ReSA - THE REVIEW SCHOOL OF ACCOUNTANCY

CPA Review Batch 41  May 2021 CPA Licensure Examination 

First Pre-Board Examination
ADVANCED FINANCIAL ACCOUNTING & REPORTING Saturday, 20 February 2021 (6PM-9PM)

INSTRUCTIONS: Select the correct answer for each of the following questions. Mark only one answer for each
item by shading the box corresponding to the letter of your choice on the answer sheet provided. STRICTLY NO
ERASURES ALLOWED. Use pencil no. 2 only.
Set A
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1. Tillman Textile Company has a single branch in Bulacan. On March 1, 2019, 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, 2019, 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
2. The PQR Partnership is being dissolved. All liabilities have been paid and the remaining assets are
being realized gradually. The equity of the partnership is as follows:
Loans to
Partner’s (from) Profit and
Accounts Partnerships Loss Ratio
P P24,000 P 6,000 3
Q 36,000 - 3
R 60,000 (10,000) 4
The second cash payment to any Partner (s) under a program of priorities shall be made thus:
A. To R P2,000 C. To R P8,000
B. To Q P6,000 D. To Q P6,000 & R P8,000
Use the following information for 3 and 4:
Partners Dennis and Lilly have decided to liquidate their business. The following information is
available:
Cash . . . . . . . . . . . . . P 100,000 Accounts Payable . . P 100,000
Inventory . . . . . . . . . . 200,000 Dennis, Capital . . . . 120,000
Lilly, Capital . . . . . . . . __80,000
Total . . . . . . . . . . . . . . P 300,000 Total . . . . . . . . . . . . . . . P300,000

Dennis and Lilly share profits and losses in a 3:2 ratio. During the first month of liquidation, half the
inventory is sold for P60,000, and P60,000 of the accounts payable is paid. During the second month,
the rest of the inventory is sold for P45,000, and the remaining accounts payable are paid. Cash is
distributed at the end of each month, and the liquidation is completed at the end of the second
month.
3. Using a safe payments schedule, how much cash will be distributed to Dennis at the end of the first
month?
A. P 64,000 C. P 24,000
B. P 60,000 D. P 36,000
4. Assume instead that the remaining inventory was sold for P10,000 in the second month. What
payments will be made to Dennis and Lilly at the end of the second month?
Dennis Lilly Dennis Lilly
A. P 0 P 0 C. P 5,000 P 5,000
B. P 10,000 P 0 D. P 6,000 P 4,000
Items 5 and 6 are based on the following information:
On May 15, 2019, 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.

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 First Pre-board Examination -Batch 41
ADVANCED FINANCIAL ACCOUNTING & REPORTING
Atlas Sales Company advanced P6,000 to Philco Company upon receipt of the shipment. Expenses of
P800 was paid by Atlas. By June, 2019, 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, 2019.
The consigned goods cost Philco Company P10,000 and freight charges of P120 had been paid to
ship it to Atlas Sales Company.
5. The cash remitted by Atlas Sales Company
A. P172 C. P2,230
B. P340 D. P2,340
6. The cost of inventory on consignment amounted to:
A. P1,500 C. P3,036
B. P3,000 D. P3,186
7. Under cash priority program, when all of the priorities are paid, any remaining cash distribution is

A. allocated to the partners based on their respective profit or loss ratios.

B. allocated to the partners based on the balances in their capital accounts after allocation of
losses.
C. allocated to the partners based on their pre-computed priorities.
D. allocated to the partners based on the relative values of their capital balances.
8. Which of the following is false in relation to consignment sales of a manufacturer of a household
goods to a retailer.
A. The manufacturer retains title to the products until they are scanned at the register.
B. The retailer does not have an obligation to pay the manufacturer until a sale occurs and any
unsold products may be returned to the manufacturer.
C. The manufacturer retains the right to call back or transfer unsold products to another retailer
until the sale to the consumer.
D. Once the retailer sells the products to the consumer, the manufacturer still has obligations for
the products, and the retailer still has return rights.

9. Eagle Company recently petitioned for bankruptcy and is now in the process of preparing a
statement of affairs. The following information has been assembled for this statement:

Assets Book Value Estimated Current Value

Cash . . . . . . . . . . . . . . . . . . . . P 70,000 P 70,000
Other current assets . . . . . . . 240,000 230,000
Building . . . . . . . . . . . . . . . . . . 600,000 700,000
Land . . . . . . . . . . . . . . . . . . . . 200,000 300,000
Liabilities
Liabilities with priority . . . . . . . . . . . . . . . . . . . . . . . . P 140,000
Mortgage payable (secured by building) . . . . . . 300,000
Note Payable (secured by land) . . . . . . . . . . . . . . 400,000
Unsecured liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 600,000

What amount will be paid to the fully secured creditors and the creditors with priority?
Fully Secured Creditors Creditors with Priority
A. P300,000 P140,000
B. P300,000 P 92,000
C P600,000 P 92,000
.
D. P700,000 P140,000

10. 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, 2018 are
as follows:
Main Store Branch
Debits:
Cash P 1,500 P 1,000
Accounts receivable – net 200 -
Inventory, December 31, 2017 3,500 2,500
Building – net 60,000 18,000

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First Pre-board Examination -Batch 41
ADVANCED FINANCIAL ACCOUNTING & REPORTING
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 P 15,000 P 500
Unrealized inventory profit 9,200 -
Main Store - 30,000
Capital stock 50,000 -
Retained earnings 16,000 -
Sales 200,000 120,000
Shipments to branch 90,000 -
Profit from branch ____2,300 _________
Total credits P 382,500 P 150,500

Inventories on hand at December 31, 2018 at the main store and branch are P3,000 and P1,800,
respectively. The December 31, 2017 branch inventory includes merchandise purchased from
outsiders of P300, and the December 31, 2018 branch inventory includes P150 of merchandise
purchased from outsiders. The combined cost of goods sold amounted to:
A. P261,200 C. P243,150
B. P252,200 D. P252,150

11. The MSB Partnership has the following amounts:

● Sales, P84,000
● Cost of goods sold, P48,000
● Operating expenses, P12,000
● Salary allocations to partners, P15,600
● Interest paid to banks, P2,400
● Partners’ withdrawals, P9,600
Compute the partnership net income (loss):
A. P24,000 C. P 6,000
B. 21,600 D. ( 3,600)

Items 12 and 13 are based on the following information:

Daniela Co. (DC), a soft drink company, enters in to a licensing arrangement with Camila Worldwide
Inc. (CWI), an apparel company. The licensing arrangement permits CWI to use the DC trademarked
logo and tagline on a new line of CWI’s T-shirts, hats, shorts and other apparel for a three-year period.
As consideration, CWI pays DC a one-off fee of P55 million at the beginning of the license term and
an 11% sales-based royalty, calculated from the total quarterly sales of apparel items that include the
DC logo. The rights and terms granted by DC to CWI under the agreement are similar to those
granted by DC in licensing arrangements with other apparel companies. CWI will provide updated
sales data on a quarterly basis. DC has determined the license is a distinct performance obligation.
DC will undertake activities that will affect the intellectual property (IP) to which CWI has rights. The
rights granted by the license directly expose CWI to positive or negative effects of changes in the
activities on the IP. DC activities do not transfer a separate good or service to CWI as those activities
occur, even if CWI may benefit from the activities.
12. Applying PFRS 15, the upfront payment of P55M will be recognized as revenue

A. Point in time B. Over time C. Over the 3 year period D. B and C

13. Applying PFRS 15, the sales-based royalties (variable consideration)
A. are excluded from the transaction price until the underlying sales occur, at which point,
revenue from the sales-based royalties are recognized.
B. are assessed if highly probable to occur
C. are included from the transaction price until the underlying sales occur, at which point, revenue
from the sales-based royalties are recognized.
D. B and C

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 First Pre-board Examination -Batch 41
ADVANCED FINANCIAL ACCOUNTING & REPORTING
14. As suggested by Article 1787 of the Philippine Civil Code and relevant PFRSs, the net contributions
(assets and related liabilities assumed by the partnership) of the partners to the partnership are
measured at

A. fair value C. discretionary amount determined by partners

B. cost D. any of these
15. The interest of the withdrawing, retiring, or deceased partner shall be adjusted for which of the
following?
I. his share of any profit or loss up to the date of his withdrawal, retirement or death, if he
withdraws, retires or dies during the year
II. his share of any revaluation gains or losses as at the date of his withdrawal, retirement, or
death

A. I only B. II only C. I or II D. I and II

16. 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. Cash 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
Items 17 and 18 are based on the following information:
Account balances for the Ral, Tom, and Vic partnership on October 1, 2008 are as follows:
Cash P 21,000 Accounts payable P 80,000
Accounts receivable 63,000 Notes payable 50,000
Inventory 120,000 Ral, capital (30%) 43,600
Equipment 150,000 Tom, capital (50%) 150,000
Ral loan 15,000 Vic, capital (20%) 45,400
The partners have decided to liquidate the business. Activities for October and November are as
follows:
October
● Ral is short of funds and the partners agree to charge her loan to her capital account.
● P40,000 is collected on the accounts receivable; P4,000 is written off as uncollectible.
● Half the inventory is sold for P50,000.
● Equipment with a book value of P55,000 is sold for P60,000.
● The P50,000 bank note plus P600 accrued interest is paid in full.
● The accounts payable are paid.
● Liquidation expenses of P2,000 are paid.
● Except for a P5,000 contingency fund, all available cash is distributed to partners at the
end of October.
November
● The remaining equipment is sold for P38,000.
● Vic accepts inventory with a book value of P20,000 and a fair value of P10,000 as payment
for part of her capital balance. The rest of the inventory is written off.
● Accounts receivable of P10,000 are collected. The remaining receivables are written off.
● Liquidation expenses of P800 are paid.
● Remaining cash, including the contingency fund, is distributed to the partners.
17. How much would Tom receive for the month of October?
A. P16,700 C. P34,286
B. P33,400 D. P35,400
18. How much cash would Vic receive for the month of November?
A. P 6,886 C. P10,400
B. P 9,720 D. P35,400
Items 19 through 21 are based on the following information:
Selected balances from the Cebu Company’s Branch A and B are as follows:
Branch A Branch B
Inventory, Jan. 1, 2018 P 21,000 P 19,000

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First Pre-board Examination -Batch 41
ADVANCED FINANCIAL ACCOUNTING & REPORTING
Imprest Branch Fund 2,000 1,500
Inventory, Dec. 31, 2018 19,000 12,000
A/Receivable, Jan. 1, 2018 55,000 43,500
Merchandise from Home Office… 61,000 47,000
A/Receivable, Dec. 31, 2018 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.
19. Compute the balance of the Home Office account in the books of Branch on January 1, 2018:
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
20. Compute the balance of the Home Office account on December 31, 2018.
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
21. The entry in Branch B’s records in order to update the reciprocal Home Office Account on
December 31, 2018 assuming net income of the branch is being reported to the home office:
A. Dr. – Home Office Current / Cr. – Profit and Loss
B. Dr. – Profit and Loss / Cr. - Branch Current
C. Dr. – Branch Current / Cr. – Profit and Loss
D. Dr. - Profit and Loss / Cr. – Home Office
22. An entity shall determine whether a transaction or other event is a business combination by
applying the definition in PFRS 3, Business Combinations, which requires that the assets acquired
and liabilities assumed constitute a/an _________. If the assets acquired are not a/an _______, the
reporting entity shall account for the transaction or other event as a/an ______.

A. operating segment, operating segment, business combination

B. operating segment, business, asset acquisition
C. business, business, asset acquisition
D. business, operating segment, asset acquisition
23. Marga Holding Inc., a sub-holding of the Mondragon Group, makes an offer for all the equity
shares of Cassie Ltd. on July 1, 2018. The consideration for the offer is 50,000 shares in Marga
together with P10,000,000 cash. The offer is accepted on August 1, 2018. However, the offer is
conditional upon receiving the approval of the competition authority which is obtained on
September 30, 2018. In the past, the competition authority has never rejected the application for
any merger or combination. The shares are exchanged on August 10, 2018. What is the date of
acquisition?
A. July 1, 2018, the date of the offer
B. August 1, 2018, the date the offer has been accepted
C. August 10, 2018, the date the shares have been exchanged
D. September 30, 2018, the date of the approval by the competition authority
24. Under PFRS 15, sales-based royalty is recognized
A. as sales occurs
B. when the performance obligation is satisfied
C. at the later of: (1) the occurrence of sales or (2) when the performance obligation is satisfied
D. as the services are provided or the rights used

Items 25 to 27 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 . . . . . . . . . . . . . . . . . . . . P48,000 Accounts payable . . . . . . . . . P 89,000
Accounts Receivable . . . . . . . 92,000 OO, capital . . . . . . . . . . . . . . 133,000
Inventories . . . . . . . . . . . . . . . . 165,000 PP, capital. . . . . . . . . . . . . . . 108,000
Equipment . . . . . . . . . . . . 70,000

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First Pre-board Examination -Batch 41
ADVANCED FINANCIAL ACCOUNTING & REPORTING
Less: Accumulated
Depreciation. . . . . . . . 45,000 25,000 _________
Total Assets . . . . . . . . . . . . . . P330,000 Total Liabilities & Capital . . . . P 330,000

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 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.
25. The cash to be invested by RR is:

A. P60,250 C. P50,000
B. P47,500 D. P59,375
26. The total capital of the partnership after the admission of RR is:
A. P296,875 C. P237,500
B. P301,250 D. P286,850
27. Cash settlement between OO and PP is:
A. OO will pay PP P17,537.50 C. OO will invest P17,537.50
B. PP will pay OO P17,537.50 D. PP will withdraw P17,537.50
28. PFRS 3 – Business Combinations does not apply to which of the following?
I. Formation of a joint arrangement.
II. Combination of entities or businesses under common control.
III. Acquisition of an asset or a group of assets that constitute a business.
IV. Acquisition by an investment entity of an investment in a subsidiary with that subsidiary not
providing services that relate to the investment entity's investment activities
V. Not-for-profit organizations.
A. I, II and IV only B. I, II, IV and V only C. I, II, III and V only D. I, II, III, IV and V

Items 29 and 30 are based on the following information:

29. 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
A. a credit to Unearned Franchise Revenue for P40,000.
B. a debit to Service Revenue for P11,500.
C. a debit to Sales Revenue for P38,500.
D. a debit to Unearned Franchise Revenue for P40,000.

30. 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.
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.

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First Pre-board Examination -Batch 41
ADVANCED FINANCIAL ACCOUNTING & REPORTING
Items 31 and 32 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.

31. The amount cash received by Famous Furniture is

A. P12,750 C. P11,685
B. P11,985 D. P11,295

32. The total profit on units sold for the consignor is

A. P11,295 C. P6,045
B. P 9,945 D. P4,695
33. If the partnership agreement does not specify how income is to be allocated, profits and loss
should be allocated

A. equally.
B. in accordance with their capital contribution.
C. in proportion to the weighted average of capital invested during the period.
D. equitably so that partners are compensated for the time and effort expended on behalf
of the partnership.
34. It is common for a construction entity to receive numerous variation orders from the customer
during the period of construction. These variation orders could arise due to changes in the design
of the asset being constructed and in the type of materials to be used for construction. Which of
the following is/are true about the requirements of PFRS 15 in relation to these changes?
I. These change orders or contract modification may need to be accounted for as a new
contract separate from the original contract if the modification adds distinct goods or services
priced at their stand-alone selling prices.
II. These change orders or variations in contract work are included in the contract revenue when
it is probable that the customer will approve the variation and the amount of revenue arising
from the variation can be reliably measured.

