ReSA - THE REVIEW SCHOOL OF ACCOUNTANCY
CPA Review Batch 45  May 2023 CPALE  12 February 2023  03:00 PM – 06:00 PM
ADVANCED FINANCIAL ACCOUNTING and REPORTING
FIRST 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.
1. The partnership of Dana, Elsie, Fe, and Gloria is being liquidated over the first
few months of 2023. The trial balance at January 1, 2023 is as follows:
Cash
Accounts receivable
Inventory
Equipment – net
Land
Loan to Dana
Accounts payable
Dana, capital – 20%
Elsie, capital – 10%
Fe, capital – 50%
Gloria, capital – 20%
P
Debits
200,000
56,000
142,000
300,000
150,000
20,000
_________
P 868,000
Credits
P 400,000
170,000
80,000
140,000
___78,000
P 868,000
Additional information:
1. The partners agree to retain P20,000 cash on hand for contingencies and
distribute the rest of the available cash at the end of each month.
2. In January, half of the receivables were collected. Inventory that cost
P75,000 was liquidated for P45,000. The land was sold for P250,000.
3. The accounts payable was liquidated.
How much will each partner receive for the month of January 2023?
A. Dana, P68,000; Elsie, P39,000; Fe, P
-0-; Gloria, P
-0B. Dana, P81,000; Elsie, P45,500; Fe, P
-0-; Gloria, P 9,000
C. Dana, P65,333; Elsie, P37,667; Fe, P
-0-; Gloria, P
-0D. Dana, P103,000; Elsie, P -0-; Fe, P
-0-; Gloria, P
-02. CC admits DD as a partner in business. Accounts in the ledger for CC on November
30, 2023, just before the admission of DD, show the following balances:
Cash
P
6,800
Accounts receivable
14,200
Merchandise inventory
20,000
Accounts payable
8,000
CC, capital
33,000
It is agreed that for purposes of establishing CC’s interest the following
adjustments shall be made:
(a) An allowance for doubtful accounts of 3% of accounts receivable is to be
established.
(b) The merchandise inventory is to be valued at P23,000.
(c) Prepaid salary expenses of P600 and accrued rent expense of P800 are to be
recognized.
DD is to invest sufficient cash to obtain a 1/3 interest in the partnership. Compute:
(1) CC’s adjusted capital before the admission of CC, and (2) the amount of cash
investment by DD:
A. (1) P35,347; (2) P11,971
C. (1) P35,374; (2) P17,687
B. (1) P36,374; (2) P18,487
D. (1) P28,174; (2) P14,087
3. On June 30, 2022, the balance sheet of the Oakley, Pine, and Woods partnership,
together with their respective profits and loss ratios was as follows:
Assets, at cost
Oakley, loan
Capital, Oakley (20%)
Capital, Pine (20%)
Capital, Woods (60%)
P180,000
9,000
42,000
39,000
90,000
Oakley has decided to retire from the partnership. By mutual agreement, the assets
are to be adjusted to their current value of P216,000 and the partnership is to pay
Oakley P61,200 for her partnership interest, including her loan, which is to be
repaid in full.
The capital balance of Pine after the retirement of Oakley should be:
A. P36,750
C. P45,450
B. P38,250
D. P49,200
Page 1 of 23
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ADVANCED FINANCIAL ACCOUNTING & REPORTING
ReSA Batch 45 – May 2023 CPALE Batch
12 February 2023  03:00 PM to 06:00 PM
AFAR First Pre-Board Exam
4. On July 1, 2023, Sayonara Company has the following balance sheet:
Assets
Liabilities and Capital
Cash
P 20,400
Accounts Payable
P 38,400
Other Assets
219,600
Due to Palmer
14,400
Other liabilities
84,000
Palmer, capital–50%
28,800
Larsen – 50%
74,400
As of July 1, 2023, the partners have personal net worth as follows:
Palmer
Larsen
Assets
P 62,400
P 91,200
Liabilities
56,400
122,400
The personal net worth of each partner does not include amounts due to or from the
partnership. Assume the other assets are sold for P123,600 after incurring
liquidation expenses of P4,800. How much should Larsen receive?
A. P
-0C. P 24,000
B. P 22,800
D. P 16,800
Items 5 to 7 are based on the following information:
Orville Company recently petitioned for bankruptcy and is now in the process of
preparing a statement of affairs. The carrying values and estimated fair values of the
assets of Orville Company are as follows:
Cash
Accounts Receivable
Inventory
Land
Building (net)
Equipment (net)
Total
Carrying Value
P 20,000
45,000
60,000
75,000
180,000
170,000
P 550,000
Fair Value
P 20,000
30,000
35,000
70,000
100,000
80,000
P335,000
Debts of Orville are as follows:
Accounts payable
Wages Payable (all have priority)
Taxes payable
Notes payable (secured by receivable and inventory
Interest on Notes Payable
Bonds Payable (secured by land and building)
Interest on bonds Payable
Total
P 60,000
10,000
10,000
120,000
6,000
150,000
7,000
P 363,000
5. What is the total amount of unsecured claims?
A. P 93,000
C.
P121,000
B. P113,000
D.
P126,000
6. What estimated amount will be available for general unsecured creditors upon
liquidation?
A. P28,000
C.
P113,000
B. P93,000
D.
P121,000
7. What is the estimated dividend percentage?
A. 23%
C.
77%
B. 93%
D.
68%
8. Following is the balance sheet of the ABCD Partnership at March 31, 2023, when the
partnership is to be liquidated:
Cash
Other assets
Page 2 of 23
P
6,000
126,000
Liabilities
A, loan
B, loan
D, loan
A, capital – 25%
B, capital – 25%
C, capital – 25%
D, capital – 25%
P
12,400
12,000
14,400
9,600
16,200
12,000
37,700
17,700
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ADVANCED FINANCIAL ACCOUNTING & REPORTING
ReSA Batch 45 – May 2023 CPALE Batch
12 February 2023  03:00 PM to 06:00 PM
AFAR First Pre-Board Exam
During the month of April 2023, assets having a book value of P18,000 are sold at
a loss of P2,400. Liquidation expenses of P600 are paid as well as P7,200 of the
liabilities. Of the liabilities shown in the balance sheet, P240 represents salary
payable to D and P160 represents salary payable to C.
On April 30, 2023 cash to be distributed to A, B, C, and D as follows:
A
A. P
B. P
C. P
D. P
-01,950
-0-0-
P
P
P
P
B __
-01,950
-0-0-
C
P
-0P 1,950
P
-0P 9,000
D___
P 9,000
P 1,950
P 1,950
P
-0-
Items 9 through 11 are based on the following information:
From the following data from the records of ABC Partnership
Balance Sheet
December 31, 2022
Assets
Cash
Other Noncash Assets
Total
Liabilities and Capital
Liabilities
A, loan
A, capital
B, capital
C, capital
Total
P 2,000
__28,000
P 30,000
P
5,000
2,500
12,500
7,000
___3,000
P 30,000
Profit and loss ratio is 3:2:1 for A, B, and C, respectively. The Other noncash assets
were realized as follows:
Date
January 2023
February 2023
March 2023
Cash Received
P
6,000
3,500
12,500
Book Value
P 9,000
7,700
11,300
Cash is distributed as other noncash assets realized.
9.
The total loss on liquidation to A is:
A. P3,000
C. P1,000
B. P2,000
D. P
0
10. Total cash received by B is:
A. P
0
B. P1,500
11. Cash received by C in January is:
A. P
0
B. P 200
C. P2,000
D. P5,000
C. P 500
D. P1,000
12. Tillman Textile Company has a single branch in Bulacan. On March 1, 2023, the home
office accounting records included an Allowance for Overvaluation of Inventories Bulacan Branch ledger account with a credit balance of P32,000. During March,
merchandise costing P36,000 was shipped to the Bulacan Branch and billed at a price
representing a 40% markup on the billed price. On March 31, 2023, the branch
prepared an income statement indicating a net loss of P11,500 for March and ending
inventories at billed prices of P25,000. What is the amount of adjustment for
Allowance for Overvaluation of Inventories to reflect the true branch net income?
