement of financial position; statement of activities; and statement of cash flows
C. Statement of financial position; statement of activities; and sources and uses statement
D. None of the above
ITEM 30: The exchange loss or gain recognized on the balance sheet date that occurs between
the transaction date and the settlement date of a foreign currency transaction is based on what
exchange rates?
A. The spot rate at the transaction date and the spot rate at the balance sheet date
B. The forward rate at the transaction date and the spot rate at the balance sheet date
C. The spot rate at the transaction date and the forward rate at the balance sheet date
D. The forward rate at the transaction date and the forward rate at the balance sheet date
ITEM 31: On December 1, 2024, THE COMPANY, a Philippine company, entered into a threemonth forward contract to purchase 50,000 Foreign Currencies (FC) on March 1, 2025. The
following FC per peso exchange rates apply:
DATE
SPOT RATE FORWARD RATE
December 1, 2024
P 0.092
P 0.105
December 31, 2024
P 0.090
P 0.095
March 1, 2025
P 0.089
?
JOSOL's incremental borrowing rate is 12 percent. Which of the following is included in THE
COMPANY’s December 31, 2024 statement of financial position for the forward contract?
A. P 490.15 ASSET
C. P 5,146.58 LIABILITY
B. P 490.15 LIABILITY
D. P 5,146.58 ASSET
ITEM 32: Which of the following statements is correct with regard to foreign currency
transactions?
A. The company must hedge a foreign currency transaction if there is a balance sheet date
between the transaction date and the settlement date
B. When there is a balance sheet date between the transaction date and the settlement date, the
transaction is initially recorded using the projected spot rate on the settlement date
C. An adjusting entry is required on the balance sheet date to reflect the change in the
estimated value of the monetary account associated with the transaction
D. Any gains or losses are amortized on the period from the date of the initial transaction until the
settlement date using the effective interest method
ITEM 33: On August 1, 2022, THE COMPANY (a Philippine firm) purchased a machine costing
200,000,000 foreign currency units (FCU) from a foreign firm to be paid for on October 1, 2022.
Also on August 1, 2022, THE COMPANY entered into a contract to purchase 200,000,000 FCU
to be delivered on October 1, 2022, at a forward rate of 1 FCU = P0.00783. The exchange rates
were as follows:
Spot
August 1, 2022
1 FCU = P0.00781
August 31, 2022
1 FCU = P0.00777
October 1, 2022
1 FCU = P0.00779
Which of the following statements is incorrect concerning the accounting treatment of these
transactions?
A. The machine's final recorded value was P1,558,000.
B. The beginning balance in the accounts payable was P1,562,000.
C. An exchange gain on the accounts payable of P4,000 was recognized on October 1, 2022.
D. The value of the accounts payable just before payment, on October 1, 20x4, was P1,558,000.
ITEM 34: At the acquisition date, an acquirer has established fair values for items that was either
not recognized, recognized an asset or recognized as an expense in profit or loss by the acquiree
an is trying to decide whether they can be classified as identifiable assets:
ITEM
BOOK VALUE
FAIR VALUE
Technology skilled workforce
P0
P 1,000,000
In-process development of new compounds for food
0
1,500,000
flavoring
Patents developed internally
0
500,000
Selling efforts leading to an order backlog
0
300,000
Franchise agreements developed internally
0
700,000
Potentially profitable future contracts
0
400,000
Favorable leaseholds
0
2,000,000
Advertising contracts
0
4,000,000
Possible liability from a lawsuit
0
5,000,000
Completed technology
500,000
1,000,000
Broader customer base
0
400,000
Licensing agreements
1,600,000
2,000,000
Potential contracts with new customers
0
900,000
Advertising jingles
Future cost savings
Goodwill
0
0
2,000,000
1,000,000
2,000,000
3,000,000
What is the amount that should be recognized as identifiable intangible asset?
A. P 18,000,000
C. P 13,000,000
B. P 15,000,000
D. None of the choices
ITEM 35: Which of the following statements is false about a business combination according to
PFRS 3?
A. Although business usually have outputs, outputs are not required for an integrated set of
activities to qualify as a business.