A. I only B. II only C. I or II D. I and II

35. It is possible that the construction entity will be entitled to an incentive bonus (for example, if the
quantity of the materials used in the project did not vary significantly from the budgeted quantity
in the bidding documents, if the entity will complete the project ahead of the target completion).
Which of the following is/are true about accounting for these variable considerations as provided
under PFRS 15?
I. If the consideration in the contract involves variable amount (incentives, claims, penalties,
etc.), the entity should estimate the amount of consideration to which it expects to be entitled.
II. An entity needs to estimate any variable consideration using either the expected value
method or the most likely amount method, and include it in the revenue to the extent that it is
highly probable that the revenue will not reverse.
III. Incentive payments are included in contract revenue when: (a) the contract is sufficiently
advanced that it is probable that the specified performance standards will be met or
exceeded; and (b) the amount of the incentive payment can be measured reliably.
IV. Claims are included in contract revenue only when: (a) negotiations have reached an
advanced stage such that it is probable that the customer will accept the claim; and (b) the
amount that it is probable will be accepted by the customer can be measured reliably.

A. I, II, III and IV B. I, II and IV only C. I and II only D. II only

36. Happy, Inc. opens a sales agency in Davao City, and a working fund for P20,000 is established on
the imprest basis. The first payment from the fund is P3,000 for rent. This transaction should be
recorded by the home office as follows:(9-F26)
A. No entry

B. Rent……………………………………………………………………………………3,000
Cash………………………………………………………………………… ....... 3,000
C. Davao Agency……………………………………………………………….......... 3,000
Cash…………………………………………………………………………….. 3,000
D. Davao Agency……………………………………………………………………… 3,000

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First Pre-board Examination -Batch 41
ADVANCED FINANCIAL ACCOUNTING & REPORTING
Working Fund..………………………………………………………………… 3,000
37. It is possible that: (1) a contractor may lower the pricing for a particular contract (which the client
was invited to bid) and recover foregone profits from other contracts with the same customer; or
(2) a contractor be awarded with multiple contracts with the same customer wherein the ultimate
goal of these contracts is to deliver a combined single output to the customer. PFRS 15 requires
entities to combine contracts entered into at or near the same time with the same customer if they
meet one or more of the following criteria, except:
A. the contracts are negotiated as a package with a single commercial objective
B. multiple contracts negotiated at the same time
C. the amount of consideration to be paid in one contract depends on the price or
performance of the other contract; or
D. the goods or services promised in the contracts (or some goods or services promised in each
of the contracts) are a single performance obligation

Items 38 through 40 are based on the following information:

On December 3, 2018, the Home Office of Kathy Office Supply Company recorded a shipment of
merchandise to its Davao branch as follows: (5-7F26)
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 2018.
The books of the home office and Kathy Office Supply are closed on December 31 of each year.
On January 5, 2019, the Davao branch transfers half of the original shipment to the Baguio branch,
and the Davao branch pays P650 as the shipment.

38. What amount should the 60% of the merchandise remaining unsold be included in (1) the
inventory of the Davao branch at December 31, 2018,
A. P20,280 C. P23,400
B. P22,620 D. P23,920
39. What amount should the 60% of the merchandise remaining unsold at December 31, 2018 be
included in the published balance sheet of Kathy Office Supply at December 31, 2018 shows
inventory at:
A. P19,500 C. P20,800
B. P20,280 D. P23,400

40. What is the entry on the home office books in respect to January 5, 2019 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…………………………………………………………………………………………18,850
Freight-in………………………………………………………………………………………….. 780
Home Office Current………………………………………………………….................. 19,630
C. Branch Current – Baguio………………………………………………………………….......19,630
Excess Freight....………………………………………………………………………………… 520
Branch Current – Davao…......................……………………………………………… 20,150
D. Branch Current – Baguio…………………………………………………………………......19,630
Excess Freight…………………………………………………………………………………… 780
Branch Current – Davao..................…………………………………………………… 20,410
41. Which of the following statements is/are true in relation to reacquired intangible rights under PFRS
3?
I. Reacquired intangible rights are recognized as an asset and determine its fair value on the basis
of the remaining contractual term of the contract when market participants would consider
potential contractual renewals when measuring its fair value.
II. Reacquired rights are amortized over the remaining contractual period.

A. I only B. II only C. I and II D. None of the choices

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First Pre-board Examination -Batch 41
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42. Based on PFRS 10, it pertains to an investee (e.g., CGU or an operating segment) within a legal
structure which can also be considered as business under PFRS 3.

A. relevant entity B. silo C. separate entity D. specified assets

43. Which of the following items are both exempted from the recognition and measurement
principles of PFRS 3?
I. Asset held for sale
II. Employee benefits
III. Income taxes
IV. Indemnification assets
V. Share-based payment

A. I, II, III, IV and V B. I, II and III only C. II, III and IV only D. II, III and V only

Items 44 and 45 are based on the following information:

CC admits DD for partnership interest in his business. The balance sheet accounts of CC on November
30,20x4 prior to the admission of DD are as follows:
Debits Credits
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P ?
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . 96,000
Merchandise inventory . . . . . . . . . . . . . . . . . . . . . . . . . . 144,000
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 49,600
CC, capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ?

It is agreed that for purposes of establishing CC’s interest, the following adjustments should be made:
1. An allowance for doubtful accounts of 2% of accounts receivable is to be established.
2. The merchandise inventory is to be valued at P160,000.
3. Prepaid expenses of P5,200 and accrued expenses of P3,200 are to be recognized.
DD is to invest cash of P113,640 to give him a one-third (1/3) interest in the firm.
44. The balance of the capital of CC before the adjustments is:
A. P227,280 C. P211,200
B. P230,120 D. P250,500
45. The total assets of the partnership after the formation is:
A. P393,720 C. P291,320
B. P340,920 D. P309,520
46. On June 30, 20x4, the balance sheet for the partnership of Williams, Brown, and Lowe, together
with their respective profit and loss ratios, is summarized as follows:

Assets, at cost . . . . . . P300,000

Williams loan. . . . . . . . . . . . . P 15,000
Williams capital (20%). . . . . 70,000
Brown capital (20%). . . . . . 65,000
Lowe capital (60%). . . . . . . 150,000
Williams has decided to retire from the partnership, and by mutual agreement the assets are to be
adjusted to their fair value of P360,000 at June 30, 20x4. It is agreed that the partnership will pay
Williams P102,000 cash for his partnership interest exclusive of his loan, which is to be repaid in full.
Goodwill is to be recorded in this transaction, as implied (total) by the excess payment to Williams.
After Williams’s retirement, what are the capital account balances of Brown and Lowe,
respectively?
A. P65,000 and P150,000 C. P73,000 and P174,000
B. P97,000 and P246,000 D. P77,000 and P186,000

47. (000’s omitted) A construction contractor has a fixed price contract for P100,000 to construct a
building (the project). The contractor’s estimate of total contract costs is P60,000. It will take two
years to construct the building.

At the end of the first year of the project (31 December 2019):
● the contractor has incurred costs of P20,000 on the contract, including P2,000 on cement
that is held offsite
● an independent surveyor certified that 28 percent of the contract work is completed

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● the site was cleared (stipulated in the contract to constitute 10 percent of the total
project), the foundation laid (stipulated as 5 percent of the total project) and the walls of
the building erected (stipulated as 14 percent of the total project)

The contractor determines that the stage of completion of the construction contract is measured
most reliably by reference to the proportion that costs incurred for work performed to date bear to
the estimated total costs. If the contractor determines that the stage of completion of the
construction contract is measured most reliably by reference to independent surveys of worked
performed, the 31 December 2019 stage of completion of the contract is:
A. 33 1/3% C. 29.00%
B. 30% D. 28.00%

48. 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 -0- C. P36,000
B. P 2,500 D. P38,250
49. A construction contract has a fixed price contract for P100,000 to construct a building of a design
that has never before been constructed and using materials that have never before been used in
the construction of building (the project).
The contractor began construction of the building in 2019 and expects that construction will take
at least five years. In 2019 the contractor incurred P5,000 contract costs on the project.
At the end of 2019 the contractor cannot estimate the outcome of the contract with sufficient
reliability to estimate the project’s percentage of completion (i.e., because of the uncertainties
arising from the new design and new materials the entity cannot estimate total expected contract
costs with sufficient reliability). It is highly likely that the contract price will be received from the
customer.
At the end of 2019 the contractor must recognize revenue of:
A. Nil or zero C. P100,000
B. P 5,000 D. Incomplete data
50. In all cases of dissolution, the partnership assets and liabilities at date of dissolution may need to
be revalued to their fair values. Any revaluation increase or decrease is

A. allocated only to the partners ceasing to be associated with the partnership.

B. allocated only to the partners existing after the dissolution.
C. allocated to all existing partners as at the date of dissolution.
D. no revaluation shall be made.

Items 51 to 54 are based on the following information:

On January 1, 2019, NT Company exchanges 15,000 shares of its common stock for all of the assets
and liabilities of OTG. Inc. Each of NT’s shares has a P4 par value and a P50 fair value. The fair value of
the stock exchanged in the acquisition was considered equal to OTG’s fair value. NT also paid P25,000
in stock registration and issuance costs in connection with the merger.
Several of OTG’s accounts have fair values that differ from their book values on this date:

Book Values Fair Values

Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P65,000 P63,000
Trademarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95,000 225,000
Record music catalog . . . . . . . . . . . . . . . . . . . . . . . . . . 60,000 180,000
In-process research and development . . . . . . . . . . . . 0 200,000
Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,000 45,000
Pre-combination January 1, 2019, book values for the two companies are as follows:
NT OTG
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 60,000 P 29,000

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Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150,000 65,000
Trademarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 400,000 95,000
Record music catalog . . . . . . . . . . . . . . . . . . . . . . . . . . 840,000 60,000
Equipment (net) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 320,000 105,000
Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P1,770,000 P354,000
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 110,000 P 34,000
Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 370,000 50,000
Common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 400,000 50,000
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . 30,000 30,000
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 860,000 190,000
Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P1,770,000 P354,000

Assume that this combination is a statutory merger so that OTG’s accounts will be transferred to the
records of NT. OTG will be dissolved and will no longer exist as a legal entity. Immediately the business
combination using the acquisition method, determine:

51. The total assets amounted to:

A. P2,124,000 C. P2,574,000
B. P2,547,000 D. P2,599,000
52. The common stock amounted to:
A. P 50,000 C. P450,000
B. P400,000 D. P460,000
53. The additional paid-in capital amounted to:
A. P 30,000 C. P695,000
B. P 60,000 D. P720,000
54. The retained earnings amounted to:
A. P190,000 C. P 860,000
B. P835,000 D. P1,050,000
Items 55 to 57 are based on the following information:
Carrying 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
Total . . . . . . . . . . . . . . . . . . . . . . . . P 550,000 P335,000

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:
Debts of Orville are as follows:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 60,000
Wages Payable(all have priority) . . . . . . . . . . . . . . . . . . . . . . . . 10,000
Taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000
Notes payable (secured by receivable and inventory). . . 120,000
Interest on Notes Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000
Bonds Payable (secured by land and building) . . . . . . . . . . 150,000
Interest on bonds Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,000
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 363,000

55. What is the total amount of unsecured claims?

A. P 93,000 C. P121,000
B. P113,000 D. P126,000

56. What estimated amount will be available for general unsecured creditors upon liquidation?
A. P28,000 C. P113,000
B. P93,000 D. P121,000

57. What is the estimated dividend percentage?

A. 23% C. 77%

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ADVANCED FINANCIAL ACCOUNTING & REPORTING
B. 93% D. 68%
58. Contractor ROMINA enters into a contract with the Owner to undertake the construction of a
state-of-the-art commercial building. The commercial building is highly customized to the owner’s
specifications and changes to these specifications by the owner are expected over the contract
term. Non-refundable, monthly progress payments are required in order to finance the contract.
The Owner can cancel the contract at any time (with a termination penalty) and any work in
progress shall be the property of the owner. As a result, another entity would not need to re-
perform the tasks performed to date. The physical possession and title of the building do not pass
until completion of the contract.

How should the contractor recognize revenue?

A. Point in time B. Over time C. POC D. Any of the choices
59. The branch account on the home office books of Block and Bell, Inc., and the home office
accounts on the branch books on January 31, 20x7, are as follows:

Beverly Hills Branch

20x7 Debit 20x7 Credit
Jan.1 Balance 50,615 Jan.20 Cash received from
branch 14,000
16 Merchandise 22,600 Remittance received
shipments from the branch
customer in
settlement of 65
branch account
31 Expenses chargeable
to branch 215
Home Office
20x7 Debit 20x7 Credit
Jan.10 Uncollectible Jan.1 Balance 28,415
account written-off 1,200
20 Cash remittance to 21 Correction for
home office 14,000 income understatement
for December 310
31 Cost of merchandise sold
21,400
31 Income for January 1,440
Shipments from Home Office
20x7 Debit 20x7 Credit
Jan.31 Cost of merchandise 21,400 Jan.1 Balance 22,200
sold
31 Shipments returned 16 Shipments from home
to home office 840 Office 21,200
The following additional data are available in reconciling the accounts:
a. A P1,400 shipment of goods charged by the home office to the Beverly Hills branch was
actually sent to the Brentwood branch.
b. The goods returned by the branch are in transit and do not appear on the home office
records.
c. The branch failed to recognize expenses incurred by the home office and chargeable against
income, P215, in calculating its income for January.
d. The allowance for doubtful accounts on branch receivables is maintained by the home office.
The correct balance of the reciprocal account amounted to:
A. P59,365 C. P57,460
B. P55,525 D. None of the above
60. Which of the following statements is/are true in relation to construction costs recognition under
PFRS 15?
I. PFRS 15 requires that costs relating to (partially) satisfied performance obligations should be
expensed as incurred, i.e., it indicates that contract costs are recognized as the work to which
they relate is performed.
II. PFRS 15 allows the allocation of costs in the same proportion as revenue (i.e., based on POC),
effectively normalizing profit margins.