A. P39,257 debit
C. P39,333 debit
B. P46,000 credit
D. P46,000 debit
Items 13 to 15 are based on the following information:
At the end of its fiscal year on June 30, 2023, the Ritz, Sally, and Tracy Partnership
had account balances as follows:
Cash
P 20,000 Accounts payable
P 35,000
Accounts receivable
30,000 Loan from Sally
25,000
Inventories
70,000 Ritz, capital (20%)
70,000
Plant assets, net
60,000 Sally, capital (30%)
50,000
Loan to Ritz
__30,000 Tracy, capital (50%)
__30,000
Total Assets
P210,000 Total Liab. & Equity
P210,000
Page 3 of 23
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ADVANCED FINANCIAL ACCOUNTING & REPORTING
ReSA Batch 45 – May 2023 CPALE Batch
12 February 2023  03:00 PM to 06:00 PM
AFAR First Pre-Board Exam
The percentages shown are the residual profit sharing ratios. Tracy also gets a P12,000
annual salary allowance. The partners dissolved the partnership on July 1, 2023 and
began the liquidation process. During July the following events occurred:
• Receivables of P15,000 were collected.
• The inventory was sold for P20,000.
• All available cash was distributed on July 31, except for P10,000 of expected
expenses.
13. The book value of the partnership equity/interest (i.e., total equity/interest of
the partners) on June 30, 2023 is:
A. P210,000
C. P145,000
B. P150,000
D. P120,000
14. The cash available for distribution to partners on July 31, 2023 is:
A. P55,000
C. P20,000
B. P35,000
D. P10,000
15. Without bias on your part, assume that the cash available for distribution to
partners on July 31, 2023 is P10,000. Under this assumption Sally should receive:
A. P10,000
C. P3,000
B. P 6,000
D. Amount cannot be determined
16. A local partnership was considering the possibility of liquidation since one of
the partners (Ding) was insolvent. Capital balances at that time were as follows.
Profits and losses were divided on a 4:2:2:2 basis, respectively.
Ding, capital
P 60,000
Laurel, capital
P 67,000
Ezzard, capital
P 17,000
Tillman, capital
P 96,000
Ding's creditors filed a P25,000 claim against the partnership's assets. At that
time, the partnership held assets reported at P360,000 and liabilities of P120,000.
If the assets could be sold for P228,000, what is the minimum amount that Ding's
creditors would have received?
a. P
-0c.
P36,000
b. P 2,500
d.
P38,250
Items 17 to 21 are based on the following information:
In 2022, DJD Builders Construction began work on a three-year construction project to
build a new performing arts complex (the PAC). The PAC contract price is P150 million.
DJD Builders recognizes revenue on this contract over time according to percentage of
completion. At the end of 2022, the following financial statement information indicates
the results to date for the PAC (missing items denoted by letter):
Income Statement/Statement of Comprehensive Income:
Revenue
P (w) million
Cost of construction
35_ million
Gross profit
P (x) million
Balance Sheet/Statement of Financial Position:
Accounts receivable from construction billings
P
Construction in progress (CIP)---------------- P 50 million
Less: Billings on construction (PB)----------- __ (y)million
Net billings in excess of construction in
progress ---------------------------------P
Statement of Cash Flow:
Cash collections
P
14
million
(z)million
46 million
Compute the following:
17. Total revenue recognized during 2022 (w):
A. P 35 million
C.
P100 million
B. P 50 million
D.
P150 million
18. Gross profit recognized during 2022 (x):
A.
P 15 million
C.
P 46 million
B.
P 35 million
D.
P 50 million
19. Billings on construction (y):
A.
P 14 million
B.
P 46 million
Page 4 of 23
C.
D.
P 50 million
P 60 million
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ADVANCED FINANCIAL ACCOUNTING & REPORTING
ReSA Batch 45 – May 2023 CPALE Batch
12 February 2023  03:00 PM to 06:00 PM
AFAR First Pre-Board Exam
20. Net billings in excess of construction in progress (z):
A.
P 10 million
C.
P 50 million
B.
P 15 million
D.
P 60 million
21. Calculate the percentage of PAC that was completed during 2022:
A.
Zero
C.
65 %
B.
33 1/3%
D.
76 1/3%
Items 22 and 23 are based on the following information:
On May 15, 2023, Atlas Sales Company received a shipment of merchandise with a selling
price of P15,000 from Philco Company. The consignment agreement provided for a sale of
merchandise with a credit with terms of 2/10 n/30. The commission of 15% was to be
based on the accounts receivable collected by the consignee. Cash discounts taken by
customers, expenses applicable to goods on consignment and any cash advanced to the
consignor were deductible from the remittance by the consignee.
Atlas Sales Company advanced P6,000 to Philco Company upon receipt of the shipment.
Expenses of P800 were paid by Atlas. By June, 2023, 70% of the shipment had been sold,
and 80% of the resulting accounts receivable had been collected, all within the discount
period. Remittance of the amount due was made on June 30, 2023.
The consigned goods cost Philco Company P10,000 and freight charges of P120 had been
paid to ship it to Atlas Sales Company.
22. The cash remitted by Atlas Sales Company
A. P172
C.
P2,230
B. P340
D.
P2,340
23. The cost of inventory on consignment amounted to:
A.
P1,500
C.
P3,036
B.
P3,000
D.
P3,186
24. Lipton Company had an agency in Antipolo. For the period just ended, the agency
transactions showed the following:
Receipt from sales . . . . . . . . . . . . . . .
P350,000
Disbursements:
Purchases . . . . . . . . . . . . . . . . .
400,000
Salaries and commissions . . . . . . . . . .
70,000
Rent . . . . . . . . . . . . . . . . . . . .
20,000
Advertising supplies . . . . . . . . . . . .
10,000
Other expenses . . . . . . . . . . . . . . .
5,000
The agency had P 100,000 receivables and P 50,000 payables as of the end of the
period. Also, there were inventories on hand of P 90,000 and unused advertising
supplies of P 6,000. The agency was set up as an experiment for one period and
would be closed if losses were incurred. The agency should:
A. Review again because it was a break even operation.
B. Close with the period’s operational loss of P 155,000.
C. Close with the period’s operational loss of P 9,000.
D. Continue with the period’s profit of P 25,000.
On January 1, 20x5, Lesley Benjamin signed an agreement (covering 5 years) to operate
as a franchisee of Campbell Inc. for an initial franchise fee of P50,000. The amount
of P10,000 was paid when the agreement was signed, and the balance is payable in five
annual payments of P8,000 each, beginning January 1, 20x6. The agreement provides that
the down payment is non-refundable and that no future services are required of the
franchisor once the franchise commences operations on April 1, 20x5. Lesley Benjamin’s
credit rating indicates that she can borrow money at 11% for a loan of this type.
For Campbell’s 20x5-related revenue for this franchise arrangement, assuming that in
addition to the franchise rights, Campbell also provides 1 year of operational
consulting and training services, beginning on the signing date. These services have
a value of P3,600.
25. The amount of franchise revenue (not including service revenue) on April 1, 20x5:
A. Zero.
C. P39,567
B. P35,967
D. P50,000
Items 26 through 28 are based on the following information:
Rome Corporation has one branch office, named Timber Branch. Rome is performing the
end-of-the-period reconciliation. The following items are unsettled at the end of the
accounting period (you may assume that the item has been reflected in the accounts of
the underlined entity):
Page 5 of 23
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ADVANCED FINANCIAL ACCOUNTING & REPORTING
ReSA Batch 45 – May 2023 CPALE Batch
12 February 2023  03:00 PM to 06:00 PM
AFAR First Pre-Board Exam
(1) Rome has agreed to remove P750 of excess freight charges charged to Timber when
Rome shipped twice as much inventory as Timber requested.
(2) Timber mailed a check for P11,000 to Rome as a payment for merchandise shipped
from Rome to Timber. Rome has not yet received the check.
(3) Timber returned defective merchandise to Rome. The merchandise was billed to
Timber at P4,000 when its actual cost was P3,000.
(4) Advertising expenses attributable to the branch office was paid for by the home
office in the amount of P5,000.
26. Which of the following statements is correct:
A. The Home Office account in Timber’s books is decreased for the P11,000 of cash
in transit and is decreased for the P750 of excess freight charges.