B. When a business is acquired, all of the inputs or processes that the seller used in
operating that business need to be acquired in order to qualify as a business.
C. Nearly all businesses also have liabilities, but a business need not have liabilities.
D. In the assessment of whether an entity is a business, it is not relevant whether a seller operated
the set as business or whether the acquirer intends to operate the set of business, just as long as
it is capable.
ITEM 36: On July 1, 2021 THE COMPANY acquired 100% of A COMPANY for a consideration
transferred of P 2,400,000. At the acquisition date, the carrying amount of A COMPANY’s net
assets was P 1,500,000. At the acquisition date, a provisional fair value of P 1,800,000 was
attributed to the net assets. An additional valuation received on May 31, 2022 increased this
provisional fair value to P 2,000,000 and on July 30, 2022 was finalized at P 2,100,000. Which of
the following statements is incorrect in accordance with the PFRS 3 Business Combinations?
A. THE COMPANY will present goodwill amounting to P 600,000 in its statement of financial
position on December 31, 2021.
B. THE COMPANY will present goodwill amounting to P 400,000 in its statement of financial
position on December 31, 2022.
C. THE COMPANY will present goodwill amounting to P 300,000 in its statement of financial
position on December 31, 2021.
D. In preparing the 2022 financial statement, the goodwill that THE COMPANY will present in its
comparative statement of financial position on December 31, 2021 is P400,000.
ITEM 37: THE CORPORATION and A CORPORATION have announced terms of an exchange
agreement under which, THE CORPORATION will pay P 60,000 cash and will issue 8,000 shares
of its P 10 par value common stock to acquire all the assets of A CORPORATION. THE
COPRORATION’s share is currently trading at P 50, and A CORPORATION’s P 5 par value
shares are trading at P 18 each. Book value and fair value statement of financial position data on
January 1 prior to acquisition are as follows:
Cash and Receivables
Land
Building and Equipment
TOTAL ASSETS
THE CORPORATION
Book Value
Fair Value
P 150,000
P 150,000
100,000
170,000
300,000
400,000
P 550,000
P 720,000
A CORPORATION
Book Value
Fair Value
P 40,000
P 40,000
50,000
85,000
160,000
230,000
P 250,000
P 355,000
Ordinary Shares
P 200,000
P 100,000
Share Premium
20,000
10,000
Accumulated Profits
330,000
140,000
TOTAL EQUITIES
P 550,000
P 250,000
In addition, THE COMPANY incurred the following costs:
• Legal fees to arrange the business combination – P 5,000
• Other professional fees – P 6,000
• Cost of SEC registration and other stock issuance costs – P 12,000
• Indirect costs – P 17,000
Determine the following adjusted amounts to be reported on THE CORPORATION’s statement
of financial position after the acquisition.
A. Cash and Receivables – P 90,000; Goodwill – P 105,000; Share Premium – P 308,000;
Accumulated Profits – P 313,000
B. Cash and Receivables – P 90,000; Goodwill – P 105,000; Share Premium – P 328,000;
Accumulated Profits – P 302,000
C. Cash and Receivables – P 90,000; Goodwill – P 116,000; Share Premium – P 328,000;
Accumulated Profits – P 313,000
D. Cash and Receivables – P 150,000; Goodwill – P 116,000; Share Premium – P 308,000;
Accumulated Profits – P 302,000
ITEM 38: On January 2, 2020, THE COMPANY acquired 80% interest in A COMPANY for P
2,750,000 cash. On this date, the outstanding share capital and accumulated profits of THE
COMPANY and A COMPANY are as follows:
THE COMPANY A COMPANY
Ordinary Shares
P 1,500,000
P 875,000
Share Premium
1,000,000
Retained Earnings
3,500,000
2,125,000
There was no issuance of share capital during the year. NCI is measured at its fair value of P
687,500. Fair values of the following assets exceed their books values as follows:
Inventories
P 140,000
Property and Equipment (useful life, 10 years)
85,000
All other assets and liabilities are fairly valued. Goodwill if any is not impaired. On December 31,
2020, the two companies reported the following operation results:
THE COMPANY A COMPANY
Net Income
P 1,190,000
P 650,000
Dividends Paid
350,000
175,000
What is the consolidated shareholder’s equity to be reported in the consolidated statement of
financial position on December 31, 2020?