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A. I only B. II only C. I or II D. I and II
61. The after-closing balances of Carler Corporation’s home office and its branch at January 1, 2018
were as follows:
Home Office Branch
Cash………………………………………………………………………. P 7,000 P 2,000
Accounts receivable-net………………………................................. 10,000 3,500
Inventory……………………………………………………………......... 15,000 5,500
Plant assets-net ……………………………………..........................45,000 0,000
Branch……………………………………………………………………. 28,000 -__
Total assets……………………………………...................................... P 105,000 P 31,000
Accounts payable………………………………………….................. P 4,500 P 2,500
Other liabilities………………………………………............................. 3,000 500
Unrealized profit-branch inventory................................................. 500 -
Home office……………………………………………………........... - 28,000
Capital stock…………………………………………………................. 80,000 -
Retained earnings………………………………………....................... 17,000 -
Total equities…………………………… ............................................. P 105,000 P 31,000
A summary of the operations of the home office and branch for 2008 follows:
1. Home office sales: P100,000, including P33,000 to the branch. A standard 10% markup on
cost applies to all sales to the branch. Branch sales to its customers totaled P50,000.
2. Purchases from outside entities: home office, P50,000; branch P7,000.
3. Collections from sales: home office P98,000 (including P30,000 from branch); branch
collections, P51,000.
4. Payments on account; home office, P51,500; branch P4,000.
5. Operating expenses paid: home office, P20,000; branch, P6,000
6. Depreciation on plant assets: home office, P4,000; branch P1,000.
7. Home office operating expenses allocated to the branch, P2,000.
8. At December 31, 2008, the home office inventory is P11,000 and the branch inventory is
P6,000, of which P1,050 was acquired from outside suppliers.
The combined net income amounted to:
A. P 0 C. P21,000
B. P4,550 D. P25,550
Use the following information for 62 to 65:
Bullen Inc. acquired assets and liabilities of Vicker Inc. on January 1, 20x4. The book value and fair
value of Vicker's accounts on that date (prior to creating the combination) follow, along with the
book value of Bullen's accounts:
Item Bullen - Vicker Vicker
Book Value Book Value Fair Value
Retained Earnings1/1/x4 . . . . . . . . . . . . . . . . . . P 160,000 P 240,000
Cash and receivables . . . . . . . . . . . . . . . . . . 170,000 70,000 P 70,000
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . 230,000 170,000 210,000
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 280,000 220,000 240,000
Buildings (net) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 480,000 240,000 270,000
Equipment (net) . . . . . . . . . . . . . . . . . . . . . . . . 120,000 90,000 90,000
Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 650,000 430,000 420,000
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 360,000 80,000
Additional paid-in capital . . . . . . . . . . . . . . . . 20,000 40,000
62. Assume that Bullen issued 12,000 shares of common stock with a P5 par value and a P47 fair value
to obtain all of Vicker's outstanding stock. In this transaction how much goodwill should be
recognized?
A. P144,000 D. P60,000
B. P104,000 E. P 0
C. P 64,000
63. Assume that Bullen issued 12,000 shares of common stock with a P5 par value and a P42 fair value
for all of the outstanding shares of Vicker. What will be the Additional Paid-In Capital and
Retained Earnings after the combination?
A. P20,000 and P160,000 D. P464,000 and P160,000
B. P20,000 and P260,000 E. P380,000 and P260,000
C. P380,000 and P160,000

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64. Assume that Bullen issued preferred stock with a par value of P240,000 and a fair value of
P500,000 for all of the net assets of Vicker in a business combination. What will be the balance in
the Inventory and Land accounts after the business combination?
A. P440,000, P496,000 D. P402,000, P520,000
B. P440,000, P520,000 E. P427,000, P510,000
C. P425,000, P505,000
65. Assume that Bullen paid a total of P480,000 in cash for all of the shares of Vicker. In addition,
Bullen paid P35,000 to a group of attorneys for their work in arranging the combination to be
accounted for as an acquisition. What will be the balance in goodwill?
A. P 0 C. P35,000
B. P20,000 D. P55,000

Items 66 to 70 are based on the following information:

In 2019, Chicago 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. Chicago recognizes
revenue on this contract over time according to percentage of completion. At the end of 2019, 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 14 million
Construction in progress P 50 million
Less: Billings on construction __(y) million
Net billings in excess of construction in progress P (z) million

Statement of Cash Flow:

Cash collections P 46 million
Compute the following:
66. Total revenue recognized during 2019 (w):
A. P 35 million C. P100 million
B. P 50 million D. P150 million
67. Gross profit recognized during 2019 (x):
A. P 15 million C. P 46 million
B. P 35 million D. P 50 million
68. Billings on construction (y):
A. P 14 million C. P 50 million
B. P 46 million D. P 60 million
69. 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
70. Calculate the percentage of PAC that was completed during 2019:
A. Zero C. 65 %
B. 33 1/3% D. 76 / 3%

END of EXAMINATION -

*Faith may be defined briefly as an illogical belief in the occurrence of the impossible. *
*Faith is a higher faculty than reason. *

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Ta

1. D
100% 60% 40%
Billed Price Cost Allowance
Merchandise inventory, 1/1/05 32,000
Shipments *60,000 36,000 *24,000
Cost of goods available for sale 56,000
Less: MI, 3/31/05 (25,000 x 40%) 10,000
Overvaluation of CGS/RPBSales 46,000
*36,000 cost / 60% = 60,000 x 40% = 24,000. (Note: Markup is based on billed price)
2. D
INTERESTS PAYMENTS______
P Q R P Q R Total
Balances before realization
Loans………………….. P 6,000 P(10,000)
Capital………………... 24,000 P 36,000 60,000
Total interests………... P 30,000 P 36,000 P 50,000
Divided by: P&L ratio…… 3/10 3/10 4/10
Loss absorption abilities… P100,000 P120,000 P125,000
Priority I……………………… - - ( 5,000) P2,000 P2,000
P100,000 P120,000 P120,000
Priority II…………………… - (20,000) (20,000) P6,000 8,000 14,000
P100,000 P100,000 P100,000 P – P6,000 P10,000 P16,000
3. D
Dennis Lily Total
Capital before realization 120,000 80,000 200,000
Reduction in capital (3:2) ( 84,000) ( 56,000) (140,000)
Payment to partners 36,000 24,000 60,000*
*Payment to partners:
Cash, beginning………………………………………………………………………………P100,000
Proceeds……………………………………………………………………………………….. 60,000
Payment of liabilities – to be conservative – it should be in full……………………..( 100,000)
Payment to partners…………………………………………………………………………..P 60,000
4. D
Dennis Lily Total__
Capital before realization – refer to no. 32 84,000 56,000 140,000
Reduction in capital (3:2) (78,000) ( 52,000) (130,000)
Payment to partners 6,000 4,000 10,000*
*since cash was fully distributed last month, only the proceeds of P10,000 for the second
remains to be distributed.
5. A
Gross collection (P15,000 x 70% x 80%) P 8,400
Less: Cash discount taken by customer (P8,400 x 2%) __168
Net collection P 8,232
Less Charges:
Expenses P 800
Commission (P8,400 x 15%) _1,260 __2,060
Due to Consignor P 6,172
Less: Advances _6,000
Amount remitted P 172
6. C
Charges Related to
Total Consignment Inventory on
Charges Sales Consignment
(100%) (70%) (30%)
Consignor’s charges:
Cost P10,000 P 7,000 P 3,000
Freight 120 84 36
Consignee’s charges:
Expenses 800 800
Commission (15% x P10,500) 1,575 1,575
Cash discount (P10,500 x 80% x 2%) 168 168 ______
Total P12,663 P 9,627 P 3,036
Sales price (70% x P15,000) _10,500_
Profit on Consignment P 873

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7. A
8. D
9. A
Net Free Assets:
(P700,000 – P300,000) + P70,000 + P230,000 = P700,000 – P140,000 = P560,000
Total Unsecured Creditors without priority:
(P400,000 – P300,000) + P600,000 = P700,000
10. D
Combined Cost of Goods Sold:
Merchandise Inventory, 12/1/2017:
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, 12/31/2018:
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…………………………………………………… P 252,150
11. B
Sales………………………………………………………………………………………. P84,000
Less: Cost of good sold……………………………………………………………. 48,000
Operating expenses…………………………………………………………. 12,000
Interest (expense) paid to bank…………………………………………… 2,400
Net Income……………………………………………………………………………… P21,600
Salary allocations to partner’s is considered as a distribution (or allocation) of net income
rather than as a determinant of net income. In other words, salaries to partners are not
treated as an expense in computing net income.
Partner’s withdrawal affects capital balance but not net income.
12. D
13. A
14. A
15. D
16. D
17. B (Correction: Inventory – P120,500)
OCTOBER RAL TOM VIC TOTAL
BALANCES BEFORE REALIZATION:
LOANS (TO) FROM (15,000) (15,000)
CAPITALS 43,600 150,000 45,400 239,000
TOTAL INTEREST FOR OCTOBER 28,600 150,000 45,400 224,000
REDUCTION IN INTEREST (57,180) (95,300) (38,120) (190,400)
BALANCES ( 28,580) 54,700 7,280 *33,400
POSSIBLE LOSS DUE TO INSOLVENCY (5:2) 28,580 (20,414) (8,166) - 0-
BALANCES 34,286 (886) 33,400
POSSIBLE LOSS DUE TO INSOLVENCY __( 886) __886 -0-
BALANCES _33,400 _33,400
*OCTOBER: PAYMENT TO PARTNERS, COMPUTED AS FOLLOWS:
CASH, BEGINNING……………………………………………………………………P 21,000
PROCEED S (P40,000 + P50,000 + P60,000).…………………………….. 150,000
PAYMENT OF BANK NOTE (P50,000 + P600)…………………………………( 50,600)
PAYMENT OF LIQUIDATION EXPENSES…………………………………………… ( 2,000)
PAYMENT OF ACCOUNTS PAYABLE…………………………………………………( 80,000)
CASH WITHHELD……………………………………………………………………… ( 5,000)
PAYMENT TO PARTNERS……………………………………………………………..P 33,400

18. A
NOVEMBER RAL TOM VIC TOTAL
TOTAL INTERESTS FOR OCTOBER 28,600 150,000 45,400 224,000
LESS: PAYMENTS _______ (33,400) _______ (33,400)
TOTAL INTEREST 28,600 116,600 45,400 190,600
REDUCTION IN INTEREST (38,520) (64,200) (25,680) (128,400)
BALANCES ( 9,920) 52,400 9,720 *52,200
POSSIBLE LOSS DUE TO INSOLVENCY (5:2) 9,920 (7,086) (2,834) - 0-
BALANCES 45,314 6,886 52,200

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First Pre-board Examination -Batch 41
ADVANCED FINANCIAL ACCOUNTING & REPORTING
*NOVEMBER: PAYMENT TO PARTNERS, COMPUTED AS FOLLOWS:
CASH, BEGINNING (WITHHELD OF LAST MONTH)…..……………………………P 5,000
PROCEEDS (P38,000 + P10,000)….………………………………………….. 48,000
PAYMENT OF LIQUIDATION EXPENSES…………………………………………… ( 800)
PAYMENT TO PARTNERS……………………………………………………………..P 52,200

19. D
Branch A Branch B
Assets:
Inventory, January 1 P 21,000 P 19,000
Imprest branch fund 2,000 1,500
Accounts receivable, January 1 55,000 43,500
Total Assets P 78,000 P 64,000
Less: Liabilities -0- -0-
Home Office Current Account P 78,000 P 64,000
20. B
Branch A Branch B
Assets:
Inventory, December 31 P 19,000 P 12,000
Imprest branch fund 2,000 1,500
Accounts receivable, December 31 70,000 53,500
Total Assets P 91,000 P 67,000
Less: Liabilities -0- -0-
Home Office Current Account P 91,000 P 67,000

21. D - incidentally, the entry in the books of the branch would be as follows:
Profit and loss summary ………………………………………………………… xxx
Home Office Current……………………………………………………. Xxx

22. C
23. C
24. C
25. D
Total capital of the new partnership (refer to No. 24) P 296,875
Multiply by RR’s interest 20%
Cash to be invested by RR P 59,375
26. A
OO PP Total
(60%) (40%)
Unadjusted capital balances P133,000 P108,000 P241,000
Adjustments:
Allowance for bad debts ( 2,700) ( 1,800) ( 4,500)
Inventories 3,000 2,000 5,000
Accrued expenses ( 2,400) ( 1,600) ( 4,000)
Adjusted capital balances P130,900 P106,600 P237,500

Total capital before the formation of the new partnership (see above) P 237,500
Divide by the total percentage share of OO and PP (50% + 30%) 80%
Total capital of the partnership after the admission of RR P 296,875

27. A
Agreed Capital Contributed Capital Settlement
OO P148,437.50 (50% x P296,875) P 130,900 P 17,537.50
PP 89,062.50 (30% x P296,875) 106,600 (17,537.50)
Therefore, OO will pay PP P17,537.50
28. A
29. D - the amount of P40,000 Is the nearest answer (refer to entry in No. 2)
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 ........................... . . . . . . . . . . 41,555
Franchise revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 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.

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First Pre-board Examination -Batch 41
ADVANCED FINANCIAL ACCOUNTING & REPORTING
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.
30. A – nearest amount for unearned service revenue.
August 1, 20x5: Date of Signing:
Cash. ....................................................... . . . . . . . . . . . . . . . . 40,000
Notes receivable (P30,000 x 2)................................................ 60,000
Unearned Interest Income/Discount on Notes Receivable 6,502
Unearned franchise revenue............................................... 41,555
Unearned service revenue – training services..................... 11,947
Unearned sales revenue – equipment................................ 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 P11,500 is unearned service revenue (note: not as a unearned franchise
revenue in contrast to PAS 18)
31. D - (15 x P850)  (P12,750  .06)  P300  P390 = P11,295, or
Sales (P850 x 15)) P 12,750
Less Charges:
Commission (6% x P12,750) 765
Advertising 300
Delivery and installation 390
Remittance P 11,295
32. D
Charges Related to
Total Consignment Inventory on
Charges Sales Consignment
(20) (15) (5)
Consignor’s charges:
Cost, P350 per set P 7,000 P 5,250 P 1,750
Freight, P1,800 1,800 1,350 450
Consignee’s charges:
Commission (6% x P12,750) 765 765
Advertising 300 300
Delivery and installation 390 390 _______
Total P10,255 P 8,065 P 2,200
Sales price, P850 per set 12,750
Profit on Consignment P 4,695

33. B
34. A
35. C
36. A
37. B
38. C
Inventory of the Branch:
Shipments from home office at billed price….........................................P 37,700
x: Ending inventory %................................................................................. 60%
Ending inventory at billed price………………………………………………..P22,620
Add: Freight (P1,300 x 60%)……………………………………………………... 780
P23,400
Or, P39,000 x 60% = P23,400

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First Pre-board Examination -Batch 41
ADVANCED FINANCIAL ACCOUNTING & REPORTING
39. B
Inventory in the published balance sheet, at cost
Shipments at cost………………………………….........................................P 32,500
x: Ending inventory %.................................................................................. 60%
Ending inventory at billed price…………………………………………….....P19,500
Add: Freight (P1,300 x 60%)…………………………………………………...... 780
P 20,280
40. C
Home Office Books Davao Branch Baguio Branch
Davao Branch… 39,000 SFHO…………….37,700
STB, cost……. 32,500 Freight-in………. 1,300
Unrealized profit 5,200 HOC………….. 39,000
Cash (freight)…. 1,300
BC – Baguio……19,630 HOC……………….20,150 SFHO……… 18,850
Excess freight… 520 SFHO(50%)… 18,850 Freight-in.. 780
BC-Davao……. 20,150 Freight-in (50%) 650 HOC…… 19,630
Cash…………… 650

41. B
42. B
43. C
44. C
Total partnership capital (P113,640/1/3) P 340,920
Less DD’s capital 113,640
CC’s capital after adjustments P 227,280
Adjustments made:
Allowance for doubtful account (2% x P96,000) 1,920
Merchandise inventory ( 16,000)
Prepaid expenses ( 5,200)
Accrued expenses 3,200
CC’s capital before adjustments P 211,200
45. A
Assets invested by CC:
Cash:
Capital P211,200
Add Accounts payable 49,600
Total assets (excluding cash) P260,800
Less Noncash assets (96,000 + P144,000) 240,000 P20,800
Accounts receivable (96,000 – P1,920) 94,080
Merchandise inventory 160,000
Prepaid expenses 5,200 P 280,080
Cash invested by DD 113,640
Total assets of the partnership P 393,720
46. B
Amount paid P 102,000
Less: Book value of Williams
P70,000 + (P360,000 – P300,000) x 20% 82,000
Partial goodwill/revaluation adjustment P 20,000
Capitalized at P&L of Dixon 20%
Goodwill/revaluation P100,000
Brown: P65,000 + (P60,000 x 20%) + (P100,000 x 20%) P 97,000
Lowe: P150,000 + (P60,000 x 60%) + (P100,000 x 60%) P246,000
47. D - At 31 December 2019 the stage of completion of the contract is 28 percent determined
by the independent surveyor.
48. B
Ding Laurel Ezzard Tillman Total
Capital before realization 60,000 67,000 17,000 96,000 240,000
Loss on sale (4:2:2:2) (52,800) ( 26,400) (26,400) (26,400) (132,000)
7,200 40,600 ( 9,400) 69,600 108,000
Possible insolvency loss (4:2:2) ( 4,700) ( 2,350) ( 9,400) ( 2,350) -0-
Safe payments 2,500 38,250 0 67,250 108,000
49. . B – Cost recovery method (Zero-profit approach)/Point in Time should be applied since the
outcome of the construction contract cannot be reliably measurable. At the end of 2019
the contractor must recognized only to the extent of recoverable contract costs incurred
(i.e., P5,000 contract revenue and P5,000 construction costs/expenses).