B. The Home Office account in Timber’s books is decreased for the P5,000 of
advertising expense and decreased for the P750 of excess freight charges.
C. The Home Office account in Timber’s books is increased for the P11,000 of cash
payment to Rome and decreased by P4,000 for the billed cost of the defective
merchandise inventory.
D. The Home Office account in Timber’s books is decreased for the P750 of excessive
freight charges and increased by the P5,000 of the advertising expenditure.
27. Which of the following statements is correct:
A. The Timber Branch account on Rome’s books is decreased for the P11,000 of cash
in transit and is decreased for the P750 of excess freight charges.
B. The Timber Branch account on Rome’s books is decreased for the P11,000 of cash
in transit and is increased for the P750 of excess freight charges.
C. The Timber Branch account on Rome’s books is decreased for the P11,000 of cash
in transit and is decreased for the P4,000 billed price of the defective
merchandise.
D. The Timber Branch account on Rome’s books is increased for the P11,000 of cash
in transit and is decreased for the P5,000 of allocated advertising costs
28. If the adjusted balances for the Timber Branch Account and the Rome Home Office
accounts is P500,000, what unadjusted balance was listed in Rome’s Timber Branch
Account?
A. P515,000
C. P514,000
B. P510,250
D. P504,000
29. Ann, Bee, and Kay are in the process of liquidating their partnership. Kay has
agreed to accept the inventories as part of her settlement. The inventories have
a fair value of P60,000 and a book value of P80,000. Account balances and profit
and loss sharing ratios are summarized as follows:
Cash
Inventories
Plant assets, net
Total Assets
P 198,000
80,000
230,000
_________
P 508,000
Accounts payable
Ann, capital (40%)
Bee, capital (40%)
Kay, capital (20%)
Total Liab. & Equity
P 149,000
79,000
140,000
140,000
P 508,000
If the partners agree to distribute the available cash:
A. Kay will receive P23,000 of the cash distribution.
B. Bee will receive P40,667 of the cash distribution.
C. Immediately after the cash distribution of cash and inventory items, Kay’s
capital account balance will be P59,000.
D. Immediately after the cash distribution of cash and inventory items, Kay’s
capital account balance will be P30,000.
30. Which of the following procedures are acceptable for dealing with the negative
balance in a partner’s capital account during liquidation:
A. The partner with the negative capital balance can contribute assets to the
partnership sufficient to bring the capital account up to zero.
B. If the partner with the negative capital balance is personally insolvent; the
negative capital balance may be absorbed by those partners having a positive
capital balance according to the profit and loss sharing ratios applying to all
the partners.
C. If the partner with the negative capital balance is personally insolvent, the
negative capital balance may be absorbed by those partners having a positive
capital according to the profit and loss sharing ratios applying to those
partners having positive balances.
D. A and C are acceptable choices.
E. A, B, and C are acceptable.
Page 6 of 23
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ADVANCED FINANCIAL ACCOUNTING & REPORTING
ReSA Batch 45 – May 2023 CPALE Batch
12 February 2023  03:00 PM to 06:00 PM
AFAR First Pre-Board Exam
31. What is the difference between the terms “the partners’ equity (or interest)
balances” and the partners’ capital account balances?”
A. There is no difference in the terms; they can be used interchangeably.
B. The term “partners’ equity (or interest)” is the sum of the individual partner’s
capital accounts.
C. The term “partners’ equity (or interest)” is the sum of the individual partner’s
capital accounts as increased by partnership loans made to the partner and
reduced by a partner’s loans to the partnership.
D. The term “partners’ equity (or interest)” is the sum of the individual partner’s
capital accounts as decreased by partnership loans made to the partner and
increased by a partner’s loans to the partnership.
32. Trial balances for the home office and the branch of the Tony Co. show the following
accounts before adjustment, on December 31, 2023. The home office policy of billing
the branch for merchandise is 20% above cost.
Home
office
Branch
Unrealized intercompany inventory profit
P 10,800
Shipments to branch
24,000
Purchase (outsiders)
P 7,500
Shipments from home office
28,800
Merchandise inventory, December 1, 2023
45,000
What part of the branch inventory as of December 1, 2023 represent purchases from
outsiders and what part represents goods acquired from the home office?
Outsiders
Home Office
A.
B.
C.
D.
P 12,000
16,500
15,000
9,000
P33,000
28,500
30,000
36,000
33. Anselmo Company operates retail hobby shops from the main store and a branch store.
Merchandise is shipped from the main store and to the branch and billed to the
branch at an arbitrary 10% markup. Trial balances of the main store and branch as
of December 31, 2023 are as follows:
Main Store
Branch
Debits:
Cash . . . . . . . . . . . . . . . . . . . .P .
1,500
P
1,000
Accounts receivable – net . . . . . . . . . .
200
Inventory, December 31, 2022 . . . . . . . . .
3,500
2,500
Building – net . . . . . . . . . . . . . . . . 60,000
18,000
Equipment – net . . . . . . . . . . . . . . .
30,000
12,000
Branch store . . . . . . . . . . . . . . . . . 32,300
Purchases . . . . . . . . . . . . . . . . . . 240,000
11,000
Shipments from home office . . . . . . . . . .
99,000
Other expenses . . . . . . . . . . . . . . . . 15,000
7,000
Total debits . . . . . . . . . . . . . . . . P. 382,500
P 150,500
Credits:
Accounts payable . . . . . . . . . . . .
Unrealized inventory profit . . . . . . .
Main Store . . . . . . . . . . . . . . .
Capital stock . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . .
Sales . . . . . . . . . . . . . . . . . .
Shipments to branch . . . . . . . . . . .
Profit from branch . . . . . . . . . . .
Total credits . . . . . . . . . . . . . .
P
15,000
9,200
50,000
16,000
200,000
90,000
____2,300
P 382,500
P
500
30,000
120,000
_________
P 150,500
Inventories on hand at December 31, 2023 at the main store and branch are P3,000
and P1,800, respectively. The December 31, 2022 branch inventory includes
merchandise purchased from outsiders of P300, and the December 31, 2023 branch
inventory includes P150 of merchandise purchased from outsiders. The combined cost
of goods sold amounted to:
A.
P 261,200
C.
P 243,150
B.
P 252,200
D.
P 252,150
Page 7 of 23
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ADVANCED FINANCIAL ACCOUNTING & REPORTING
ReSA Batch 45 – May 2023 CPALE Batch
12 February 2023  03:00 PM to 06:00 PM
AFAR First Pre-Board Exam
34. On March 1, 2022, Giordano Company enters into a contract to transfer a product to
Hotter on July 31, 2022. The contract is structured such that Warmer is required
to pay the full contract price of P57,000 on August 31, 2022. The cost of the goods
transferred is P34,200. Giordano delivers the product to Hotter on July 31, 2022.
The contract exists on:
A. March 1, 2022
C. August 31, 2022
B. July 31, 2022
D. Incomplete data
35. Meyer & Smith is a full-service technology company. They provide equipment, and
installation services as well as training. Customers can purchase any product or
service separately or as a bundled package. Container Corporation purchased
computer equipment, installation and training for a total cost of P120,000 on March
15, 2022. Estimated standalone fair values of the equipment, installation, and
training are P75,000, P50,000, and P25,000 respectively. The transaction price
allocated to equipment, installation and training:
A. P75,000, P50,000, P25,000 respectively
B. P40,000, P40,000, P40,000 respectively
C. P120,000 for the entire bundle
D. P60,000, P40,000 and P20,000 respectively
36. On July 31, Aldrin Richards Company contracted to have two products built by
Antonio “Toni” Gonzaga Manufacturing for a total of P185,000. The contract specifies
that payment will only occur after both products have been transferred to Aldrin
Richards Company. Aldrin Richards determines that the standalone prices are
P100,000 for Product 1 and P85,000 for Product 2. On August 1, when Product 1 has
been transferred, the journal entry to record this event include a:
A. debit to Accounts Receivable for P100,000
B. debit to Accounts Receivable for P85,000
C. debit to Contract Assets for P85,000
D. debit to Contract Assets for P100,000
37. On January 1, Joey enters into a contract with Althea for the sale of an excavator
with unique specifications. Joey and Althea develop the specifications and Joey
contracts with a construction equipment manufacturer to produce the equipment. The
manufacturer will deliver the equipment to Althea when it is completed Joey agrees
to pay the manufacturer P42,000,000 upon delivery of the excavator to Althea.