A. P 7,788,700
C. P 7,451,200
B. P 7,101,200
D. P 7,854,000
ITEM 39: On December 31, 2019, THE COMPANY purchase 70% of the outstanding shares of A
COMPANY for P 245,000 at a gain on bargain purchase of P 20,000. On that date, A COMPANY
had P 100,000 of capital stock and P 250,000 of retained earnings. For 2020, THE COMPANY
had income of P 200,000 from its own operations and paid dividends of P 100,000. For 2020, A
COMPANY reported income of P 30,000 and paid dividends of P 20,000. All assets and liabilities
of A COMPANY have books values approximately equal to their fair values. The beginning
inventory of THE COMPANY includes P 6,000 merchandise purchased from A COMPANY on
December 31, 2019 at 150% of cost. The ending inventory of A COMPANY includes P 9,000 of
merchandise purchase from THE COMPANY at the same mark up. THE COMPANY and A
COMPANY uses FIFO inventory costing. What is the non-controlling interest in A COMPANY for
the year ended December 31, 2020?
A. P 108,600
C. P 110,700
B. P 107,700
D. P 105,000
ITEM 40: Which of the following is a criterion for a parent to be exempted from the presentation
of consolidated financial statements?
I. It is a wholly owned subsidiary or a partially owned subsidiary of another entity, and its other
owners, including those otherwise not entitled to vote, have been informed about and do not
object to the non-consolidation.
II. The ultimate or intermediate parent has PFRS consolidated financial statements for public use
complying with PFRS.
III. The parent did not file, nor it is in the process of filing its financial statements with a security
commission or other regulatory organization to issue any class of instruments in a public market.
IV. Its debt or equity instruments are not traded in a public market
A. Any of the above
C. I, II and III
B. I and IV only
D. I, II, III and IV
ITEM 41: Which of the following in incorrect in accordance with PAS 27 Separate Financial
Statements?
A. PAS 27 requires the preparation of separate financial statements for some entities.
B. Where an investor with subsidiaries, associates, or joint ventures dose not prepare separate
financial statements purporting to comply with PFRS, they must be prepared in accordance with
PAS 27.
C. The financial statements of an entity that does not have a subsidiary, associate or joint venture
are not ‘separate financial statements’.
D. Separate financial statements are sometimes called ‘individual financial statements’, ‘stand
alone’, ‘solus’, or ‘single-entity financial statements’.
ITEM 42: Which of the following is incorrect regarding consolidation of financial statements?
A. Consolidation of an investee shall begin from the date the investor obtains control of the
investee and ceases when the investor loses control of the investee.
B. A parent shall prepare consolidated financial statements using uniform accounting policies for
like transactions and other events in similar circumstances.
C. A parent shall present non-controlling interests in the consolidated statement of financial
position within equity, separately from the equity of the owners of the parent.
D. The parent and subsidiaries are required to have the same reporting dates, or
consolidation based on additional financial information prepared by subsidiary, unless
impracticable. Where impracticable, the most recent financial statements of the subsidiary
are used, adjusted for the effects of significant transactions or other events between the
reporting dates of the subsidiary and consolidated financial statements. The difference
between the date of the subsidiary’s financial statements and that of the consolidated
statements shall be no more than three years.
ITEM 43: Which of the following is incorrect regarding consolidation procedure?
A. Combine like items of assets, liabilities, equity, income, expenses, and cash flows of
the parent with those of its associates.
B. Offset (eliminate) the carrying amount of the parent’s investment in each subsidiary and the
parent’s portion of equity of each subsidiary.
C. Eliminate in full intragroup assets and liabilities, equity, income, expenses, and cash flows
relating to transactions between entities of the group.
D. Profits and losses resulting from intragroup transactions that are recognized in assets, such as
inventory and fixed assets, are eliminated in full.
ITEM 44: Which of the following statements is not correct about recognizing and measuring the
assets, liabilities, contingent liabilities and non-controlling interest according to PFRS 3?