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First Pre-board Examination -Batch 41
ADVANCED FINANCIAL ACCOUNTING & REPORTING
50. C
51. C
In accounting for the combination of NT and OTG, the fair value of the acquisition is
allocated to each identifiable asset and liability acquired with any remaining excess
attributed to goodwill.
Consideration transferred (shares issued) P750,000
Less: Fair value of net assets acquired:
Cash P29,000
Receivables 63,000
Trademarks 225,000
Record music catalog 180,000
In-process R&D 200,000
Equipment 105,000
Accounts payable (34,000)
Notes payable (45,000) 723,000
Goodwill P 27,000

Entry by NT to record combination with OTG:

Cash 29,000
Receivables 63,000
Trademarks 225,000
Record Music Catalog 180,000
Capitalized R&D 200,000
Equipment 105,000
Goodwill 27,000
Accounts Payable 34,000
Notes Payable 45,000
Common Stock (NewTune par value) 60,000
PIC - par 690,000
(To record merger with OTG at fair value)

PIC - par 25,000

Cash 25,000
(Stock issue costs incurred)

Post-Combination Balance Sheet:

Assets Liabilities and Owners’ Equity
Cash P 64,000 Accounts payable P 144,000
Receivables 213,000 Notes payable ___415,000
Trademarks 625,000 Total liabilities P 559,000
Record music catalog 1,020,000
Capitalized R&D 200,000 Common stock 460,000
Equipment 425,000 Paid-in capital - par 695,000
Goodwill 27,000 Retained earnings 860,000
Total P2,574,000 Total P2,574,000

52. D – refer to No. 51

53. C – refer to No. 51
54. C – refer to No. 51
55. C – P60,000 + [(P120,000 + P6,000) – (P30,000 + P35,000) = P121,000

56. 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. 19), or whatever the specific percentage is. The payment to general
unsecured creditors is often termed a “dividend”.

57. C – P93,000/P121,000 = 77% rounded. Refer to “Note” in No. 12

58. B

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First Pre-board Examination -Batch 41
ADVANCED FINANCIAL ACCOUNTING & REPORTING
59. C
HO Books - Branch Books -
Branch Home Office
Account Account
Balances before adjustments P 59,365 P 57,525
Adjustments:
Corrected branch income for January (P1,440 –
P215) 1,225
Understatement of branch paid by home office for
December 310
Expenses of branch paid by home office 215
Collection by home office of branch receivable ( 65)
Correction of branch income for January ( 215)
Merchandise transferred to Brentwood branch but
incorrectly charged by Beverly Hills branch ( 1,400)
Merchandise returns to home office in transit ( 840)
Uncollectible accounts of branch ( 1,200) _______
Corrected Balances P 57,460 P 57,460
60. A
61. D
Sales (P100,000 – P33,000 + P50,000)…………………………………………………….P 117,000
Less: Cost of goods sold:
Inventory, beg. [P15,000 + (P5,500/110%) or (P5,500 – P500)]……P20,000
Add: Purchases (P50,000 + P7,000)…………………………………… 57,000
COGAS……………………………………………………………………..P77,000
Less: Inventory, end [P11,000 + P1,050 + (P6,000- P1,050)/110%] 16,550 60,450
Gross profit………………………………………………………………………………….. P 56,550
Less: Expenses (P20,000 + P6,000 + P5,000)…………………………………………… 31,000
Combined Net income…………………………………………………………………... P 25,550

62. B – [(P47 x 12,000 shares) – (P70,000 + P210,000 + P240,000 + P270,000 + P90,000 – P420,000)
= P104,000
63. D
APIC: P20,000 + [(P42 – P5) x12,000 = P464,000
Retained earnings: P160,000, parent only
64. B
Inventory: PP230,000 + P210,000 = P440,000
Land: P280,000 + P240,000 = P520,000
65. B – [P480,000 – (P70,000 + P210,000 + P240,000 + P270,000 + P90,000 – P420,000)] = P20,000
66. B
Total revenue recognized during 2019 (w): P 50 million
CIP contains cost + gross profit = revenue, so W = P50
67. A
Gross profit recognized during 2019 (x): P50 - P35 = P15 P 15 million

68. D
Billings on construction (y): P14 + P46 = P60 P 60 million

69. A
Net billings in excess of construction in progress (z): Billings of P60 – CIP of P50 P10 million

70. B
Calculate the percentage of PAC that was completed during 2019: 33.33%
50/150 = 33.33%

Goodluck and GOD BLESS!!!

*When GOD measures a man, He puts the tape around the heart instead of the head. *
*Until you make peace with who you are, you’ll never be content with what you have. *
*Only passions, great passions, can elevate the soul to great things. *
*Most of the things worth doing in the world had been declared impossible before they were done. *
*The world belongs to the man who is wise enough to change his mind in the presence of facts. *
*There are only two things in the world to worry over; the things you can control,
and the things you can’t control. Fix the first forget the second. *

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 ReSA - THE REVIEW SCHOOL OF ACCOUNTANCY
CPA Review Batch 41  May 2021 CPA Licensure Examination 
Final Pre-Board Examination
ADVANCED FINANCIAL ACCOUNTING & REPORTING Monday, 03 May 2021 (2PM-5PM)

INSTRUCTIONS: Select the correct answer for each of the following questions. Mark only one answer for each
item by shading the box corresponding to the letter of your choice on the answer sheet provided. STRICTLY NO
ERASURES ALLOWED. Use pencil no. 2 only.
Set A
---------------------------------------------------------------------------------------------------------------------------------
1. On October 17, 2018, Lee, Inc. purchased from a Thailand firm an inventory costing 10,000 baht.
Payment is due on January 15, 2019. Also on October 17, Lee, Inc. entered into a foreign exchange
forward to buy 10,000 baht on January 15, 2019.
10/17/18 12/31/18 1/15/19
Spot rate (baht) P 1.30 P1.42 P1.40
Forward rate (baht) 1.36 1.43 1.40

In the profit and loss statement, foreign exchange gain or loss due to forward contract amounted to:
2018 2019 2018 2019
A. P 0 P 0 C. P700 loss P300 gain
B. P1,200 loss P200 gain D. P700 gain P300 loss

Items 2 and 3 are based on the following information:

The Ventures Corporation decided to open a branch store in Manila. Shipments of merchandise to the
branch totaled P108,000 which included a 20% mark-up on cost. All accounting records are to be kept at
the home office. The branch submitted the following report summarizing its operations for the period
ended December 31, 20x4.

Sales on account …………………………………………………….. P148,000

Sales on cash basis ………………………………………………….. 44,000
Collections of accounts……………………………………………… 120,000
Expenses paid………………………………………………………….. 76,000
Expenses unpaid………………………………………………………. 24,000
Purchase of merchandise for cash ……………………………… 52,000
Inventory on hand, December 31 (80% from home office) 60,000
Remittances to home office ……………………………………….. 110,000

2. What is the adjusted balance of the allowance for overvaluation of branch inventory account?
A. P 8,000 C. P12,000
B. P18,000 D. None of the above.

3. The branch operations, in so far as the home office is concerned, resulted in a net income(loss) of:
A. P1,600 C. P8,000
B. P2,000 D. None of the above.
4. ABC Company manufactures product X. It adds materials in the beginning of the process in
Department A, which is the first of two stages of its production cycle. The following are the
information concerning the materials used in Department A in September 2018:
Material
Units Costs
Work-in-process, September 1, 2018 4,000 P 2,000
Units started during September 48,000 23,480
Units completed and transferred to next
department B during September 30,000

Using the weighted-average method, the materials cost of the work-in-process in the September 30,
2018 is:
A. P 5,390 C. P11,000
B. 10,780 D. 14,700

5. Consolidated financial statements are designed to provide:

A. informative information to all shareholders.
B. the results of operations, cash flow, and the balance sheet in an understandable and
informative manner for creditors.
C. the results of operations, cash flow, and the balance sheet as if the parent and subsidiary
were a single entity.
D. subsidiary information for the subsidiary shareholders.

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Final Pre-board Examination -Batch 41
ADVANCED FINANCIAL ACCOUNTING & REPORTING
6. The balance sheet as of June 30, 2016 for the partnership of Dom, Joe, and Rey show the following
information:
Total assets (at cost)…………………………………………….P 360,000
Dom, loan…………………………………………………………….P 20,000
Dom, capital………………………………………………………… 83,000
Joe, capital………………………………………………………….. 77,000
Rey, capital………………………………………………………….. 180,000
Total……………………………………………………………………P 360,000
It was agreed among partners that Dom retires from the partnership and it was further agreed that
the assets be adjusted to their fair values of P408,000 as of June 30, 2016. The partnership would
pay Dom P121,000 cash for Dom’s partnership interest and includes the payment of loan to Dom. No
goodwill is to be recorded.
Dom, Joe, and Rey share profits and losses: 25%, 25%, and 50% respectively. After Dom’s
retirement, what is the balance of Rey’s capital account?
A. P180,000 C. P200,000
B. P204,000 D. Zero

7. Lazy Builders, Inc. has incurred the following contract costs in the first year on a two-year fixed price
contract for P4.0 million to construct a bridge:
 Material cost = P2 million
 Other contract costs (including site labor costs) = P1 million
 Cost to complete = P2 million

How much profit or loss should Lazy Inc. recognize in the first year iof the three year construction
contract?
A. Loss of P0.5 million prorated over two years.
B. Loss of P1.0 million (expensed immediately).
C. No profit or loss in the first year and deferring it to second year.
D. Since 60% is the percentage of completion, recognize 60% of loss (i.e., P0.6 million)

8. Consolidated financial statements are appropriate even without a majority ownership of which of the
following exists:
A. the subsidiary has the right to appoint members of the parent company's board of directors.
B. the parent company has the right to appoint a majority of the members of the subsidiary's
board of directors through a large minority voting interest.
C. the subsidiary owns a large minority voting interest in the parent company.
D. the parent company has an ability to assume the role of general partner in a limited partnership with
the approval of the subsidiary's board of directors.

9. A controlling interest in a company implies that the parent company

A. owns all of the subsidiary's stock.
B. has acquired a majority of the subsidiary's common stock.
C. has paid cash for a majority of the subsidiary's stock.
D. has transferred common stock for a majority of the subsidiary's outstanding bonds and debentures.

10. Brilliant Inc. is constructing a skyscraper in the heart of the Recto, Manila had has signed a fixed
price two-year contract for P21.0 million with the local authorities. It has incurred the following cost
relating to the contract by the end of first year:
 Material cost = P5 million
 Labor cost = P2 million
 Construction overhead = P2 million
 Marketing costs = P0.5 million
 Depreciation of idle plant and equipment = P0.5 million
At the end of first year, it has estimated cost to complete the contract = P9 million.
What gross profit or loss from the contract should Brilliant Inc. recognize at the end of the first year?
A. P1.5 million (9/18 x 3.0)
B. P1.0 million (9/18 x 2.0)
C. P1.05 million (10/19 x 2.0)
D. P1.28 million (9.5/18.5) x 2.5)

Items 11 and 12 are based on the following information:

The following selected data were taken from the books of the Bixby Box Company. The company uses
job costing to account for manufacturing costs. The data relate to June operations.

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Final Pre-board Examination -Batch 41
ADVANCED FINANCIAL ACCOUNTING & REPORTING
(A)Materials and supplies were requisitioned from the stores clerk as follows:
Job 405, material X, P7,000.
Job 406, material X, P3,000; material Y, P6,000.
Job 407, material X, P7,000; material Y, P3,200.
For general factory use: materials A, B, and C, P2,300.
(B) Time tickets for the month were chargeable as follows:
Requisition No. Amount
Job No. 405 P11,000 3,000 hours
Job No. 406 P14,000 3,600 hours
Job No. 407 P 8,000 1,900 hours
Indirect labor P 3,700
(C) Other information:
Factory paychecks for P35,200 were issued during the month.
Various factory overhead charges of P19,400 were incurred on account.
Depreciation of factory equipment for the month was P5,400.
Factory overhead was applied to jobs at the rate of P3.50 per direct labor hour.
Job orders completed during the month: Job 405 and Job 406.
Selling and administrative costs were P2,100.

11. If Job 406 were sold on account for P41,500 how much gross profit would be recognized?
A. P 3,800 C. P18,500
B. P 5,900 D. P35,600

12. The balance in the factory overhead account would represent the fact that overhead was
A. P1,050 underapplied C. P3,150 overapplied
B. P1,250 underapplied D. P4,350 overapplied

13. San Miguel Corporation acquired 100% of a foreign subsidiary, Sing Sing Ltd on 1 July 20x7. The
balance sheet of Sing Sing on that date was as follows:
Balance sheet at 1 July 20x7
FC (Foreign FC (Foreign
Currency) Currency)
Machinery at cost P 280,000 Share capital P 200,000
Investment property 200,000 General Reserve 100,000
Receivables 50,000 Retained earnings 300,000
Cash ___70,000 _________
P 600,000 P 600,000
The balance sheet of Sing Sing as at is as follows:
Balance Sheet as at 30 June 20x8
FC (Foreign FC (Foreign
Currency) Currency)
Machinery- carrying value P 150,000 Share capital P 200,000
Investment property 200,000 General Reserve 100,000
Receivables 250,000 Retained earnings 500,000
Cash 300,000 Accounts payable 85,000
_________ Income tax payable ___15,000
P 900,000 P 900,000
 Relevant exchange rates are as follows:
Pesos FC
1 July 20x7 1.00 = 1.25
30 June 20x8 1.00 = 1.28
Average 20x7-x8 1.00 = 1.18
(1) If the local currency of the foreign subsidiary is the foreign currency and the functional currency
is Philippine peso, the total assets of FC900,000 would translate into Philippines pesos as
(translate a set of financial statements from local currency into the functional currency);

(2) If the functional currency of the foreign subsidiary is the foreign currency and the presentation
currency is Philippine pesos, the total assets of FC900,000 would translate into Philippine pesos
as (Translate financial statements into the presentation currency)

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Final Pre-board Examination -Batch 41
ADVANCED FINANCIAL ACCOUNTING & REPORTING

A. (1) P 709,688; (2) P 703,125

B. (1) P 703,125; (2) P 709,688
C. (1) P1,141,500; (2) P1,152,000
D. (1) P1,152,000; (2) P1,141,500

14. Parolari Corporation sold equipment with a remaining three-year useful life and a book value of
P14,500 to its 80%-owned subsidiary, Sarafin Corporation, for P16,000 on January 2, 2018. A
consolidated working paper entry on December 31, 2018 to eliminate the unrealized profits from the
intercompany sale of equipment will include:
A. A debit to gain on sale of equipment of P1,000.
B. A debit to gain on sale of equipment for P1,500.
C. A credit to depreciation expense for P1,500
D. A debit to machinery for P1,500.

15. Hartwell Company distributes the service department overhead costs to producing departments and
the following information for the month of January is presented as follows:
Maintenance Utilities
Overhead costs incurred P18,700 P 9,000
Services provided to:
Maintenance department - 10%
Utilities department 20% -
Producing department, A 40% 30%
Producing department B 40% 60%

The company distributes service department costs based on the reciprocal method, what would be
the formula to determine the total maintenance costs?
A. M = P18,700 + .10U C. M = P18,700 + .30U + .40A + .40B
B. M = P9,000 + .20U D. M = P27,700 + .40A + .40B

16. The best definition for direct quotes would be direct quotes measure
A. Exchange rates at a future point in time
B. Current or spot rates
C. How much domestic currency must be exchanged to receive 1 foreign currency
D. how much foreign currency must be exchanged to receive 1 domestic currency

17. Which of the following is NOT considered when directly computing the translation adjustment for foreign
financial statements?
A. Beginning amount of net assets held by the domestic investor
B. Increase or decrease in net assets for the period excluding capital transactions
C. Increase or decrease in net asset as a result of capital transactions
D. All are considered when directly computing the translation adjustment

18. Which of the following suggests that the foreign entity's functional currency is the parent's currency?
A. Intercompany transaction volume is low.
B. Debt is serviced through local operations.
C. There is an active and primarily local market.
D. Sale prices are influenced by international factors.