Anderson and Althea agree to a selling price of P46,200,000 that will be paid by
Althea to Joey. Joey’s profit is P4,200,000 Joey’s contract with Althea requires
Althea to seek remedies for defects from the manufacturer, but Joey is responsible
for any corrections due to errors in specifications. The role of Joey is a:
A.
Customer
C.
Agent
B.
Principal
D.
No agreement at all
38. Maybelle Paulino Computers manufactures and sells computers that include a warranty
to make good on any defect in its computers for 150 days (often referred to as an
assurance warranty). In addition, it sells separately an extended warranty, which
provides protection from defects for three years beyond the 150 days (often referred
to as a service warranty). How many performance obligations are in the contract?
A.
0
C.
2
B.
1
D.
3
Use the following information for questions 39 and 40: Variable Consideration
Billy Biotech enters into a licensing agreement with Paul Pharmaceutical for a drug
under development. Billy will receive a payment of P20,000,000 if the drug receives a
regulatory approval. Based on prior experience in the drug-approval process, Billy
determines it is 90% likely that the drug will gain approval and a 10% chance of
denial. Assuming that regulatory approval was granted on December 20, 2022, and that
Billy received the payment from Paul on January 15, 2023.
39. Determine the transaction price of the arrangement for Billy Biotech:
A. Nil
C.
P20,000,000
B. P18,000,000
D.
No transaction at all
40. On December 20, 2022, license revenue amounted to
A.
Nil
C.
P20,000,000
B.
P18,000,000
D.
No transaction at all
Page 8 of 23
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ReSA Batch 45 – May 2023 CPALE Batch
12 February 2023  03:00 PM to 06:00 PM
AFAR First Pre-Board Exam
Items 41 through 42 are based on the following information:
41. Selected balances from the Cebu Company’s Branch A and B are as follows:
Branch A
Branch B
Inventory, Jan. 1, 2023
P 21,000
P 19,000
Imprest Branch Fund
2,000
1,500
Inventory, Dec. 31, 2023
19,000
12,000
A/Receivable, Jan. 1, 2023
55,000
43,500
Merchandise from Home Office…
61,000
47,000
A/Receivable, Dec. 31, 2023
70,000
53,500
Sales
100,000
80,000
Cash Expenses…
21,000
14,300
All sales, collections, and expenses are handled at the branch. All cash received
from sales and collections are sent directly to the Home Office. Expenses are paid
by the branch from the imprest fund and immediately reimbursed by the Home Office
and credited to the Home Office account. All expenses paid by the branch are
recorded in the books of the branch.
Compute the balance of the Home Office account in the books of Branch on January
1, 2023:
A
B
A
B
A. P163,000
P67,000
C. P139,000
P111,000
B. P 64,000
P78,000
D. P 78,000
P 64,000
42. Compute the balance of the Home Office account on December 31, 2023.
A
B
A
B
A. P110,000
P152,000
C. P64,000
P78,000
B. P 91,000
P 67,000
D. P78,000
P64,000
43. At December 31, 2023, the following information has been collected by Maxwell
Company’s office and branch for reconciling the branch and home office accounts.
1. The home office’s branch account balance at December 31, 2023 is P590,000.
The branch’s home office account balance is P506,700.
2. On December 30, 2023, the branch sent a check for P40,000 to the home
office to settle its account. The check was not delivered to the home
office until January 3, 2024.
3. On December 27, 2023, the branch returned P15,000 of seasonal merchandise
to the home office for the January clearance sale. The merchandise was not
received by the home office until January 6, 2024
4. The home office allocated general expenses of P28,000 to the branch. The
branch had not entered the allocation at the year-end.
5. Branch store insurance premiums of P900 were paid by the home office. The
branch recorded the amount at P600.
The correct balance of the reciprocal account on December 31, 2023 amounted to:
A. P575,000
C. P534,700
B. P535,000
D. P507,000
Items 44 to 45 are based on the following information:
OO and PP are partners sharing profits in this proportion – 60:40. A balance sheet
prepared for the partners on April 1, 20x4 shows the following:
Cash
P 48,000
Accounts payable
P 89,000
Accounts Receivable
92,000
OO, capital
133,000
Inventories
165,000
PP, capital
108,000
Equipment
70,000
Less: Accumulated
Depreciation 45,000
25,000
________
Total Assets
P330,000
Total Liabilities &
P330,000
Capital
On this date, the partners agree to admit RR as a partner. The terms of the agreement
are summarized below.
Assets and liabilities are to be restated as follows:
• An allowance for possible uncollectible of P4,500 is to be established.
• Inventories are to be restated at their present replacement value of P170,000.
• Accrued expenses of P4,000 are to be Recognized.
OO, PP and RR will divide profits in the ratio of 5:3:2. Capital balances of the
partners after the formation of the new partnership are to be in the aforementioned
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AFAR First Pre-Board Exam
ratio, with OO and PP making cash settlement between them outside of the partnership
to adjust their capitals, and RR investing cash in the partnership for his interest.
44.
The total capital of the partnership after the admission of RR is:
A. P296,875
C.
P237,500
B. P301,250
D.
P286,850
45.
Cash settlement between OO and PP is:
A. OO will pay PP
C.
OO will invest P17,537.50
P17,537.50
B. PP will pay OO
D.
PP will withdraw P17,537.50
P17,537.50
Items 46 through 48 are based on the following information:
On December 31, 2023, the Home Office of Kathy Office Supply Company recorded a shipment
of merchandise to its Davao branch as follows:
Davao Branch
39,000
Shipments to Branch
32,500
Unrealized Profit in Branch Inventory
5,200
Cash (for freight charges)
1,300
The Davao branch sells 40% of the merchandise to outside entities during the rest of
December 2023. The books of the home office and Kathy Office Supply are closed on
December 31 of each year.
On January 5, 2024, the Davao branch transfers half of the original shipment to the
Baguio branch, and the Davao branch pays P650 as the shipment.
46. What amount should the 60% of the merchandise remaining unsold be included in (1)
the inventory of the Davao branch at December 31, 2023:
A. P20,280
C. P23,400
B. P22,620
D. P23,920
47. What amount should the 60% of the merchandise remaining unsold at December 31,
2023 be included in the published balance sheet of Kathy Office Supply at December
31, 2023 shows inventory at:
A. P19,500
C. P20,800
B. P20,280
D. P23,400
48. What is the entry on the home office books in respect to January 5, 2024 transfer,
assuming that the transfer cost of the merchandise to Baguio branch would have been
P780.
A. Home Office
20,150
Cash
780
Inventory
19,500
B. Shipments
Freight-in
Home Office Current
18,850
780
C. Branch Current – Baguio
Excess Freight
Branch Current – Davao
19,630
520
D. Branch Current – Baguio
Excess Freight
Branch Current – Davao
19,630
780
19,630
20,150
20,410
Items 49 and 50 are based on the following information:
49. Hotel Dian Inc. charges an initial franchise fee of P90,000 broken down as follows:
Rights to trade name, market area, and proprietary know-how
P40,000
Training services
11,500
Equipment (cost of P10,800)
38,500
Total initial franchise fee
P90,000
Upon signing of the agreement, a payment of P40,000 is due. Thereafter, two annual
payments of P30,000 are required. The credit rating of the franchisee is such that
it would have to pay interest of 8% to borrow money. The franchise agreement is
signed on August 1, 20x4, and the franchise commences operation on November 1, 20x4.
Assuming that no future services are required by the franchisor once the franchise
begins operations, the entry on November 1, 20x4 would include
Page 10 of 23
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A. a credit to Unearned Franchise Revenue for P40,000 (P41,455).
B. a debit to Service Revenue for P11,500 (P11,947).
C. a debit to Sales Revenue for P38,500.
D. a debit to Unearned Franchise Revenue for P40,000 (P41,455).
50. Assuming that the franchise agreement is signed on August 1, 20x5, and the franchise
commences operation on November 1, 20x5.