A. For the intangible assets, fair value must be reliably measurable, but the probability of the
outflow of future economic benefits need not be tested.
B. The acquirer can recognize liabilities for future losses or costs base on its intentions
for the future.
C. The appendix to PFRS 3 explains that uncertain future cash flows are included in the fair value
measure and not recognized as a separate valuation allowance.
D. The exception for non-current assets held for sale comes from PFRS 5: these items are to be
valued at fair value less costs to sell, not simply at fair value.
ITEM 45: The statement of financial position of
follows:
ASSETS
Cash
P 175,000
Accounts Receivable
250,000
Inventories
725,000
PPE
950,000
THE COMPANY as of December 31, 2020 is as
LIABILITIES & SHAREHOLDER’S EQUITY
Current Liabilities
P 250,000
Mortgage Payable
450,000
Ordinary Shares
200,000
Share Premium
400,000
Retained Earnings
800,000
P 2,100,000
P 2,100,000
On December 31, 2020, A COMPANY bought all the outstanding shares of THE COMPANY for
P 1,800,000 cash. On the date of purchase, the fair value of THE COMPANY’s inventories was
P 675,000, while the fair value of THE COMPANY’s property, plant and equipment was P
1,100,000. The fair values of all other assets and liabilities of THE COMPANY were equal to their
book values. Compute the amount of goodwill in the book of A COMPANY and in the consolidated
statement of financial position, respectively.
A. P 300,000; P 300,000
C. P 0; P0
B. P 300,000; P 0
D. P 0; P 300,000
ITEM 46: On January 1, 2020, THE CORPORATION acquired 90% of the outstanding ordinary
shares of A CORPORATION.
THE CORPORATION
A CORPORATION
Carrying amount
Carrying amount
Fair value
Cash
P 50,000
P 25,000
P 25,000
Receivables
95,000
45,000
45,000
Inventories
90,000
40,000
45,000
Land
200,000
90,000
100,000
Building – net
190,000
95,000
90,000
Investment in A Corporation
190,000
TOTAL
?
?
?
Accounts Payable
P 100,000
P 90,000
P 90,000
Other Liabilities
30,000
60,000
50,000
Ordinary Shares, P 10 par
600,000
130,000
Retained Earnings
85,000
15,000
TOTAL
?
?
If NCI is measured at the present ownership instruments’ proportionate share in the recognized
amount of the acquirees identifiable net assets, how much is the total assets on January 1, 2020?
A. P 955,000
C. P 971,500
B. P 969,500
D. P 953,500
ITEM 47: PFRS 10 shall be applied in preparation and presentation of financial statements of:
A. group entities under control of a parent
B. group entities under common management
C. single entity with multiple controls
D. group entities under more than one parent
ITEM 48: Trial balances of THE CORPORATION and A CORPORATION at December 31, 2020
follow:
THE CORPORATION A CORPORATION
Current Assets
P 240,000
P 130,000
Land
300,000
50,000
Plant and Equipment, net
1,000,000
450,000
Investment in A Corporation
410,000
Cost of Sales
1,000,000
300,000
Other Expenses
250,000
120,000
Dividends
100,000
?
Current Liabilities
Common Stocks
Retained Earnings
Sales
Dividend Income
P 255,000
1,000,000
500,000
1,500,000
?
P 100,000
300,000
200,000
500,000
-
THE CORPORATION acquired a 90% interest in A CORPORATION for P 410,000 on January 1,
2019 when A CORPORATION’s shareholder’s equity consisted of P 300,000 capital stock and P
100,000 retained earnings. Any difference between investment cost and book value relates to
equipment with a ten-year life from January 1, 2019. Dividends to the noncontrolling interest for
2020 must be:
A. P 50,000
C. P 10,000
B. P 20,000
D. P 5,000
ITEM 49: To compute equivalent units of production using the FIFO method of process costing,
work for the current period must be stated in units
A. completed during the period and units in ending inventory.
B. completed from beginning inventory, units started and completed during the period,
and units partially completed in ending inventory.