19. On October 2, 2018, Tamayao, Inc. ordered a custom-built passenger van from a Japanese firm. The
purchase order is noncancelable. The purchase price is 1,000,000 yens with delivery and payment to
be on March 31, 2019. On October 2, 2018, Tamayao, Inc. entered into a forward contract to buy
1,000,000 yens on March 31, 2019 for P.57. On March 31, 2019. the custom-built passenger van was
delivered.
10/2/18 12//31/18 3/31/19
Spot rate (rupee) P .50 P .56 P .57
Forward rate (rupee) .53 .58 .57

The December 31, 2018 profit and loss statement, foreign exchange gain or loss (on hedged item/
commitment) amounted to:
Fair Value Cash Flow Fair Value Cash Flow
Hedge Hedge Hedge Hedge
A. P60,000 loss P50,000 loss C. P50,000 loss P 0
B. P 0 P50,000 loss D. P50,000 gain P 0

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Final Pre-board Examination -Batch 41
ADVANCED FINANCIAL ACCOUNTING & REPORTING

20. Using the same information in No. 19. compute the December 31, 2018, foreign exchange gain on
forward contract amounted to (income statement or equity):
Fair Value Cash Flow Fair Value Cash Flow
Hedge Hedge Hedge Hedge
A. P50,000 I/S P50,000 equity C. P50,000 I/S Not applicable
B. P50,000 equity P50,000 I/S D. Not applicable P50,000 equity

21. The Diamond Company uses a job-order cost accounting system. Overhead applied to production is
at a predetermined rate of 80% based on direct labor costs. The following postings appear in the
ledger accounts of the company for the month of September 2018:
Debit
Work-in-process, September 1……………………………………………P 30,000
Direct materials………………………………………………………………… 60,000
Direct labor……………………………………………………………………… 50,000
Factory overhead……………………………………………………………… 45,000

On September 30, 2018, finished goods completed from the work-in-process costing P160,000. Job
327 was the only job not completed in September and has been charged P4,600 for factory
overhead.

Direct materials charged to Job No. 327 was:

A. P10,350 C. P20,000
B. 14,650 D. 25,000

22. Company B acquired the net assets of Company S in exchange for cash. The acquisition price exceeds the
fair value of the net assets acquired. How should Company B determine the amounts to be reported for
the plant and equipment, and for long-term debt of the acquired Company S?
Plant and Equipment Long-Term Debt
A. Fair value S's carrying amount
B. Fair value Fair value
C. S's carrying amount Fair value
D. S's carrying amount S's carrying amount

23. The Ilang-ilang Corporation engaged in manufacturing business uses process costing and gave us the
following production data from three different situations. Stages of completion of inventories apply to
all cost elements:
(1) Started in process, 6,500 units; transferred 5,500 units; in process, 400 units, 50% complete and
600 units 25% completed.
(2) Beginning inventory, 6,250 units, 40% completed; started in process, 25,000 units transferred,
26,250; in process at the end of the period, 3,000 units, 50% completed and 2,000 units, 25%
completed.
(3) Beginning inventory, 6,000 units, 30% completed; started in process, 13,000 units, lost in
processing, 500 units from production started this period (loss was normal and occurred
throughout the production process); transferred 14,000 in process at the end of period, 3,000
units, 50% completed and 1,500 units, 75% completed.

Using FIFO costing, the equivalent production figures are:

A. (1) 5,580; (2) 27,550; (3) 18,425
B. (1) 5,850; (2) 25,750; (3) 14,825
C. (1) 8,550; (2) 20,575; (3) 15,428
D. (1) 5,058; (2) 20,775; (3) 12,524

24. Using the same data in No. 23, the equivalent production figures under Average costing are:
A. (1) 5,580; (2) 22,850; (3) 15,662
B. (1) 5,085; (2) 25,580; (3) 12,665
C. (1) 5,508; (2) 28,025; (3) 16,265
D. (1) 5,850; (2) 28,250; (3) 16,625

25. Which of the following is NOT an example of one of the major categories of funds for a college or
university?
A. current funds
B. proprietary funds
C. plant funds
D. trust and agency funds

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Final Pre-board Examination -Batch 41
ADVANCED FINANCIAL ACCOUNTING & REPORTING

26. On December 1, 2018, a Philippine firm, Cris Inc. estimates that at least 5,000 units of inventory will
be purchased from a company in Taiwan during January of 2009 for 500,000 Nt dollars. The
transaction is probable, and it is to be denominated in Nt dollar. Sales of the inventory are expected
to occur in the six months following the purchase.
The company enters into a forward contract to purchase 500,000 Nt dollars on January 31, 2019 for
P1.01.
Spot rates and forward rates at the January 31, 2019, settlement were as follows (pesos per Nt
dollar):
Forward Rate for
Spot Rate 1/31/19
December 1, 2018 P 1.03 P 1.01
December 31, 2018 1.00 .99
January 31, 2019 .98
The December 31, 2018, foreign exchange loss on forward contract amounted to (indicate
whether income statement or equity section):
A. P30,000 separate component of equity
B. P30,000 current earnings
C. P10,000 current earnings
D. P10,000 separate component of equity
27. Using the same information in No. 26, the foreign exchange gain or loss on forward contract on
January 31, 2009 amounted to (indicate whether income statement or equity section)
A. P15,000 separate component of equity (debit)
B. P10,000 separate component of equity (debit)
C. P 5,000 separate component of equity (debit)
D. P15,000 current earnings
28. The processing of one unit of Product X requires a standard of 1.75 hours at P9.08 per hour to
perform Operation A88. During the month, 1,500 units were manufactured, requiring 2,590 hours at
P9.28 per hour for this operation.
The journal entries for labor operation A88, including variances:
A. Payroll……………………………………………………………………………….. 23,835.00
Accrued Payroll…………………………………………………….... 23,835.00
Work-in-Process………………………………………………………………….. 24,035.20
Labor Efficiency Variance……………………………………………………… 317.80
Labor Rate Variance…………………………………………………. 518.00
Payroll…………………………………………………………………….. 23,835.00
B. Payroll……………………………………………………………………………….. 24,05.20
Accrued Payroll……………………………………………………..... 24,035.20
Work-in-Process………………………………………………………………….. 24,035.20
Labor Efficiency Variance……………………………………………………… 317.80
Labor Rate Variance…………………………………………………. 518.00
Payroll…………………………………………………………………….. 23,835.00
C. Payroll……………………………………………………………………………….. 23,835.00
Accrued Payroll……………………………………………………..... 23,835.00
Work-in-Process………………………………………………………………….. 23,835.00
Labor Efficiency Variance……………………………………………………… 518.00
Labor Rate Variance…………………………………………………. 317.80
Payroll…………………………………………………………………….. 24,035.20
D. Payroll……………………………………………………………………………….. 24,035.20
Accrued Payroll……………………………………………………..... 24,035.20
Work-in-Process………………………………………………………………….. 23,835.00
Labor Rate Variance………..…………………………………………………… 518.00
Labor Efficiency Variance..…………………………………………. 317.80
Payroll…………………………………………………………………….. 24,035.20

29. Which of the following is not an example of general and educational expenses recorded by a college or
university?
A. purchase of sweatshirts for sale in the college bookstore
B. expenses paid for instructors in the continuing education, non-degree program
C. consultant fees paid for a report on increasing the enrollment
D. salary of the football coach

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 Final Pre-board Examination -Batch 41
ADVANCED FINANCIAL ACCOUNTING & REPORTING
Items 30 and 31 are based on the following information:
Arthur, Baker, and Carter are partners in textile distribution business, sharing profits and losses equally.
On December 31, 2018, the partnership capital and partners drawings were equal as follows:
Arthur Baker Carter Total
Capital P100,000 P 80,000 P300,000 P480,000
Drawing 60,000 40,000 20,000 120,000
The partnership was unable to collect on trade receivables and was forced to liquidate. Operating profit in
2018 amounted to P72,000 which was all exhausted including the partnership assets. Unsettled creditors’
claims at December 31, 2018 totaled P84,000. Baker and Carter have substantial private resources but
Arthur has no personal assets.
30. Loss on liquidation was:
A. P360,000 C. P480,000
B. 432,000 D. 516,000
31. Final cash distribution to Carter was:
A. P 78,000 C. P 108,000
B. 84,000 D. 162,000
32. Which of the following statements is correct regarding a partner's debit capital balances?
A. The partner should make contributions to reduce the debit balance to whatever extent
possible.
B. If contributions are not possible, the other partners with credit capital balances will be
allocated a portion of the debit balance based on their proportionate profit-and-loss-
sharing percentages.
C. Partners who absorb another's debit capital balance have a legal claim against the deficient
partner.
D. All of these statements are correct.
33. On January 1, 2018, A, B, and C formed a Bekha Trading Co., a Partnership with capital contributions
as follows: A – P50,000; B – P25,000; C – P25,000; and D – P20,000. The partnership agreement
stipulates that each partner shall receive a 5% interest on capital contributed and that A and B shall
receive salaries of P5,000 and P3,000, respectively. The agreement further provides that C shall
receive a minimum of P2,500 per annum and D a minimum of P6,000 which is inclusive of amounts
representing interest and their respective shares in partnership profits. The balance of the profits
shall be distributed among A, B, C and D in the ratio of 3:3:2:2.
What amount must be earned by the partnership in 2018, before any charges for interest and
partners’ salaries in order that A may receive an aggregate of P12,500 including interest, salary and
share of profits?
A. P30,667 C. P16,667
B. 32,334 D. 30,000

34. In 2018, PJD Construction Corporation began construction work under a 3-year contract. The
contract price was P800,000. PJD uses the percentage-of-completion method for financial accounting
purposes. The income to be recognized each year is based on the proportion of costs incurred to
total estimated costs for completing the contract. The financial statement presentation relating to this
contract at December 31, 2018 were as follows:
Balance Sheet
Accounts Receivable – construction contract billings….……………………. P 17,200
Construction-in-progress………………………………………………… P 52,000
Less: Contract Billings…………………………………………………….. 49,200
Costs of uncompleted contract in excess of billings……………. 2,800
Income Statement
Gross profit (before tax) recognized in 2018………………………………………P 14,560
What was the initial estimated gross before tax on this contract ?
A. P 52,000 C. P576,000
B. 224,000 D. 800,000
35. If a partnership has only non-cash assets, all liabilities have been properly disbursed, and no additional
liquidation expenses are expected, the maximum potential loss to the partnership in the liquidation
process is:
A. the fair market value of the non-cash assets
B. the book value of the non-cash assets
C. the estimated proceeds from the sale of the assets less the book value of the non-cash assets
D. none of the above

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Final Pre-board Examination -Batch 41
ADVANCED FINANCIAL ACCOUNTING & REPORTING
36. Under the bonus method, when a new partner is admitted to the partnership, the total capital of the new
partnership is equal to:
A. the book value of the previous partnership plus the fair market value of the consideration paid to the
existing partnership by the incoming partner
B. the book value of the previous partnership plus any necessary asset write ups from book value to
market value plus the fair market value of the consideration paid to the existing partnership
by the incoming partner
C. the book value of the previous partnership minus any asset write downs from book to market value
plus the fair market value of the consideration paid to the existing partnership by the incoming
partner
D. the fair market value of the new partnership as implied by the value of the incoming partner's
consideration in exchange for an ownership percentage in the new partnership

37. Saint Paul Hospital, a nonprofit hospital affiliated with Saint Paul University, received the following
cash contributions from donors during the year ended December 31, 2018:
Contributions restricted by donors for research…………………………………….P 50,000
Contributions restricted by donors for capital acquisitions……………………… 250,000
Neither of the contributions was spent during 2018, however, during 2019, the hospital spent the
entire P50,000 contribution on research and the entire P250,000 contribution on a capital asset
which was placed into service during the year. On the hospital’s statement of operations for the year
ended December 31, 2019, what total amount should be reported for “net assets released from
restrictions?”
A. P 0 C. P250,000
B. 50,000 D. 300,000

38. The balance in SM Corp.’s foreign exchange loss account was P15,000 on December 31, 20x2, before any
necessary year-end adjustment relating to the following:
(1) SM had a P20,000 debit resulting from the restatement in pesos of the accounts of its wholly
owned foreign subsidiary for the year ended December 31, 20x2.
(2) SM had an account payable to an unrelated foreign supplier, payable in the supplier’s local
currency on January 27, 20x3. The Philippine peso equivalent of the payable was P100,000
on the November 28, 20x2, invoice date, and P 106,000 on December 31, 20x2.
In SM’s 20x2 consolidated income statement, what amount should be included as foreign exchange
loss in computing net income?
Functional Currency – LCU Functional Currency is Peso
A. P21,000 P41,000
B. P21,000 P21,000
C. P41,000 P21,000
D. P41,000 P41,000
39. If a bonus is traceable to the previous partners rather than an incoming partner, it is allocated among the
partners according to the
A. profit-sharing percentages of the previous partnership.
B. profit-sharing percentages of the new partnership.
C. capital percentages of the previous partners.
D. capital percentages of the new partnership.

40. Prime Industries acquired an 80 percent interest in Sands Company by purchasing 24,000 of its
30,000 outstanding shares of common stock at book value of P105,000 on January 1, 20x4. Sands
reported net income in 20x4 of P45,000 and in 20x5 of P60,000 earned evenly throughout the
respective years. Prime received P12,000 dividends from Sands in 20x4 and P18,000 in 20x5. Prime
uses the equity method to record its investment.
The balance of Prime’s Investment in Sands account at December 31, 20x5 is:
A. P105,000. C. P159,000.
B. P138,600. D. P165,000.
41. In a construction contract, the term "variation" means
A. the initial amount of revenue agreed in the contract.
B. an additional amount paid to the contractor if specified performance standards are met or
exceeded.
C. an instruction by the customer for a change in the scope of work to be performed under the
construction contract.
D. an amount that the contractor seeks to collect from the customer as reimbursement for cost not
included in the construction contract.