Assume that the total training fees
includes training services for the period leading up to the franchise opening
(P5,500 value) and for 3 months following opening. The journal entry on August 1,
20x5 would include
A. a credit to Unearned Service Revenue for P11,500 (P11,947).
B. a credit to Unearned Service Revenue for P6,000.
C. a debit to Sales Revenue for P38,500.
D. a debit to Unearned Franchise Revenue for P40,000 (P41,455).
Items 51 and 52 are based on the following information:
On August 5, 20x5, Famous Furniture shipped 20 dining sets on consignment to Furniture
Outlet, Inc. The cost of each dining set was P350. The cost of shipping the dining
sets amounted to P1,800 and was paid for by Famous Furniture. On December 30, 20x5,
the consignee reported the sale of 15 dining sets at P850 each. The consignee remitted
payment for the amount due after deducting a 6% commission, advertising expense of
P300, and installation and setup costs of P390.
51. The amount cash received by Famous Furniture is
A.
P12,750
C.
P11,685
B.
P11,985
D.
P11,295
52. The total profit on units sold for the consignor is
A.
P11,295
C.
P6,045
B.
P 9,945
D.
P4,695
53. Virtuoso has a sales agency in Cebu. Agency revenues and expenses are recorded in
separate agency accounts, with the operating results of both the agency and the
home office generated at each month-end. For the month of October 20x4, the home
office paid P10,000 for advertising costs on behalf of the agency and recorded this
as follows:
a. Cebu agency
10,000
Cash
10,000
b. Advertising expense
10,000
Cash
10,000
c. Accounts receivable – Cebu Agency
10,000
Cash
10,000
d. Advertising expense – Cebu Agency
10,000
Cash
10,000
54. Horizontal business combinations occur when one entity purchases which of the
following?
A.
A supplier
C.
A competitor
B.
A customer
D.
None of the above
55. Under PFRS 3, Business Combinations, which method must be used to account for
business combinations?
A. Purchase method
C. Acquisition method
B. Pooling-of-interests method
D. New entity method
56. Which of the following is a vertical combination?
A.
A combination where the two entities are unrelated
B.
A combination where the two entities are competitors in the same
industry
C.
A combination where the two entities have a potential buyer/seller
relationship
D.
None of the above describes a vertical combination
57. The second step in the process for revenue recognition is to
A. allocate transaction price to the separate performance obligations.
B. determine the transaction price.
C. identify the contract with customers.
D. identify the separate performance obligations in the contract.
Page 11 of 23
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AFAR First Pre-Board Exam
58. Partial satisfaction of a multiple performance obligation is reported on the
statement of financial position as
A.
contract liability.
C.
contract asset.
B.
receivable.
D.
unearned service revenue.
59. Contract liability is a company’s obligations to transfer goods or services to a
customer for which the company has received consideration from the customer. An
example of a contract liability is
A.
Prepaid subscription.
C.
Mortgage Payable.
B.
Unearned magazine subscription.
D.
Service Revenue.
60. If both the home office and the branch of a business enterprise use the perpetual
inventory system, a Shipment to Branch ledger account appears in the accounting
records of:
A.
The home office only
B.
The branch only
C.
Both the home office and the branch
D.
Neither the home office nor the branch
61. In preparing the financial statements of the home office and its various branches:
A.
Nonreciprocal accounts are eliminated but reciprocal accounts are
combined
B.
Both reciprocal and nonreciprocal accounts are eliminated
C.
Both reciprocal and nonreciprocal accounts are combined
D.
Reciprocal accounts are eliminated and nonreciprocal accounts are
combined
62.In the year end general ledger closing procedures, which accounts are closed in
arriving at Cost of Sales?
Purchases Sent to Branch
Purchases from Home Office
A.
Yes
Yes
B.
No
Yes
C.
No
No
D.
Yes
No
63. How are anticipated administrative expenses reported on a statement of financial
affairs?
A. As a footnote until actually incurred.
B. As a liability with priority
C. As a partially secured liability.
D. As an unsecured liability
64. The Statement of Realization and Liquidation differs from the Statement of Affairs
because
A. The Statement of Realization and Affairs reports estimated realizable
values rather than actual liquidation results
B. The Statement of Realization and Affairs is a summary of secured debt
activity only
C. The Statement of Realization and Affairs is prepared only at final
completion of the liquidation process
D. The Statement of Realization and Affairs reports actual liquidation
results rather than estimated realizable values
65. Which of the following are recognized each period under the cost-recovery (pointin-time) method?
A.
Costs only.
C.
Both costs and revenues.
B.
Revenues only.
D.
None of these.
66. If the percentage-of-completion (overtime) method is used, what is the basis for
determining the gross profit to be recognized in the second year of a three-year
contract?
A. Cumulative actual costs incurred only.
B. Incremental cost for the second year only.
C. Cumulative actual costs and estimated costs to complete.
D. No gross profit would be recognized in year 2.
Page 12 of 23
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ReSA Batch 45 – May 2023 CPALE Batch
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67.
AFAR First Pre-Board Exam
All revenue for franchise companies is derived from
A. assistance for site selection and negotiating lease.
B. bookkeeping and advisory services.
C. sale of initial franchise and continuing fees.
D. advertising and promotion.
68. Goods on consignment should be included in the inventory of:
A. the consignor but not the consignee
B. both the consignor and the consignee
C. the consignee but not the consignor
D. neither the consignor nor the consignee
69. On 25 June 20x9 Cambridge Co received an order from a new customer, Circus Co, for
products with a sales venue of P900,000. Circus Co enclosed a deposit with the
order of P90,000. On 30 June Cambridge Co had not completed credit checks on Circus
Co and had not despatched any goods. Cambridge Co is considering the following
possible entries for this transaction in its financial statements for the year
ended 30 June 20x9.
(i) Create a trade receivable for P810,000.
(ii) Include P90,000 in revenue for the year.
(iii) Recognise P90,000 as a contract liability.
(iv) Include P900,000 in revenue for the year.
(v) Do not include anything in revenue for the year.
According to PFRS 15 Revenue from Contracts with Customers, how should Cambridge Co
record this transaction in its financial statements for the year ended 30 June 20x9?
A. (i) and (iv) only
C. (ii) and (v) only
B. (ii) and (iv) only
D. (iii) and (v) only
70. Fonesell Co enters into a contract on September 1, 20x5 to conduct telephone
marketing activities on behalf of a customer. The contract has a price of P8,000
and requires Fonesell Co to contact 10,000 households over a period of six months
in order to enquire about buying habits and promote its customer. The customer is
invoiced equal amounts three months and six months after the commencement of the
contract. By Fonesell Co’s year-end of December 31, 20x5, it has contacted 3,500
of the 10,000 customers. What amounts does Fonesell Co recognise in its financial
statements in the year ended December 31, 20x5?
A. revenue of P4,000 and a receivable of P4,000
B. revenue of P4,000 and a contract liability of P4,000
C. revenue of P2,800, a receivable of P4,000 and a contract asset of P1,200
D. revenue of P2,800, a receivable of P4,000 and a contract liability of
P1,200
Goodluck and GOD BLESS!!!
**Don’t think that there’s so much darkness, that it’s no use to have a small
light, because even one candle can be seen a mile away when it’s dark.**
**When all else is lost, the future still remains.**
**The greatest mistake you can make is to continually fear making mistakes.**
We are never given guarantees in life. We are only given the opportunities
and it is up to us to make the BEST out of it.
The most difficult secret of a man to keep is the opinion he has of himself.
Nothing great was ever achieved without determination.
Don’t be discouraged; everyone who got where he is, started where he was.
Impossibilities vanish when a man and his GOD confront a mountain.