C. started during the period and units transferred out during the period.
D. processed during the period and units completed during the period.
ITEM 50: Material is added at the beginning of a process in a process costing system. The
beginning Work in Process Inventory for the process was 30 percent complete as to conversion
costs. Using the FIFO method of costing, the number of equivalent units of material for the process
during this period is equal to the
A. beginning inventory this period for the process.
B. units started this period in the process.
C. units started this period in the process plus the beginning Work in Process Inventory.
D. units started and completed this period plus the units in ending Work in Process
Inventory.
ITEM 51: In analyzing manufacturing overhead variances, the volume variance is the difference
between the:
A. amount shown in the flexible budget and the amount shown in the debit side of the overhead
control account
B. predetermined overhead application rate and the flexible budget application rate times actual
hours worked
C. budget allowance based on standard hours allowed for actual production for the period
and the amount budgeted to be applied during the period
D. actual amount spent for overhead items during the period and the overhead amount applied to
production during the period
ITEM 52: The flexible budget for the month of May 2022 was for 9,000 units with direct material
at P15 per unit. Direct labor was budgeted at 45 minutes per unit for a total of P81,000. Actual
output for the month was 8,500 units with P127,500 in direct material and P77,775 in direct labor
expense. Direct labor hours of 6,375 were actually worked during the month. Variance analysis
of the performance for the month of May would show a(n):
A. favorable material quantity variance of P7,500.
B. unfavorable direct labor efficiency variance of P1,275.
C. unfavorable material quantity variance of P7,500.
D. unfavorable direct labor rate variance of P1,275.
ITEM 53: THE COMPANY has the following information for July:
• Units started - 100,000 units
• Beginning Work in Process (35% complete) - 20,000 units
• Normal spoilage (discrete, found at the end) - 3,500 units
• Abnormal spoilage - 5,000 units
• Ending Work in Process (70% complete) - 14,500 units
• Beginning Work in Process Costs: Material - P 15,000; Conversion - P 10,000
• Current Costs: Material - P 100,000; Conversion - P 159,787.50
All materials are added at the start of the production process. THE COMPANY inspects
goods at 75 percent completion as to conversion. Using FIFO, what is the total cost assigned
to the transferred-out units?
A. P 245,750.00
B. P 244,437.50
C. P 237,000.00
D. P 224,937.50
ITEM 54: THE COMPANY uses a job order costing system, and the following information is
available from its records. The company has three jobs in process: Job No. 6, Job No. 9, and Job
No. 13.
• Raw material used - P 120,000
• Direct labor per hour - P 8.50
• Overhead applied based on direct labor cost - 120%
Direct material was requisitioned as follows for each job respectively: 30 percent, 25 percent, and
25 percent; the balance of the requisitions was considered indirect. Direct labor hours per job are
2,500; 3,100; and 4,200; respectively. Indirect labor is P 33,000. Other actual overhead costs
totaled P 36,000. If Job No. 13 is completed and transferred, what is the balance in Work in
Process Inventory at the end of the period if overhead is applied at the end of the period?
A. P 96,700
C. P 139,540
B. P 99,020
D. P 170,720
ITEM 55: THE COMPANY has a standard cost system in which manufacturing overhead is
applied to units of product on the basis of direct labor hours (DLHs). The following standards are
based on 100,000 direct labor hours:
• Variable overhead - 2 DLHs @ P 3 per DLH = P 6 per unit
• Fixed overhead - 2 DLHs @ P 4 per DLH = P 8 per unit
The following information pertains operations during March:
• Units actually produced - 38,000
• Actual direct labor hours worked - 80,000
• Actual manufacturing overhead incurred: Variable overhead - P 250,000; Fixed
overhead - P 384,000
For March, the fixed overhead volume variance was:
A. P 96,000 U
C. P 80,000 F
B. P 96,000 F
D. P 80,000 U
ITEM 56: Below is THE COMPANY which represents the operating results for the current fiscal
year ending December 31. Davao had sales of 1,800 tons of product during the current year. The
manufacturing capacity of Davao’s facilities is 3,000 tons of product.