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Final Pre-board Examination -Batch 41
ADVANCED FINANCIAL ACCOUNTING & REPORTING
42. Bella Pool Company sells prefabricated pools that cost P100,000 to customers for P180,000. The sales
price includes an installation fee, which is valued at P25,000. The fair value of the pool is P160,000. The
installation is considered a separate performance obligation and is expected to take 3 months to complete.
The transaction price allocated to the pool and the installation is
A. P155,676 and P24,324 respectively
B. P160,000 and P25,000 respectively
C. P180,000 and P25,000 respectively
D. P138,378 and P21,622 respectively
43. The underlying amount of a derivative instrument is
A. related to the number of units specified in the derivative and the price that relates to the
asset or liability underlying the derivative.
B. the change in the price or rate that relates to the asset or liability underlying the derivative.
C. the price or rate that relates to the asset or liability underlying the derivative.
D. the number of units that is specified in the derivative instrument.
44. Fox Corporation purchased 25 percent of Down Company’s stock in January 1, 20x5 for P600,000. At
the acquisition date, Down has equipment with a market value P250,000 greater than book value.
On that date, Fox Corporation gives the ability to have joint control with another entity over Down
Company’s. The equipment has an estimated remaining life of 10 years. In 20x5, Down has net
income of P320,000 and pays P80,000 of dividends. What is the balance in the investment account
on Fox’s financial records at the end of 20x5?
A. P600,000 C. P653,750
B. P660,000 D. P673,750
Items 45 and 46 are based on the following information:
On January 1, 20x4, Park Corporation and Strand Corporation and their condensed balance sheet are as
follows:
Park Corp. Strand Corp.
Current Assets . . . . . . . . . . . . . . . . . . . . . . . .. . . . P 70,000 P 20,000
Non-current Assets . . . . . . . . . . . . . . . . . . . . .. . . . 90,000 40,000
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . P 160,000 P 60,000
Current Liabilities . . . . . . . . . . . . . . . . . . . . . .. . . . P 30,000 P 10,000
Long-term Debt . . . . . . . . . . . . . . . . . . . . . . . . . . 50,000 -
Stockholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . 80,000 50,000
Total Liabilities and Equities . . . . . . . . . . . . . . . . . P 160,000 P 60,000
On January 2, 20x4, Park Corporation borrowed P60,000 and used the proceeds to obtain 80% of the
outstanding common shares of Strand Corporation. The P60,000 debt is payable in 10 equal annual
principal payments, plus interest, beginning December 31, 20x4. The excess fair value of the investment
over the underlying book value of the acquired net assets is allocated to inventory (60%) and to goodwill
(40%).
On a consolidated balance sheet as of January 2, 20x4, what should be the amount for each of the
following?
45. Current assets should be:
A. P105,000 C. P100,000
B. P102,000 D. P 90,000
46. Stockholders’ equity using full fair value (full/gross-up goodwill) proportionate basis of determine
non-controlling interest should be:
A. P80,000 C. P 95,000
B. P90,000 D. P 130,000
47. The entry to set-up payable to officers and employees upon approval of payroll:
Salaries and Wages P 510,000
PERA 55,000
Gross Compensation P 565,000
Withholding Tax 51,000
GSIS 15,300
PAG-IBIG 10,200
PhilHealth 510
Total Deductions ___77,010
Net P 487,990
A. Salaries and Wages Regular 510,000
Personnel Economic Relief Allowance (PERA) 55,000
Due to BIR 51,000
Due to GSIS 15,300
Due to PagIBIG 10,200
Due to PhilHealth 510
Due to Officers & Employees 487,990

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Final Pre-board Examination -Batch 41
ADVANCED FINANCIAL ACCOUNTING & REPORTING

B. Salaries and Wages Regular 510,000

Personnel Economic Relief Allowance (PERA) 55,000
Due to BIR 51,000
Due to GSIS 15,300
Due to PagIBIG 10,200
Due to PhilHealth 510
Cash – MDS, Regular 487,990
C. Salaries and Wages Regular 510,000
Personnel Economic Relief Allowance (PERA) 55,000
Due to Officers & Employees 565,000

D. Advances for Payroll 565,000

Due to Officers & Employees 565,000

48. On December 20, 2018, United Appeal, a voluntary health and welfare organization, received a
donation of computer equipment valued at P25,000 from a local computer retailer. The equipment is
expected to have a useful life of 3 years. The donor placed no restrictions how long the computer
equipment was to be used and United has an accounting policy which does not imply a time
restriction on gifts of long-lived assets. On United’s statement of activities prepared for the year
ended December 31, 2018, the donation of computer equipments should be reported:
A. As an increase in temporary restricted net assets
B. Only in the notes to the financial statements
C. As an increase in unrestricted net assets
D. As either an increase in temporary restricted net assets or as an increase in unrestricted net
assets.
49. On January 1, 2018, the Jonas Company sold equipment to its wholly owned subsidiary, Neptune
Company for P1,800,000. The equipment cost Jonas P2,000,000; accumulated depreciation at the
time of sale was P500,000. Jonas was depreciating the equipment on the straight-line method over
twenty years with no salvage value, a procedure that Neptune continued. On the consolidated
balance sheet at December 31, 2018, the cost and accumulated depreciation, respectively should be:
A. P1,500,000 and P600,000 C. P1,800,000 and P500,000
B. 1,800,000 and P100,000 D. 2,000,000 and P600,000
50. On March 1, 2018, Evan and Helen decide to combine their business and form a partnership. The
balance sheets of Evan and Helen on March 1, 2018 before adjustments show the following:

Evan Helen
Cash P 9,000 P 3,750
Accounts receivable 18,500 13,500
Inventories 30,000 19,500
Furniture and fixtures (net) 30,000 9,000
Office equipment (net) 11,500 2,750
Prepaid expenses 6,375 3,000
P105,375 P 51,500
Accounts payable P 45,750 P 18,000
Evan, capital 59,625
Helen, capital ________ 33,500
P105,375 P 51,500
They agreed to provide 3% for doubtful accounts of their accounts receivables and found Helen’s
furniture and fixtures to be under-depreciated by P900.
If each partner’s share in equity is to be equal to the net assets invested, the capital accounts of
Evan and Helen would be:
A. P58,170 and P33,095, respectively C. P 59,070 and P32,195, respectively
B. P58,320 and P32,495, respectively D. P104,820 and P50,195, respectively
51. Parcon Corporation owns an 80% interest in Shelly Corporation acquired several years ago. Shelly
Corporation regularly sells merchandise to its parent at 125% of Shelly’s cost. Gross profit data of
Parcon and Shelly for the year 2018 are as follows:
Parcon Shelly
Sales P1,000,000 P 800,000
Cost of goods sold 800,000 640,000
Gross profit P 200,000 P 160,000

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Final Pre-board Examination -Batch 41
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During 2018, Parcon purchased inventory items from Shelly at a transfer price of P400,000. Parcon’s
December 31, 2017 and 2018 inventories included goods acquired from Shelly of P100,000 and
P125,000, respectively.
Consolidated cost of goods sold of Parcon Corporation and Subsidiary for 2018 was:
A. P1,024,000 C. P1,052,800
B. 1,045,000 D. 1,056,000
Items 52 and 53 are based on the following information:
52. Jiminez Limited acquired 80% of the share capital and reserves of Mustang Limited for P180,000.
Share capital was P100,000 and reserves amounted to P50,000. All assets and liabilities were
recorded at fair value except buildings which was recorded at P10,000 below fair value. The fair value
of the NCI at the date of Jiminez’s acquisition was P35,000. If the company tax rate was 30%, the
goodwill recorded in relation to this business combination amounts to:
Partial Full Partial Full
Goodwill Goodwill Goodwill Goodwill
A. P52,000 P55,000 C. P54,400 P68,000
B. P54,400 P58,000 D. P52,000 P58,000

53. Using the same information in the previous number, the NCI share of equity at the date of acquisition
was:
Partial Full Partial Full
Goodwill Goodwill Goodwill Goodwill
A. P32,000 P35,600 C. P31,400 P35,600
B. P31,400 P35,000 D. P32,000 P35,000

54. Components of the December 17, 2018, statement of affairs of Liquo Company, which was
undergoing liquidation, included the following:
Assets pledged to fully secured creditors, at current fair value……..………..P150,000
Assets pledged to partially secured creditors, at current fair value..……….. 104,000
Free assets, at current fair value………………………………………………………… 80,000
Fully secured liabilities………………………………………………………………………. 60,000
Partially secured liabilities………………………………………………………………….. 120,000
Unsecured liabilities with priority………………………………………………………… 14,000
Unsecured liabilities without priority……………………………………………………. 224,000
Determine the estimated payment to partially secured liabilities?
A. P 78,000 C. P115,333
B. P114,400 D. P115,143

55. Wilson Company produces product X in a production cycle which begins in the Grinding Department.
Conversion costs for this department were 80% complete as to the beginning work-in-process and
50% complete as to the ending work-in-process. Data as to conversion costs in the Grinding
Department for December 2018 are as follows:
Conversion
Units Costs
Work-in-process, December 1, 2018 20,000 P 17,600
Units started and costs incurred during the month 108,000 114,400
Units completed and transferred to the Mixing
Department in January 80,000
Using the FIFO method, what was the conversion costs of the work-in-process in the Grinding
Department at December 31, 2018?
A. P36,000 C. P30,480
B. 31,200 D. 26,400

Items 56 and 57 are based on the following information:

The standard cost per unit of component part K-45 is p4. During the month 6,000 units of K-45 were
purchased at a total cost of P25,200. In addition, 7,100 units of K-45 were used during the month;
however, the standard quantity allowed for actual production is 6,900 units.
56. The price variance, if materials are recorded at standard cost (price):
A. P1,200 unfavorable C. P1,200 favorable
B. P1,420 unfavorable D. P1,420 favorable

57. The price variance, if materials are recorded at actual cost (price):
A. P1,200 unfavorable C. P1,200 favorable
B. P1,420 unfavorable D. P1,420 favorable

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Final Pre-board Examination -Batch 41
ADVANCED FINANCIAL ACCOUNTING & REPORTING

58. Wright Corp. has several subsidiaries that are included in its consolidated financial statements. In its
December 31, 2005 trial balance, Wright had the following intercompany balances before
eliminations:
Debit Credit
Current receivable due from Main Co. P 32,000
Noncurrent receivable from Main 114,000
Cash advance to Corn Corp. 6,000
Cash advance from King Co. P 15,000
Intercompany payable to King 101,000
In its December 31, 2005 consolidated balance sheet, what amount should Wright report as
intercompany receivables?
A. P152,000 C. P 36,000
B. 146,000 D. 0
59. A company has identified the following overhead costs and cost drivers for the coming year:
Overhead Item Cost Driver Budgeted Cost Budgeted Activity Level
Machine Setup Number of setups P 20,000 200
Inspection Number of Inspections
P 130,000 6,500
Material handling Number of Material moves P 80,000 8,000
Engineering Engineering Hours P 50,000 1,000
P 280,000

The following information was allocated on three jobs that were completed during the year:
Job 101 Job 102 Job 103
Direct materials P 5,000 P12,000 P 8,000
Direct labor P 2,000 P 2,000 P 4,000
Units completed 100 50 200
Number of setups 1 2 4
Number of inspections 20 10 30
Number of material moves 30 10 50
Engineering hours 10 50 10
Budgeted direct labor cost was P100,000 and budgeted direct material cost was P280,000.
Compute the cost of each unit of Job 102 using Activity-Based Costing:
A. P340 C. P440
B. 392 D. 520
60. Hotel Dian Restaurant sells fast-food franchises. Hotel Dian Restaurant receives P135,000 from a
new franchisee for providing initial training, equipment, and furnishings that together have a stand-
alone selling price of P135,000. Hotel Dian Restaurant also receives P64,800 per year for use of the
60. Hotel Dian Restaurant name and for ongoing consulting services (starting on the date the
franchise is purchased). Vicvic became a Hotel Dian Restaurant franchisee on March 1, 20x6, and on
May 1, 20x6 Vicvic had completed training and was open for business. How much revenue in 20x6
will Hotel Dian Restaurant recognize for its arrangement with Vicvic?
a. Zero c. P178,200
b. P135,000 d. P189,000
61. Mt. Carmel Hospital, a not profit hospital affiliated with a religious group, reported the following
information for the year ended December 31, 2018:
Gross patient service revenue at the hospital’s full established rates……P 980,000
Bad debts expenses………………………………………………………………………. 10,000
Contractual adjustments with third-party payors………………………………. 100,000
Allowance for discounts to hospital employees…………………………………. 15,000
On the hospital’s statement of operations for the year ended December 31, 2018, what amount
should be reported as net patient service revenue?
A. P 865,000 C. P855,000
B. 880,000 D. 955,000

62. On November 1, 2018, Creamline Dairy Corp. concluded that the Thailand baht would weaken during
the next six moths because of the coup that transpired recently. In hopes of reporting a gain,
Creamline entered into a foreign exchange forward for speculation on November 1, 2018, to sell
1,000,000 baht on April 30, 2019 at the forward rate.

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Final Pre-board Examination -Batch 41
ADVANCED FINANCIAL ACCOUNTING & REPORTING
11/1/2018 12/31/18 4/30/19
Spot rate (baht) P1.190 P1.180 P1.210
Forward rate (baht) 1.199 1.187 1.210
In the profit and loss statement, foreign exchange gain or loss on forward contract amounted to:
2018 2019 2018 2019
A. P12,000 loss P23,000 gain C. P10,000 loss P30,000 gain
B. P12,000 gain P23,000 loss D. P 0 P 0
63. Some units of output failed to pass final inspection at the end of the manufacturing process. The
production and inspection supervisors determined that the incremental revenue from reworking the
units exceeded the cost of rework. The rework of the defective units was authorized, and the
following costs were incurred in reworking the units:
Materials requisitioned from stores:
Direct materials……………………………………….P 5,000
Miscellaneous supplies..…………………………… 300
Direct labor………………………………………………………… 14,000
The manufacturing overhead budget includes an allowance for rework. The predetermined
manufacturing overhead rate is 150% of direct labor cost. The account(s) to be charged and the
appropriate charges for the rework cost would be:
A. Work-in-process inventory control for P19,000.
B. Work-in-process inventory control for P5,000 and factory overhead control for P35,300.
C. Factory overhead control for P19,300.
D. Factory overhead control for P40,300.
64. The Porthos Manufacturing Company has a cycle of 3 days, uses a raw and in process (RIP) account,
and charges all conversion costs to Costs of Good Sold. At the end month, all inventories are
counted, their conversion cost components are estimated and inventory account balances are
adjusted. Raw material cost is back flushed from RIP to Finished Goods. The following information is
for June:
Beginning balance of RIP account, including P2, 000 of conversion cost…..P 15, 000
Beginning balance of finished goods account, including P3, 000 of
Conversion cost……………………………………………………………………… 23,000
Raw materials credit on credit…………………………………………………………….. 500,000
Ending RIP inventory per physical count, including P2, 500 conversion
Cost estimate…………………………………………………………………………. 22,500
Ending finished good inventory per physical count, including P1, 000
Conversion cost estimate…………………………………………………………. 16,000
Compute the amount of materials to be backflushed from Finished Goods to Cost of Good Sold:
A. P 499,500 C. P498,000
B. 493,000 D. 500,000
65. Aguilar Sweets Factory manufactures a coconut candy, Coco, which is sold for P5.00 a box. The
manufacturing process also results in a by-product Soloc. Without further processing, Soloc sells for
P1.00 per pack, with further processing, it sells for P3.00 per pack.

During the month of April, the total joint manufacturing costs up to the point of separation consisted
of the following charges to work-n-process:
Raw materials…………………………………………………………………P 225,000
Direct labor……………………………………………………………………. 100,000
Factory overhead……………………………………………………………. 45,000
During the month, the production for the two products was as follows: Coco. 591,000 boxes; Soloc,
45,000 packs.
The following additional costs are necessary for further processing to complete Soloc, in order to
obtain a selling price of P3.00 per pack, during the month of April:
Raw materials…………………………………………………………………..P 30,000
Direct labor……………………………………………………………………… 22,500
Factory overhead……………………………………………………………... 7,500

Assuming that the by-product Soloc, is further processed and then transferred to the stockroom at
net realizable value with a corresponding reduction of Coco’s manufacturing costs, the journal entry
would be:

A. By-product inventory – Soloc………………………………………………….. 45,000

Work-in-Process – Coco……………………………………………….. 45,000

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Final Pre-board Examination -Batch 41
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B. By-product inventory – Soloc……………………………………………………135,000
Raw materials……………………………………………………………… 30,000
Direct labor………………………………………………………………….. 22,500
Factory overhead………………………………………………………….. 7,500
Work-in-Process – Coco…………………………………………………. 75,000
C. Work-in-Process – Soloc……………………………………………………………. 6,750
Work-in-Process – Coco………………………………………………….. 6,750
D. Work-in-Process – Soloc…………………………………………………………….60,000
Raw materials………………………………………………………………… 30,000
Direct labor……………………………………………………………………. 22,500
Factory overhead…………………………………………………………… 7,500
Items 66 and 67 are based on the following information:
Montana Machine Company has developed the following standard factory overhead costs for each FX unit
assembled in Department 143, based on a monthly capacity of 80,000 direct labor hours:
Variable overhead……………………….. 2 hours @ P 6 per hour = P12
Fixed overhead…………………………… 2 hours @ P 3 per hour = 6
Department 143 factory overhead per unit of FX………………….. P18
During the month of August, 38,000 units of FX were actually produced. Actual direct labor hours totaled
77,500, and actual factory overhead totaled P700,000.
Determine the:
66. Controllable variance:
A. P4,000 favorable C. P 4,000 unfavorable
B. P5,000 favorable D. P12,000 unfavorable
67. Volume variance:
A. P4,000 unfavorable C. P12,000 unfavorable
B. P 12,000 favorable D. P 7,500 unfavorable
68. On December 30, 2018, Leigh Museum, a not-for-profit organization received a P7,000,000 donation
of Day Company shares with donor-stipulated requirements as follows:
 Shares valued at P5,000,000 are to be sold, with the proceeds used to erect a public viewing
building.
 Shares valued at P2,000,000 are to be retained with the dividends used to support current
operations.