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AFAR First Pre-Board Exam
Suggested Answers:
1. C
2. C
3. C
4. B
5. C
6. B
7. C
8. D
9. A
10. D
11. A
12. D
13. C
14. D
15. A
16. B
17. B
18. A
19. D
20. A
21. B
22. A
23. C
24. C
25. B
26. D
27. C
28. A
29. A
30. D
31. D
32. D
33. D
34. B
35. D
36. D
37. B
38. C
39. C
40. A
41. D
42. B
43. B
44. A
45. A
46. C
47. B
48. C
49. D
50. A
51. D
52. D
53. D
54. C
55. C
56. C
57. D
58. C
59. B
60. D
61. D
62. A
63. B
64. D
65. C
66. C
67. C
68. A
69. D
70. C
Dana
P 170, 000
(20, 000)
P 150, 000
(69,000)
P 81,000
(13, 000)
P 68, 000
(2, 667)
P 65, 333
Elsie
P 80, 000
Fe
P 140, 000
Gloria
P 78,000
P 80, 000
(34,500)
P 45,500
(6, 500)
P 39, 000
(1, 333)
P 37,667
P 140,000
(172,500)
P (32,500)
32, 500
P 78,000
(69,000)
P 9, 000
(13, 000)
P (4, 000)
4, 000
Total
P 468, 000
(20, 000)
P 448, 000
(345,000)
*P 103, 000
P 103, 000
P 103, 000
1. C
Capital balances
Loan to Dana
Total interest
Total reduction in interest
CAFD
Possible loss (2:1:2)
Possible loss (2:1)
Cash received/distributed
Payment to partners:
Cash, beginning
Add: Proceeds from Receivables (1/2 x P56, 000)
Inventory
Land
Less:
Cash withheld
Payment of accounts payable
Cash available for distribution (CAFD)
2. C
Unadjusted capital of CC
Add (deduct): adjustmentsAllowance for doubtful accounts (3% x P14,200)
Increase in merchandise inventory (P23,000 – P20,000)
Prepaid salary
Accrued rent expense
Adjusted capital balance of CC
Divided by: Capital interest of CC
Total capital of the partnership
Less: Adjusted capital balance of CC
Capital balance of DD
Page 14 of 23
P 200,000
28,000
45,000
250,000
(20,000)
(400,000)
P 103,000
P 33,000
(
426)
3,000
600
(
800)
P 35,374
2/3
P 53,061
35,374
P 17,687
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3. C - P45,450
Amount paid
Less: Book value of interest of Oakley (20%)
Bonus to retiring partner
P 61,200
* 58,200
P 3,000
*Total Interest of Oakley
Loans
Capital
Add: Share in adjustment of asset
(P216,000 – P180,000) x 20%
P 9,000
P 42,000
7,200
49,200
P58,200
Therefore, the capital balance of Pine should be:
= P39,000 + (P216,000 – P180,000) x 20% - (P3,000 x 2/8)
= P45,450
4. B
Due to (from)
Capital balances
Total Interests
Reduction in interests
Cash available for distribution (CAFD)
Additional investment (P62,400 – P56,400)
Balances
Additional loss
Payment
Palmer
P 14,400
28,800
P 43,200
( 50,400)
P( 7,200)
6,000
P ( 1,200)
1,200
P
-0-
Cash beginning
Add: Proceeds
Less: Payment of liquidation expenses
Payment of liabilities:
Accounts Payable
Other liabilities
Cash available for distribution (CAFD)
Larsen
P
-074,400
P 74,400
( 50,400)
P 24,000
-0P 24,000
( 1,200)
P 22,800
Total
P 14,400
103,200
P117,600
(100,800)
P 16,800*
6,000
P 22,800
-0P 22,800
P 20,400
123,600
(4,800)
( 38,400)
( 84,000)
P 16,800*
5. C – P60,000 + [(P120,000 + P6,000) – (P30,000 + P35,000) = P121,000
6. B P20,000 + P80,000 + [P170,000 – (P150,000 + P7,000)] = P113,000 – (P10,000 + P10,000) = P93,000
Note: The lowest priority is given to claims by General Unsecured Creditors (i.e., without priority). These creditors
are paid only after secured creditors and unsecured creditors with priority are satisfied to the extent of any legal
limits. Often the general unsecured creditors receive less than the full amount of their claim. The amounts to be
paid to these creditors are usually stated as a percentage of total claim, such as 77 cents per peso (refer to No.
7), or whatever the specific percentage is. The payment to general unsecured creditors is often termed a
“dividend”.
7. C – P93,000/P121,000 = 77% rounded. Refer to “Note” in No. 6
8. D
Capital balances
Loans
Salaries
Total Interests
Reduction in interests (equally)
Balances
Absorption of possible insolvency
Balances
Absorption of possible insolvency
Payment
Page 15 of 23
A
16,200
12,000
______
28,200
(27,750)
450
( 780)
( 330)
330
B
12,000
14,400
______
26,400
(27,750)
( 1,350)
1,350
C
37,700
160
37,860
(27,750)
10,110
( 780)
9,330
( 330)
9,000
D
17,700
9,600
240
27,540
(27,750)
(
210)
210
Total
83,600
36,000
400
120,000
(111,000)
9,000*
-09,000
-09,000
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* Payment to partners:
Cash, beginning
Proceeds (P18,000 – P2,400)
Payment of liabilities (always in full)
Payment of liquidation expenses
P 6,000
15,600
(12,000)
( 600)
P 9,000*
9. A
Total book value of other non-cash assets realized:
(P9,000 + P7,700 + P11,300)
Less: Total proceeds (P6,000 + P3,500 + P12,500)
Total loss on realization
X: Share of A
Loss on liquidation to A
P 28,000
22,000
P 6,000
3/6
P 3,000
10. D
B, capital
Less: Share in total realization loss: (2/6 x P6,000)
Total cash received by B
P 7,000
2,000
P 5,000
Or, alternatively:
Therefore, total payment to B should be:
January
February (refer to No. 11 computations)
March
P
0
800
4,200
P 5,000
11. A
A
B
C
Total
Capital balances
Loans
Total Interests
Reduction in interests (3:2:1)
Balances
Reduction in interests
Payments
January:
Cash, beginning
Add: Proceeds
Less: Payments of liabilities
Payment to Partners
Total Interests – January
Payment to partners – January
Total Interest – February
Reduction in interests (3:2:1)
Balances**
Reduction in interests
Payments
February:
Cash, beginning
Add: Proceeds
Less: Payments of liabilities
Payment to Partners
2,500
12,500
15,000
( 11,000)
4,000
( 1,000)
3,000
7,000
3,000
7,000
(7,333)
( 333)
333
3,000
(3,667)
( 667)
667
12,500
12,500
25,000
(22,000)
3,000
-03,000
7,000
P 2,000
6,000
5,000
P 3,000*
3,000
Total Interest –February
Payment to partners - February
Total Interests – March
Reduction in interests (3:2:1)
Balances***
March:
Cash, beginning
Add: Proceeds
Less: Payments of liabilities
Payment to Partners
12,000
( 2,700)
9,300
( 3,000)
6,300
January -
Page 16 of 23
15,000
( 3,000)
12,000
( 9,250)
2,750
( 50)
2,700
7,000
(6,167)
833
( 33)
800
3,000
(3,083)
( 83)
83
25,000
( 3,000)
22,000
(18,500)
3,500
-03,500
P
0
3,500
0
P 3,500**
7,000
( 800)
6,200
( 2,000)
4,200
3,000
-03,000
(1,000)
2,000
22,000
( 3,500)
18,500
( 6,000)
12,500
P
0
12,500
0
P 12,500***
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ADVANCED FINANCIAL ACCOUNTING & REPORTING
ReSA Batch 45 – May 2023 CPALE Batch
12 February 2023  03:00 PM to 06:00 PM
12. D
Merchandise inventory, 1/1/2023
Shipments
Cost of goods available for sale
Less: MI, 3/31/2023 (25,000 x 40%)
Overvaluation of CGS/RPBSales
AFAR First Pre-Board Exam
100%
Billed Price
60%
Cost
*60,000
36,000
40%
Allowance
32,000
*24,000
56,000
10,000
46,000
*36,000 cost / 60% = 60,000 x 40% = 24,000. (Note: Markup is based on billed price)
13. C – P145,000 = P70,000 + P50,000 + P30,000 + P25,000 – P30,000
14. D – P10,000* = P20,000 + P15,000 + P20,000 – P35,000 – P10,000
15. A
Sally(30%)
Tracy (50%)
75,000
30,000
(40,500)
(67,500)
34,500
(37,500)
(22,500)
37,500
12,000
-0Poss. loss
( 2,000)
10,000
Total interest: P145,000 = P70,000 + P50,000 + P30,000 + P25,000 – P30,000
*P10,000 = P20,000 + P15,000 + P20,000 – P35,000 – P10,000
Total Interest
Reduction
Balance
Poss. Loss (2:3)
Ritz(20%)
40,000
(27,000)
13,000
(15,000)
( 2,000)
2,000
Total
145,000
(135,000)
*10,000
-010,000
-010,000
16. B
Capital before realization