Sales
P 900,000
Variable costs
Manufacturing
P 315,000
Selling costs
180,000
Total variable costs
495,000
Contribution margin
P 405,000
Fixed costs
Manufacturing
P 90,000
Selling
112,500
Administration
45,000
Total fixed costs
Net income before income taxes
Income taxes (40%)
Net income after income taxes
247,500
P 157,500
(63,000)
P 94,500
If the sales volume is estimated to be 2,100 tons in the next year, and if the prices and costs
stay at the same levels and amounts next year, the after-tax net income that THE COMPANY
can expect for the next year is:
A. P 283,500
C. P 110,250
B. P 135,000
D. P 184,500
ITEM 57: THE COMPANY has identified the following overhead costs and activity drivers for next
year:
Expected
Expected
Overhead Item
Activity Driver
Cost
Quantity
Setup costs
P100,000 Number of setups
500
Ordering costs
40,000 Number of orders
3,200
Maintenance
200,000 Machine hours
4,000
Power
20,000 Kilowatt hours
80,000
The following are two of the jobs completed during the year:
Job 500
Job 501
Direct materials
P1,500
P2,000
Direct labor
P1,400
P2,400
Units completed
100
160
Direct labor hours
100
160
Number of setups
2
8
Number of orders
8
10
Machine hours
40
50
Kilowatt hours
60
100
The company’s normal activity is 4,000 direct labor hours. If the four activity drivers are used to
allocate overhead costs, total overhead allocated to Job 500 would be:
A. P 2,766.50
C. P 2,515.00
B. P 2,415.00
D. P 2,815.00
ITEM 58: THE HOSPITAL plans to use activity-based costing to assign hospital indirect costs to
the care of patients. The hospital has identified the following activities and activity rates for the
hospital’s indirect costs:
Activity
Activity Rate
Room and meals
P150 per day
Radiology
P 95 per image
Pharmacy
P 20 per physician order
Chemistry lab
P 85 per test
Operating room
P550 per operating room hour
The records of two representative patients were analyzed, using the activity rates. The activity
information associated with the two patients is as follows:
Patient Flor
Patient Laura
Number of days
7.0
3.0
Number of images
4.0
2.0
Number of physician orders
5.0
1.0
Number of tests
6.0
2.0
Number operating room hours
4.5
1.0
Determine the activity cost associated with Patient Flor:
A. P 4,500
C. P 4,495
B. P 4,550
D. P 4,515
ITEM 59: THE COMPANY INC. began work on a contract for P 8,400,000. Other date are as
follows:
2022
2023
Costs incurred to date
P 3,600,000 P 5,600,000
Estimated costs to complete, 12/31
2,400,000
Billings during the year
2,800,000
8,400,000
Collections during the year
2,000,000
7,200,000
If THE COMPANY INC. uses the percentage of completion method (over time), gross profit to be
recognized in 2023 is:
A. P 1,440,000
C. P 2,800,000
B. P 1,360,000
D. P - 0 ITEM 60: Which one of the following is not one of the five steps for recognizing revenue?
A. Recognize revenue when all the performance obligations have been satisfied.
B. Allocate the transaction price to the separate performance obligations.
C. Identify the contract with a customer.
D. Identify the separate performance obligation(s) in the contract.
ITEM 61: THE COMPANY INC. began work on a contract for P 8,400,000. Other date are as
follows:
2022
2023
Costs incurred to date
P 3,600,000 P 5,600,000
Estimated costs to complete, 12/31
2,400,000
Billings during the year
2,800,000
8,400,000
Collections during the year
2,000,000
7,200,000
If THE COMPANY INC. uses the cost recovery method (point-in-time), gross profit to be
recognized in 2023 is:
A. P 1,440,000
C. P 2,800,000
B. P 1,360,000
D. P - 0 ITEM 62: When accounting for revenue over time for a long-term contract, the percentage of
completion used to recognize revenue in the first year usually is determined by measuring:
A. Costs incurred in the first year, divided by estimated remaining costs to complete the project.
B. Costs incurred in the first year, divided by estimated total costs for the completed
project.
C. Costs incurred in the first year, divided by estimated gross profit.
D. Costs incurred in the first year, divided by estimated total costs to be incurred in the remaining
years of the project.