As a consequence of the receipt of the Day shares, how much should Leigh report as temporarily
restricted net assets on its 2018 statement of financial position (balance sheet)?
A.. P 0 C. P 5,000,000
B. 2,000,000 D. 7,000,000

Items 69 and 70 are based on the following data:

Use the following information for questions 69 to 70:
On October 5, 20x4, the PPG Trading Co. consigned 30 computer units, costing P8,000 each, to
Pampanga, Inc. The units were to be sold on either cash or credit basis at a commission of 15% of net
sales. The consignor paid freight of P1,800 on the shipment. On November 11, the consignee received
the goods. Sales were made as follows:
October 15: 10 units for cash at P13,000 each
October 28: 12 units on account at P14,000 each
On October 31, 20x4, collections on accounts amounted to P95,000, and an allowance of P2,000 was
given to a charge customer for a defective unit. On November 15, 20x4, a receivable balance of P7,000
was determined to be uncollectible. On December 21, 20x4, the consignee made the proper remittance.
69. The consignment profit is:
A. P46,400 C. P55,400
B. P48,400 D. P67,280
70. The cost of inventory on consignment is:
A. P70,800 C. P66,800
B. P68,800 D. P64,480
Good luck and GOD BLESS!!!
There are only two things in the world to worry over; the things you can control, and the things you
can’t control. Fix the first, forget the second.
The invariable mark of wisdom is to see the miraculous in the common.
No one knows what he can do until he tries
There’s no traffic jam on the extra mile.
Worry is like a rocking chair – it will give you something to do, but it won’t get you anywhere.

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Final Pre-board Examination -Batch 41
ADVANCED FINANCIAL ACCOUNTING & REPORTING

1. D
2018
10/17/2018: Original forward rate (90 days)…………………………………………………..P 1.36
12/31/2018: Current (remaining) forward rate (15 days)..……………………………….. 1.43
Forex gain per unit.......………………………………………………………………………………..P .07
Multiplied by: Number of foreign currencies……………………………………………………. 10,000
Foreign exchange gain due to forward contract…………………………......................P 700 (D)

2019
12/31/2018: Current (remaining) forward rate (15 days).…………………………………P 1.43
1/15/2019: Spot rate………………………….……………….……………………………………… 1.40
Forex loss per unit.......………………………………………………………………………………….P .03
Multiplied by: Number of foreign currencies………………………..…………………………... 10,000
Foreign exchange loss due to forward contract………………………………………..……...P 300 (D)

The forward rate is the rate quoted for the exchange of two currencies at a specified future date. It
differs from the spot rate because of the difference in interest rates in the international financial
markets.

A premium exists on an foreign exchange forward when a party buys or sells forward at more than the
spot rate. A discount exists on an foreign exchange forward when a party buys or sells forward at less
than the spot rate.

For recording purposes, premiums or discounts have no bearing at all meaning there is no need
to set-up such account. However, for option contracts wherein the writer assumes the responsibility of
incurring a potential loss, the writer charges a fee called a premium. Thus, the premium is the price
paid to acquire the option.

The forward rate generally differs from the spot rate, but as one moves closer to the expiration
date (or settlement date), the difference between the spot rate and the forward rate for the
remaining period of the contract becomes smaller and smaller so that at the expiration date, the
forward rate will have converged with the spot rate.

To determine if a gain or loss on forward contracts occurred during any two dates, always view:
(1) the forward rate at the inception date as the buying rate (when buying forward), or the selling
rate (if selling forward), and
(2) all subsequent forward rates as the opposite rate. Because the forward rate at inception is
fixed, merely ask: “Did the opposite rate mover favorably or unfavorably?” An increase in
the selling rate is favorable, whereas an increase in the buying rate is unfavorable.

It should be noted that on the settlement date, the spot rate will be used since the spot rate on that
date is simply the same with the forward rate also on the same date. .

2. A – P48,000 x 20/120 = P8,000 (note: adjusted allowance refers to the allowance related to the ending
inventory, so, the allowance related to the CGS, which is P10,00 in this case is considered to be the
adjustments in the books of Home Office to determine the adjusted branch net income)
120% 100% 20%
Billed Price Cost Allowance
Merchandise inventory, 1/1/x4 0
Shipments 108,000
Cost of goods available for sale 108,000
Less: MI, 12/31/x4 (P60,000 x 80%) 48,000
Overvaluation of CGS (60,000 x 20/120) 60,000 10,000*

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Final Pre-board Examination -Batch 41
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3. B
Sales (P148,000 + P44,000) P192,000
Less: Cost of Sales
Inventory, 1/1/20x4 P 0
Purchases 52,000
Shipments from home office 108,000
Cost of goods available for sale P 160,000
Less: Inventory, 12/31/20x4 60,000 100,000
Gross profit P 92,000
Less: Expenses (P76,000 + P24,000) 100,000
Net income, unadjusted P( 8,000)
Add: Overvaluation of CGS 10,000
Adjusted branch net income P 2,000
4. B
Actual Work Done Equi. Prod.- Mat.
IP, beginning 4,000
Started in Process 48,000
52,000
F and T 30,000 100% 30,000
IP, end 22,000 100% 22,000
52,000 52,000
Materials Cost per equivalent unit: (P2,000+P23,480)/52,000….………..P .49
IP, end (CC): 22,000 x P.49 per unit………………………………………………..P 10,780
5. C
6. C
Amount paid…………………………………………………………………………………………P 121,000
Less: Book value of interest - Rey*……………………………………………………….. 115,000
Bonus to retiring partner…………………………………..…………………………………..P 6,000
* Dom: P83,000 + [(P408,000 – P360,0000) x 25%] + P20,000………….P 115,000
Joe: P77,000 + (P48,000 x 25%) = P89,000 – (P6,000 x 25/75)……….P 87,000
Rey: P180,000 + [(P48,000 x 50%) = P204,000 – (P6,000 x 50/75)]..P 200,000 (C)
7. B
Contract price P 4,000,000
Costs incurred each year (P2,000,000 + P1,000,000) P 3,000,000
Add: Cost incurred in prior years ___________
Costs incurred to date P3,000,000
Add: Estimated cost to complete 2,000,000
Total estimated costs P5,000,000
Estimated Gross Profit (loss) P(1,000,000)
Multiply by: % of completion 100%
Recognized Gross Profit (Loss) to date P(1,000,000 )
Less: Gross Profit (Loss) in prior year ________-0-
Recognized Gross Profit (Loss) in current year P(1,000,000)
8. B
9. B
10. A
Contract price P 21,000,000
Costs incurred each year (P5,000,000 + P2,000,000 + P2,000,000) P 9,000,000
Add: Cost incurred in prior years ____________
Costs incurred to date P 9,000,000
Add: Estimated cost to complete 9,000,000
Total estimated costs P 18,000,000
Estimated Gross Profit (loss) P 3,000,000
Multiply by: % of completion 9/18
Recognized Gross Profit (Loss) to date P 1,500,000
Less: Gross Profit (Loss) in prior year _______-0-
Recognized Gross Profit (Loss) in current year P 1,500,000

11. B
P41,500 - [(P3,000 + 6,000) + P14,000 + (P3.50 x 3,600)]………………………P 5,900

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Final Pre-board Examination -Batch 41
ADVANCED FINANCIAL ACCOUNTING & REPORTING
12. A
Actual Factory Overhead / Manufacturing Overhead Control:
P2,300 + P3,700 + P19,400 + P5,400……………………………………………….P30,800
Applied Manufacturing Overhead: P3.50 x 8,500……………………………………. 29,750
Underapplied Factory Overhead……………..………………………………………………P 1,050
13. A
Translation Into Functional Currency (Temporal/Remeasurement Method) – Functional Currency is the
Philippine Peso:
Machinery (non-monetary at carrying value) – historical rate: 150,000 FC x P1/FC 1.25……P120,000
Inv. property (non-monetary at cost) – historical rate: 200,000 FC x P1/FC 1.25…………….. 160,000
Receivables (monetary asset – current rate: 250,000 FC x P1/FC 1.28…………………………. 195,313
Cash (monetary asset – current rate: 300,000 FC x P1/ FC 1.28..…………………………………. 234,375
Total Assets……………………………………………………………………………………………………………..P 709,688
Translation from Functional Currency Into Presentation Currency (Current Rate Method) – Functional
Currency is the Foreign Currency (Currency of the country location of Sing Sing Ltd):
Machinery -current rate: 150,000 FC x P1/FC 1.28………………………………………………………..P117,187
Inv. property - current rate : 200,000 FC x P1/FC 1.28…………………………………………………. 156,250
Receivables – current rate: 250,000 FC x P1/FC 1.28……………………………………………………. 195,313
Cash – current rate: 300,000 FC x P1/ FC 1.28…………………………………………………………….. 234,375
Total Assets (900,000 FC x P1/1.28 FC)………………………..…………………………………………….P 703,125*
* under current rate method, all assets should be translated using current rate
(i.e., the balance sheet rate)
14. B*
The eliminating entry is as follows:
100% Unrealized Gain and restore equipment to its original book value, date of sale (1/1/2005)
*Gain on sale of equipment………………………………………………………….. 1,500
Accumulated depreciation………………………………………………… 1,500
Selling Price……….…………………………………………………… P16,000
Less: Book value of warehouse, 1/1/2005………………….. 14,500
Unrealized Gain on sale of equipment.………………………. P 1,500
15. A – the total maintenance cost is determined by adding overhead costs incurred in the Maintenance
Department plus any share in the Utilities Department because of services provided to the Utilities
Department.
Note: Service provided to (not “by”).
16. C
17. D
18. D
19. C
Fair value hedge
10/02/2018: Original forward rate (180 days)..………………………………P .53
12/31/2018: Current (remaining) forward rate (90 days)…..…………… .58
Forex loss per unit.......……………………………………………………………….P .05
Multiplied by: Number of foreign currencies…………………………………… 1,000,000
Foreign exchange loss due to hedged item/commitment………………...P 50,000 (C)
The forward rate generally differs from the spot rate, but as one moves closer to the expiration
date (or settlement date), the difference between the spot rate and the forward rate for the remaining
period of the contract becomes smaller and smaller so that at the expiration date, the forward rate
will have converged with the spot rate.
Protecting against an adverse change in the exchange rate between the order date (commitment date)
and the transaction date is hedging a firm foreign-currency-denominated commitment.

Cash Flow Hedge - Not applicable.

20. A
Fair value hedge – Income Statement
10/02/2018: Original forward rate (180 days)..………………………………P .53
12/31/2018: Current (remaining) forward rate (90 days)……………….. .58
Forex gain per unit.......……………………………………………………………….P .05
Multiplied by: Number of foreign currencies………………………………….… 1,000,000
Foreign exchange gain due to forward contract – I/S…………………….. P 50,000 (A)

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Final Pre-board Examination -Batch 41
ADVANCED FINANCIAL ACCOUNTING & REPORTING
Cash flow hedge - Equity
10/02/2018: Original forward rate (180 days)..……………………………….P .53
12/31/2018: Current (remaining) forward rate (90 days)……..…………. .58
Forex gain per unit.......………………………………………………………………..P .05
Multiplied by: Number of foreign currencies……………………………………. 1,000,000
Foreign exchange gain due to forward contract – OCI (Equity)….........P 50,000 (A)

21. B
Work In Process

WP, beg. P 30,000 To FG P160,000

DM 60,000
DL 50,000
OH 45,000

WP, end P 25,000 DM (?) 14,650 P25,000 – P5,750 – P4,600

DL 5,750 100%

OH 4,600 / 80%
22. B
23. B

(1)
Actual Work Done EP - CC
Started in process 6,500

FIFO
Received, F and T 5,500 100% 5,500
IP, end 400 50% 200
600 25% 150
6,500 5,850

Average
F and T 5,500 100% 5,500
IP, end 400 50% 200
600 25% 150
6,500 5,850
(2)
Actual Work Done EP – CC
IP, beginning 6,250
Received from Preceding Department 25,000
31,250

FIFO
IP, beginning, F and T 6,250 25% 3,750
Received, F and T 20,000 100% 20,000
IP, end 3,000 50% 1,500
2,000 25% 500
31,250 25,750

Average
F and T 26,250 100% 26,250
IP, end 3,000 50% 1,500
2,000 25% 500
31,250 28,250
(3)
Actual Work Done EP – CC
IP, beginning 6,000
Received from Preceding Department 13,000
19,000

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Final Pre-board Examination -Batch 41
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FIFO
IP, beginning, F and T 6,000 70% 4,200
Received, F and T 8,000 100% 8,000
IP, end 3,000 50% 1,500
1,500 75% 1,125
Normal lost 1,000 0% 0
19,000 14,825
Average
F and T 14,000 100% 14,000
IP, end 3,000 50% 1,500
1,500 75% 1,125
Normal lost 1,000 0% 0
19,000 16,625
24. D – refer to No. 23 for further computations.
25. B
26. D
12/01/2018: Original forward rate (2 months)………………………………….P 1.01
12/31/2018: Current (remaining) forward rate (1month)………..……….. _. 99
Forex loss per unit.......………………………………………………………………….P .02
Multiplied by: Number of foreign currencies…………………………………….. 500,000
Foreign exchange loss – equity…………………………………………..............P 10,000 (D)
27. A
January 1, 2018 beginning balance of foreign exchange loss – equity
(No. 26)………………………………………………………………………………….P 10,000
Settlement date of forward contract:
12/31/2018: Current (remaining) forward rate (1 month).P 99
1/31/2019: Spot rate……………………………………………….. .98
Forex loss per unit……………………………………………………..P .01
Multiplied by: Number of foreign currencies………………… 500,000
Foreign exchange loss – equity………………………………….. 5,000
January 31, 2019 balance – equity…………………………………… P 15,000 (A)
28. D
Labor Rate Variance: (P9.28 – P9.08) x 2,590 hours = P518 unfavorable (debit balance)
Labor Efficiency Variance: [2,590 – (1,500 units x 1.75 hr/unit)] x P9.08 = P317.80 fav (cr. balance)
29. A
30. D
Arthur: P 100,000 – P60,000 + (P72,000 x 1/3) = P 64,000
Baker: P 80,000 – P40,000 + (P72,000 x 1/3) = 64,000
Carter: P300,000 – P20,000 + (P72,000 x 1/3) = 304,000
Total capital……………………………………………………. P 432,000
Assets = Liabilities + Capital
516,000 84,000 432,000 Given
(516,000) (516,000) Balancing figure
-------- ----------- ---------
0 = 84,000 + (84,000)
31. A
Arthur Baker Carter Total
Total capital 64,000 64,000 304,000 432,000
Reduction in interests (equally0 (172,000) (172,000) (172,000) (516,000)
Balances ( 108,000) (108,000) 132,000 (84,000)
Reduction in interests (equally) 108,000 ( 54,000) ( 54,000) -0-
0 (162,000) 78,000 (84,000)
Additional investment 162,000 162,000
Payment to partner 0 78,000 78,000
32. D
33. B
A B C D Total
5% Interest on beg. capital 2,500 1,250 1,250 1,000 6,000
Salaries 5,000 3,000 8,000
Balance (remainder) 5,000 5,000 3,333 3,334 16,667
Additional profit 1,663 1,663
12,500 6,000 32,333

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Final Pre-board Examination -Batch 41
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34. B
Contract price 800,000
Costs incurred each year 37,440
Add: Cost incurred in prior years _____0-
Costs incurred to date 37,440
Add: Estimated cost to complete
Total estimated costs
Estimated Gross Profit (loss) *224,000
Multiply by: % of completion (14,560 + 37,440) / 800,000 6.5%
Recognized Gross Profit (Loss) to date 15,000
Less: Gross Profit (Loss) in prior year ____-0-
Recognized Gross Profit (Loss) in current year 14,560
*P14,560 / 6.5%
Or, alternatively:
Contract Price…………………………………………………………………………………..P 800,000
x: GP% (14,560/52,000)………………………………………………………………….. 52%
Estimated Gross Profit………………………………………………………………………P 224,000

35. B
36. A
37. D
Since, both contributions can be utilized (purpose can be fulfilled) within the current year (before the cut-
off date, 12/31/2019), then, both of them should also be reclassified as Unrestricted Net Assets.