Loss on sale (4:2:2:2)
Possible insolvency loss (4:2:2)
Safe payments
Ding
60,000
(52,800)
7,200
( 4,700)
2,500
Laurel
67,000
( 26,400)
40,600
( 2,350)
38,250
Ezzard
17,000
(26,400)
( 9,400)
9,400
0
Tillman
96,000
(26,400)
69,600
( 2,350)
67,250
Total
240,000
(132,000)
108,000
-0108,000
17. B
18. A
19. D
Total revenue recognized during 2022 (w):
CIP contains cost + gross profit * = revenue, so W = P50
* Note that the Income statement is in gross profit position, therefore, entries
recorded under CIP account pertain to both actual costs incurred and the RGP
(alternatively, the amount pertains to the amount debited to AR)
P 50 million
Gross profit recognized during 2022 (x): P50M Revenue - P35M cost = P15M GP
P 15 million
Billings on construction (y):
AR billed ending balance of P14M + AR billed collected in 2022 P46M =
P60M Recorded AR billed for 2022
P 60 million
20. A
Net billings in excess of construction in progress (z):
Billings of P60M – CIP of P50M (alternatively, this pertains to the net billed AR (i.e.,
billed AR is higher than the amount of revenue recorded as unbilled AR)
21. B
Calculate the percentage of PAC that was completed during 2022:
P50M revenue recognized/P150M Contract Price = 33.33%
Page 17 of 23
P10 million
33.33%
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ADVANCED FINANCIAL ACCOUNTING & REPORTING
ReSA Batch 45 – May 2023 CPALE Batch
12 February 2023  03:00 PM to 06:00 PM
AFAR First Pre-Board Exam
22. A
Gross collection (P15,000 x 70% x 80%)
Less: Cash discount taken by customer (P8,400 x 2%)
Net collection
Less Charges:
Expenses
Commission (P8,400 x 15%)
Due to Consignor
Less: Advances
Amount remitted
P 8,400
__168
P 8,232
P 800
_1,260
__2,060
P 6,172
_6,000
P 172
23. C
Charges Related to
Consignment
Inventory on
Sales
Consignment
(70%)
(30%)
Total
Charges
(100%)
Consignor’s charges:
Cost
Freight
Consignee’s charges:
Expenses
Commission (15% x P10,500)
Cash discount (P10,500 x 80% x 2%)
Total
Sales price (70% x P15,000)
Profit on Consignment
24. C
Sales (P350,000 + P100,000)
Less: Cost of goods sold:
Purchases (P400,000 + P50,000)
Less: Inventory, end
Gross profit
Less: Expenses –
Salaries and commissions
Rent
Advertising supplies (P10,000 – P6,000)
Other expenses
Net Loss
P10,000
120
P 7,000
84
P 3,000
36
800
1,575
168
P12,663
800
1,575
168
P 9,627
_10,500_
P
873
______
P 3,036
P 450,000
P 450,000
90,000
P 70,000
20,000
4,000
5,000
25. B
January 1, 20x5:
Cash
Notes Receivable
Unearned Interest Income/Discount on Notes Receivable
Unearned Service Revenue (Training)
Unearned Franchise Revenue (P10,000 + P29,567-P3,600)
April 1, 20x5
Unearned Franchise Revenue
Unearned Service Revenue (Training)
Franchise Revenue
Service Revenue (Training)
Page 18 of 23
360,000
P 90,000
99,000
P( 9,000)
10,000
40,000
10,433
3,600
35,967*
35,967
3,600
35,967
3,600
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ReSA Batch 45 – May 2023 CPALE Batch
12 February 2023  03:00 PM to 06:00 PM
AFAR First Pre-Board Exam
26. D
27. C
28. A
Unadjusted
Excess freight
Remittance
Returns
Expense allocation
Adjusted
Investment in Branch/
Branch Current
515,000
Home Office
495,750
(750)
(11,000)
(4,000)
500,000
5,000
500,000
29. A
Total Interest
Share in inventory
revaluation decrease
(P60,000-P80,000)
Distribute inventory to
Kay at fair value
Adjusted Equity interest
Reduction
Balance
Poss. Loss (4:2)
Ann (40%)
79,000
(8,000)
Bee (40%)
140,000
(8,000)
Kay (20%)
140,000
(4,000)
Total
359,000
(20,000)
132,000
(92,000)
40,000
(14,000)
16,000
(60,000)
76,000
(46,000)
30,000
(7,000)
23,000
(60,000)
279,000
(230,000)
*49,000
-049,000
71,000
(92,000)
( 21,000)
21,000
0
*P198,000 – P149,000 = P49,000
30. D
31. D
32. D
Unrealized Intercompany Inventory Profit/Allowance
for
overvaluation
of
branch
inventory
adjustments
Less: Allowance for overvaluation of shipments
(P28,800 - P24,000)
Allow. for overvaluation of beginning inventory
Divided by: Mark-up on cost
Merchandise inventory at cost, December 1, 2023
Add: Allowance for overvaluation of beginning branch
Inventory
Merchandise inventory at BP, December 1, 2023
Merch. inventory, December 1, 2023 per branch books
Less: Merchandise inventory at billed price
Merchandise inventory, December 1, 2023 -- outsiders
before
P10,800
(4,800)
P6,000
20%
P30,000
6,000
P36,000
P45,000
36,000
P 9,000
33. D
Combined Cost of Goods Sold:
Merchandise Inventory, 1/1/2023:
Home Office, cost
P 3,500
Branch: Outsiders,
P 300
From Home Office (P2,500 – P300)/110%
2,000
2,300 P 5,800
Add Purchases (P240,000 + P11,000)
251,000
COGAS
P 256,800
Less: Merchandise Inventory, 12/31/2023
Home Office, cost
P 3,000
Branch: Outsiders
P
150
From Home Office (P1,800 – P150)/110%
1,500
1,650
4,650
Cost of Goods Sold
P252,150
Page 19 of 23
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ADVANCED FINANCIAL ACCOUNTING & REPORTING
ReSA Batch 45 – May 2023 CPALE Batch
12 February 2023  03:00 PM to 06:00 PM
AFAR First Pre-Board Exam
34. B
No entry is required on March 1, 2022, because neither party has performed on the contract. That is, neither
party has an unconditional right as of March 1, 2022. On July 31, 2022, Giordano delivers the product and
therefore should recognize revenue as it received an unconditional right to consideration on that date. In addition,
Giordano satisfies its performance obligation by delivering the product to Hotter.
No entry – neither party has performed on March 1, 2022.
The entry on July 31, 2022, to record the sale and related cost of goods sold is as follows:
Accounts receivable
57,000
Sales
57,000
Cost of sales
Inventory
34,200
34,200
The entry to record the receipt of cash on August 31, 2022 is a follows:
Cash
Accounts receivable
57,000
57,000
A key attribute of the revenue arrangement is that the signing of the contract by the two parties is not recorded
until one or both of the parties perform under the contract. Until performance occurs, no net asset or net
liability occurs.
35. D - P75,000 + P50,000 + P25,000 = P150,000
P75,000/ P150,000  P120,000 = P60,000
P50,000/ P150,000  P120,000 = P40,000
P25,000/ P150,000  P120,000 = P20,000.
36. D - Since the right to receive is conditional upon delivery of both products, the company cannot recognize
Accounts Receivable yet. Instead, a Debit to Contract Asset must be recognized upon delivery of Product 1.
37. B - Joey is acting as principal in the contract based on the following indicators:
• Joey is responsible for fulfilling the contract because it is responsible for ensuring that the excavator meets
specifications
• Joey has inventory risk because it is responsible for correcting error in specifications, even though the
manufacturer has inventory risk during production
• Joey has discretion in establishing the selling pric
• Joey’s consideration is in the form of profit, not commission
• Joey has credit risk for the P46,200,000 receivable from Tanner
38. C In this case, two performance obligations exist:
1. one related to the sale of the computer and the assurance warranty (it should be noted that qualityassurance warranty is part of that performance obligation), and
2. the other to the extended warranty (service warranty).