ITEM 63: When using the cost recovery method of accounting for long-term construction contracts
under IFRS:
A. Estimated losses on the overall contract are recognized before the contract is
completed.
B. Expenses are recorded each period, but revenue is only recognized when the contract is
completed.
C. Companies can use the percentage-of-completion method if that is their preference.
D. Neither gains nor losses are recognized until the contract is completed.
ITEM 64: THE ENTERPRISES licenses customer-relationship software to THE COMPANY. In
addition to providing the software itself, THE ENTERPRISES promises to provide consulting
services by extensively customizing the software of THE COMPANY’s information technology
environment, for a total consideration of P 600,000. How many performance obligations exist in
the implied contract when a customer registers for the services?
A. 0
C. 2
B. 1
D. 3
ITEM 65: THE BIOTECH enters into a licensing agreement with THE PHARMACEUTICAL for a
drug under development. THE BIOTECH will receive payment of P 20,000,000 if the drug receives
a regulatory approval. Based on prior experience in the drug-approval process, THE BIOTECH
determines it is 90% likely that the drug will regain approval and a 10% chance of denial.
Assuming that the regulatory approval was granted on December 20, 2022, and that THE
BIOTECH received the payment from THE PHARMACEUTICAL on January 15, 2023. On
December 20, 2022, license revenue amounted to:
A. P - 0 C. P 20,000,000
B. P 18,000,000
D. No transaction at all
ITEM 66: In accounting for sales on consignment, sales revenue and the related cost of goods
sold should be recognized by the:
A. consignor when the goods are shipped to the consignee.
B. consignee when the goods are shipped to the third party.
C. consignor when notification is received that the consignee has sold the goods.
D. consignee when cash is received from the customer
ITEM 67: Consider the following three scenarios:
I.
THE COMPANY performed lawn maintenance services for THE INCORPORATED on
June 1st and received payment of P 50,000 for those services.
II.
On June 1st, THE CORPORATION received payment for 100 pounds of raw material to
be delivered to Drake Inc. in 6 months
III.
THE LIMITED collected cash on June 1st for services rendered on May 1st.
Given these scenarios, revenue cannot be recognized on June 1st for:
A. I only
C. II and III
B. I and II
D. III only
ITEM 68: THE COMPUTERS manufactures and sells pagers and radio paging systems which
include a 180-day warranty on product defects. It also sells an extended warranty which provides
an additional two years of protection. On May 10, it sold a paging system for P3,850 and an
extended warranty for another P1,200. The journal entry to record this transaction would include
A. a credit to Service Revenue of P5,050.
B. a credit to Service Revenue of P1,200.
C. a credit to Sales of P3,850 and a credit to Service Revenue of p1,200.
D. a credit to Unearned Service Revenue of P1,200.
ITEM 69: THE COMMUNICATIONS contracted to set up a call center for the City of Makati. Under
the terms of the contract, THE COMMUNICATIONS will design and set-up a call center with the
following costs:
Design of call center
P 10,000
Computers, servers, telephone equipment P 275,000
Software
P 85,000
Installation and testing of equipment
P 15,000
Selling commission
P 25,000
Annual service contract
P 50,000
In addition, THE COMMUNICATIONS will maintain and service the equipment and software to
ensure smooth operations of the call center for an annual fee of P90,000. Ownership of equipment
installed remains with the City of Makati. The contract costs that should be capitalized is:
A. P 460,000
C. P 360,000
B. P 410,000
D. P 370,000
ITEM 70: THE CONSULTANTS provided THE CONSTRUCTION with assistance in implementing
various cost-savings initiatives. THE CONSULTANTS’ contract specifies that it will receive a flat
fee of P50,000 and an additional P20,000 if THE CONSTRUCTION reaches a pre specified target
amount of cost savings. THE CONSULTANTS estimates that there is a 20% chance that THE
CONSTRUCTION will achieve the cost-savings target. Assuming THE CONSULTANTS uses the
expected value as its estimate of variable consideration, calculate the transaction price.
A. P 14,000
C. P 50,000
B. P 40,000
D. P 54,000
PREPARED BY:
MICHAEL LLOYD A. BATION, CPA
Faculty