The sale of the computer and related assurance warranty (quality-assurance) are one performance
obligation as they are interdependent and interrelated with each other.
However, the extended warranty is separately sold and is not interdependent (or not connected).
39. C - Because the arrangement only has two possible outcomes (regulatory approval is achieved or not), Bai
determines the transaction price based on the most likely approach. Thus, the best measure for the transaction
price is P20,000,000.
40. A
December 20, 2022
No entry-neither party has performed.
January 15, 2023
Cash
License Revenue
Page 20 of 23
10,000,000
10,000,000
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ADVANCED FINANCIAL ACCOUNTING & REPORTING
ReSA Batch 45 – May 2023 CPALE Batch
12 February 2023  03:00 PM to 06:00 PM
AFAR First Pre-Board Exam
41. D
Branch A
Branch B
P 21,000
2,000
55,000
P 78,000
-0P 78,000
P 19,000
1,500
43,500
P 64,000
-0P 64,000
Assets:
Inventory, January 1
Imprest branch fund
Accounts receivable, January 1
Total Assets
Less: Liabilities
Home Office Current Account, 1/1/2023
42. B
Branch A
Assets:
Inventory, December 31
Imprest branch fund
Accounts receivable, December 31
Total Assets
Less: Liabilities
Home Office Current Account, 12/31/2023
Branch B
P 19,000
2,000
70,000
P 91,000
-0P 91,000
P 12,000
1,500
53,500
P 67,000
-0P 67,000
43. B
Home Office Books
Branch Current (Dr.)
590,000
28,000
900
Branch Books
Home Office Current (Cr.)
40,000
15,000
40,000
15,000
Unadjusted capital balances
Adjustments:
Allowance for bad debts
Inventories
Accrued expenses
Adjusted capital balances
28,000
600
300
535,000
44. A
506,700
535,000
OO
(60%)
P133,000
PP
(40%)
P108,000
Total
P241,000
( 2,700)
3,000
( 2,400)
P130,900
( 1,800)
2,000
( 1,600)
P106,600
( 4,500)
5,000
( 4,000)
P237,500
Total capital before the formation of the new partnership (see above)
Divide by the total percentage share of OO and PP (50% + 30%)
Total capital of the partnership after the admission of RR
P 237,500
80%
P 296,875
Total capital of the new partnership
Multiply by RR’s interest
Cash to be invested by RR
P 296,875
20%
P 59,375
45. A
Agreed Capital
OO P148,437.50 (50% x P296,875)
PP
89,062.50 (30% x P296,875)
Contributed Capital
P 130,900
106,600
Settlement
P 17,537.50
(17,537.50)
Therefore, OO will pay PP P17,537.50
Page 21 of 23
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ADVANCED FINANCIAL ACCOUNTING & REPORTING
ReSA Batch 45 – May 2023 CPALE Batch
12 February 2023  03:00 PM to 06:00 PM
AFAR First Pre-Board Exam
46. C
Inventory of the Branch:
Shipments from home office at billed price
x: Ending inventory %
Ending inventory at billed price
Add: Freight (P1,300 x 60%)
P 37,700
60%
P22,620
780
P23,400
Or, P39,000 x 60% = P23,400
47. B
Inventory in the published balance sheet, at cost
Shipments at cost
x: Ending inventory %
Ending inventory at billed price
Add: Freight (P1,300 x 60%)
P 32,500
60%
P19,500
780
P 20,280
48. C
Home Office Books
Davao Branch…
39,000
STB, cost…….
32,500
Unrealized profit
5,200
Cash (freight)….
1,300
BC – Baguio……19,630
Excess freight… 520
BC-Davao…….
20,150
Davao Branch
SFHO…………….37,700
Freight-in………. 1,300
HOC…………..
39,000
Baguio Branch
HOC……………….20,150
SFHO(50%)…
18,850
Freight-in (50%
650
Cash……………
650
SFHO………
Freight-in..
HOC……
18,850
780
19,630
49. D - the amount of P40,000 is the nearest answer (refer to entry in No. 50 )
November 1, 20x4: Date of Opening/Franchise Opens: - Rights to trade name (to record revenue
from delivery of franchise rights – point in time/right of use)
Unearned Franchise Revenue
Franchise revenue
41,555
41,555
Franchises often include a license (right of use-point in time), as well as goods and services transferred
at the start of the franchise as well as over the life (right of access-over time) of the franchise.
A license is said to transfer a right of use if the seller’s activities during the license period are not expected to
affect the intellectual property being licensed to the customer. In that case revenue is recognized at the start of
the license period, that is, when the right is transferred.
50. A – nearest amount for unearned service revenue.
August 1, 20x5: Date of Signing:
Cash
Notes receivable (P30,000 x 2)
Unearned Interest Income/Discount on Notes Receivable
Unearned franchise revenue
Unearned service revenue – training services
Unearned sales revenue – equipment
40,000
60,000
6,502
41,555
11,947
39,996
Cash/down-payment
P 40,000
PV of Installment payment for two (2) periods:
P30,000 x 1.78326 (PV of an annuity of P1 for 2 periods)
53,498
Total
P 93,498
Amount allocated to:
Rights to trade name: P93,498 x (40,000/90,000)
P 41,555
Training services: P93,498 x (11,500/90,000)
11,947
Equipment: P93,498 x (38,500/90,000)
39,996
Total
P 93,498
Recognition of Franchise Rights Revenue Over Time
Depending on the economic substance of the rights, the franchisor may be providing access to the right (over
time) rather than transferring control of the franchise rights. In this case , the franchise revenue is recognized
over time, rather than at a point in time (August 1, 20x5), therefore, the P11,947 is unearned service
revenue (note: not as unearned franchise revenue in contrast to PAS 18)
Page 22 of 23
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ReSA Batch 45 – May 2023 CPALE Batch
12 February 2023  03:00 PM to 06:00 PM
AFAR First Pre-Board Exam
51. D - (15 x P850) − (P12,750  .06) − P300 − P390 = P11,295, or
Sales (P850 x 15))
Less Charges:
Commission (6% x P12,750)
Advertising
Delivery and installation
Remittance
P 12,750
765
300
390
P 11,295
52. D
Charges Related to
Consignment
Inventory on
Sales
Consignment
(15)
(5)
Total
Charges
(20)
Consignor’s charges:
Cost, P350 per set
Freight, P1,800
Consignee’s charges:
Commission (6% x P12,750)
Advertising
Delivery and installation
Total
Sales price, P850 per set
Profit on Consignment
P 7,000
1,800
P 5,250
1,350
P 1,750
450
765
300
390
P10,255
765
300
390
P 8,065
12,750
P 4,695
_______
P 2,200
53. D
In adopting the imprest system for the agency working fund, the home office writes a check to the agency for
the amount of the fund. Establishment of the fund is recorded on the home office books by a debit to the
working fund – agency account and credit to cash.
The agency will request fund replenishment whenever the fund runs low and at the end of each fiscal period.
Such a request is normally accompanied by an itemized and authenticated statement of disbursements and the
paid vouchers. Upon sending the agency a check in replenishment of the fund, the home office debits to
expense or other accounts for which disbursements from the fund were reported and credits cash.
54. C
63. B
55. C
64. D
56. C
65. C
57. D
66. C
58. C
67. C
59. B
68. A
60. D
69. D*
61. D
70. C**
62. A
*69. D – No sale has taken place as control of the goods has not been transferred, but Cambridge Co. must recognize
a contract liability to reflect the fact that it has received P90,000 prior to transferring goods to its customer.
**70. C –
Revenue should be recognized as the contract progresses using either input or output methods. Time elapsed
(as opposed to hours worked on contract) is not an appropriate method to assets progress. The number of calls
made as a proportion of all calls is an appropriate output method and therefore 35 per cent of revenue is
recognized. As the amount invoiced exceeds the performance obligation that has been satisfied, a contract liability
is also recognized.
-END-
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