38. A
Current Rate Method Temporal Method
LCU Peso
is Functional Currency is Functional Currency
P15,000 = Preadjusted foreign P15,000 = Preadjusted foreign
exchange loss exchange loss
6,000 = Foreign currency 6,000 = Foreign currency
transaction loss transaction loss
(P100,000 - P106,000) 20,000 = Remeasurement gain
P21,000 = Foreign exchange P41,000 = Net foreign
loss exchange loss
Note: The term “restatement” used by foreign subsidiary is an indication that the temporal or
remeasurement method is used.

39. A
40. C
Investment.1/1/20x4 P105,000
Add: Share in net income – 20x4 (P45,000 x 80%) 36,000
Less: Dividends received 12,000
Investment, 12/31/20x4 P129,000
Add: Share in net income – 20x5 (P60,000 x 80%) 48,000
Less: Dividends received 18,000
Investment, 12/31/20x5 P159,000

41. C
42. A - P160,000 + P25,000 = P185,000.
P160,000 / P185,000  P180,000 = P155,676
P25,000 / P185,000  P180,000 = P24,324.

43. C
44. C
The Investment in Dover as of December 31 is as follows:
Acquisition cost, January 1, 20x5 P 600,000
Add (deduct):
Share in net income (P320,000 x 25%) 80,000
Share in dividends (P80,000 x 25%] (20,000)
Amortization of allocated excess (P250,000 x 25%) /10 years ( 6,250)
Investment balance on December 31, 12/31/20x5 P 653,750

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Final Pre-board Examination -Batch 41
ADVANCED FINANCIAL ACCOUNTING & REPORTING
45. A
Park current assets ........................................................................................... P 70,000
Strand current assets ....................................................................................... 20,000
Excess inventory fair value ................................................................................ 15,000
Consolidated current assets .............................................................................. P105,000

46. C
Park stockholders' equity P80,000
NCI (full):
BV of SHE – S ……………………………………………………………………….P50,000
Adjustments to reflect fair value (inventory)…………………………….. 15,000
FV of SHE – S………………………………………………………………………..P65,000
x: Multiplied by: NCI%............................................................... 20%
NCI (partial)…………………………………………………………………………..P13,000
Add: NCI on full-goodwill (P10,,000 – P8,000)…………………………… 2,000
Non-controlling interest at fair value (20% × P75,000)………………. 15,000
Total stockholders' equity P95,000
47. A
48. C – since, the donor put no restriction on the donation, therefore, it is classified as Unrestricted Net Assets.
49. D
Cost (remains to be the same regardless of upstream or downstream sales)…………….P2,000,000
Accumulated depreciation, 12/31/2018:
Accumulated depreciation, 1/1/2018…………………………………………………P 500,000
Add: 2018 depreciation – P2,000,000/20 years, original life……………….. 100,000 P 600,000
50. C
Evan Helen
Unadjusted capital 59,625 33,500
Add (deduct) adjustments:
Allowance ( 555) ( 405)
Depreciation ______ ( 900)
Adjusted capital 59,070 32,195
51. B
Consolidated Cost of Sales:
Cost of Sales before consolidation:
Parcon……………………………………………………………………………………………..P 800,000
Shelly………….……………………………………………………………………………………. 640,000
Combined Cost of Sales………………………………………………………………………………..P1,440,000
Less: Intercompany Cost of Sales (or Purch) to be eliminated………………………..…. 400,000
Eliminating entry for 100% RPBI of P** (EI of 2017)……………………………….. 20,000
Add: Eliminating entry for 100% UPEI of P*** (EI of 2018)……………………………….. 25,000
Consolidated Cost of Sales…………………………………………………………………………….P 1,045,000
Further, the additional eliminating entries are as follows: (Cost Model)
**100% RPBI of P:
Retained Earnings – P, beginning (Cost Model)/
Investment in S Company (Equity Method)…………………………………. 16,000
Retained Earnings – S, beginning……………………………………………….. 4,000
Cost of Sales (Beginning Inventory in Income Statement)… 20,000
***100% UPEI of P:
Cost of Sales (Ending Inventory in Income Statement)………………… 25,000
Inventory (Ending Inventory in Balance Sheet)……………….. 25,000
52. B
 Partial-goodwill (Proportionate Basis)
Fair value of subsidiary (80%):
Consideration transferred P180,000 (80%)
Less: Book value of stockholders’ equity (net assets)
– Mustang Company: (P100,000 + P50,000) x 80% 120,000 (80%)
Allocated excess………………………………………………... P 60,000 (80%)
Less: Over/undervaluation of assets and liabilities:
(P10,000 x 80% x 70%, net of tax) 5,600 (80%)
Positive excess: Goodwill – partial/proportionate P 54,400 (80%)

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Final Pre-board Examination -Batch 41
ADVANCED FINANCIAL ACCOUNTING & REPORTING
 Full-goodwill (Fair Value Basis)
Fair value of subsidiary (100%):
Consideration transferred P180,000 ( 80%)
Fair value of non-controlling interest (given)* 35,000 ( 20%)
Fair value of subsidiary P215,000 (100%)
Less: Book value of stockholders’ equity (net assets)
– Mustang Company: (P100,000 + P50,000) x 100% 150,000 (100%)
Allocated excess P 65,000 (100%)
Less: Over/undervaluation of assets and liabilities:
(P10,000 x 100% x 70%, net of tax) 7,000 (100%)
Positive excess: Goodwill – full/fair value basis P 58,000 (100%)
* higher than the NCI of FV-SHE of Subsidiary of P31,400 [P150,000 + (P10,000 x 70%)
= P157,000 x 20%]. Also, refer to No. 53 for further computation on the NCI.

53. B
Common stock – Mustang Company P 100,000
Retained earnings – Mustang Company 50,000
Book value of stockholders’ equity – Mustang Company P 150,000
Adjustments to reflect fair value (over/ undervaluation
of assets and liabilities) – P10,000 x 70% 7,000
Fair value of stockholders’ equity of subsidiary P 157,000
Multiplied by: Non-controlling Interest percentage 20%
Non-controlling interest (partial) P 31,400
Add: NCI on full-goodwill (P58,000 – P54,400) ____3,600
Non-controlling interest – full goodwill* P 35,000
* same with the amount given per problem, since it is higher than the NCI of
FV-SHE of Subsidiary

54. B
Free Assets:
Assets pledged to fully secured liabilities (P150,000 – P60,000)………………P 90,000
Free Assets……………………………………………………………………………………….. 80,000
Total Free Assets……………………………………………………………………………………………P170,000
Less: Unsecured liabilities with priority…………………………………………………………….. 14,000
Net Free Assets………………………………………………………………………………………………P156,000
Divided by: Unsecured Liabilities without priority:
Partially secured liabilities (P120,000 – P104,000)………………….P 16,000
Add: Unsecured liabilities without priority………………………………. 224,000 240,000
Expected Recovery % of Unsecured Liabilities: P156,000/P240,000……………………. 65%

Estimated payment to Partially Secured Creditors: P104,000 + 65% (P16,000)…….P114,400

55. B
Actual Work Done Equi. Prod.- CC
IP, beginning 20,000
Started in Process 108,000
128,000
IP, beg., F and T 20,000 20% 4,000
S, F and T 60,000 100% 60,000
IP, end 48,000 50% 24,000
128,000 88,000
Conversion Cost per equivalent unit: P114,400/88,000……………………..P 1.30
IP, end (CC): 24,000 x P1.30 per unit……………………………………………..P 31,200

56. A – MPPV: (P25,200/6,000 = P4.20 – P4 = P.20 unf) x 6,000 units = P1,200 unfavorable

57. B - MPuV: P.20 unf. X 7,100 units………………………………………………..P 1,420 unfavorable

58. D – Since there is a parent subsidiary relationship that exists and subsidiaries are included in the CFS, any
intercompany balances should be eliminated in full.

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Final Pre-board Examination -Batch 41
ADVANCED FINANCIAL ACCOUNTING & REPORTING
59. A
Job 102:
Direct materials……………………………………………………………………………. P 12,000
Direct labor………………………………………………………………………………….. 2,000
Overhead:
Machine Setup: P20,000/200 = P100 x 2……………………………….....P 200
Inspection: P130,000/6,500 = P20 x 10……………………………………. 200
Material Moves: P80,000/8,000 = P10 x 10………………………………. 100
Engineering: P50,000/1,000 = P50 x 50…………………………………… 2,500 3,000
Production/Manufacturing Costs…………………………………………………….. P 17,000
Divided by: Units completed………………………………………………………….. 50
Cost per unit under ABC………………………………………………………………… P 340

60. D - Because Vicvic had completed training and was open for business on May 1, 20x6, Hotel Dian Restaurant
apparently has satisfied its performance obligation with respect to the initial training, equipment and
furnishings, so it would recognize P135,000 of revenue in 20x6. In addition, since Vicvic was a franchisee
and using the Hotel Dian Restaurant name and consulting services for the last ten months of 20x6 (starting
March 1), Hotel Dian Restaurant should recognize 10 ÷ 12 = 5/6 of a yearly fee of P64,800, or P54,000. In
total, Hotel Dian Restaurant recognizes revenue from Vicvic of P135,000 + P54,000 = P189,000 in 20x6.

61. A
Gross patient service revenue………………………………………………………………………..P 980,000
Less: Contractual adjustments………………………………………………………………………. 100,000
Allowance for discounts to hospital employees………………………………………. 15,000
Net Patient Service Revenue………………………………………………………………………….P 865,000

Bad debts expense is classified as expenses.

62. B
2018
11/01/2018: Original forward rate (180 days)..………………………………….P 1.199
12/31/2018: Current (remaining) forward rate (120 days).………………… 1.187
Forex gain per unit.......……………………………………..…………………………..P .012
Multiplied by: Number of foreign currencies……………..…………………………1,000,000
Foreign exchange gain……………………………………………….…...................P 12,000 (B)

2019
12/31/2018: Current (remaining) forward rate (120 days)…………………..P 1.187
4/30/2019: Spot rate………………………………………………………………………. 1.210
Forex loss per unit…………………………………………………………………………..P .023
Multiplied by: Number of foreign currencies………………………………………. 1,000,000
Foreign exchange loss due to speculation………………………………...........P 23,000 (B)

In speculation, one is merely trying to gain - not create an offsetting position.

Foreign exchange forwards used in speculations are valued at the change in the forward rate for the
remaining life of the contract.

63. D
Materials: P5,000 + P300……………………………………………………………………………………P 5,300
Direct labor………………………………………………………………………………………………………. 14,000
Applied factory overhead (150% x P14,000)……………………………………………………….. 21,000
P 40,300
Since, the allowance for rework was included in the manufacturing overhead budget,
therefore, the rework cost should be charged to factory overhead control.

64. C
Raw and In Process Finished Goods Cost of Goods Sold
13,000 20,000
500,000 493,000 493,000 498,000 498,000

20,000 15,000

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Final Pre-board Examination -Batch 41
ADVANCED FINANCIAL ACCOUNTING & REPORTING
65. B
Incidentally, the entry to record the transactions related to by-product would be as follows:
Share in Joint Costs (corresponding reduction in Coco, main product as stated in the problem)
Work in Process – Soloc (by-product)…………………………………………………….. 75,000
Work in Process – Coco (main product)………………………………………. 75,000
MV of by-product (P3 x 45,000)……………….P 135,000
Less: FPC of by-product
(P30,000 + P22,500 + P7,500)……. 60,000
Net Revenue – reduction in Coco’s costs…..P 75,000
Further Processing Costs:
Work in Process – Soloc (by-product)…………………………………………………….. 60,000
Raw materials………………………………………………………………………….. 30,000
Direct labor or Payroll……………………………………………………………….. 22,500
Factory Overhead – applied……………………………………………………….. 7,500
Transferred to Warehouse/Stockroom:
By-product Inventory – Soloc………………………………………………………………….135,000
Work in Process – Soloc…………………………………………………………….. 135,000
Or, alternatively the following compound entry would be made:
By-product Inventory – Soloc…………………………………………………………………..135,000
Raw Materials……………………………………………………………………………. 30,000
Direct labor or Payroll…………………………………………………………………. 22,500
Factory Overhead – applied………………………………………………………… 7,500
Work in Process – Coco………………………………………………………………. 75,000
66. C
Actual FOH……………………………………………………………… P700,000 Controllable
BASH: 38,000 units x 2 hours/unit = 76,000 hours P 4,000 unf.
Fixed as budgeted (P3/hr. x 80,000 DLH)……….P240,000
Variable: (P6/hr. x 76,000 DLH)…………………….. 456,000 696,000 Volume
P12,000 unf.
Std. FOH / Applied FOH: [76,000 hrs. x (P6 + P3)]……. 684,000
67. C – refer to No 66 for further computations.
68. C
The P5,000,000 are considered temporary restricted since it has a purpose which have not yet been
fulfilled.
The P2,000,000 principal which had to be retained (meaning to be held in perpetuity – permanent) is
classified as permanently restricted, while the dividends is classified as temporary restricted because of
purpose restriction, but to no avail, amount is not given.
69. D – P67,280
Charges Related to
Total Consignment Inventory on
Charges Sales Consignment
(30) (22) (8)
Consignor’s charges:
Cost P240,000 P176,000 P64,000
Freight-out 1,800 1,320 480
Consignee’s charges:
Sales allowance 2,000 2,000
Bad debts 7,000 7,000
Commission
[15% x (P298,000 – P2,000)] 44,400 44,400
Total P295,200 P230,720 _P64,480_
Sales price [P14,000 per unit x 12 units)
+ (P13,000 per unit x 10 units)] 298,000
Consignment profit P 67,280
70. (D) – P64,480; refer to No. 65 for computation

Opportunities are usually disguised as hardwork, so most people don’t recognize them.

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 La Salle University - Dasmarinas
College of Business Administration and Accountancy
SET A
INSTRUCTIONS: No examinee shall copy nor refer to any solution, answer or work of another or allow
anyone to copy or refer to his work, nor in any manner help or ask the help of any person or communicate
with any person by means of words, signs, gestures, codes and other similar acts which may enable him to
exchange, impart or acquire relevant information while the examination is in progress.
Read each QUESTION carefully and mark only one answer for each item on the answer sheet provided.
Strictly NO ERASURES ALLOWED. GOOD LUCK and GOD BLESS!
1. Partner’s interest in a partnership is generally equal to:
a. The fair value of net assets at date of contribution.
b. The sum of the fair values of the assets the partner contributes to the firm, increased by any
liabilities of other partners assumed and decreased by any personal liabilities that are assumed by
other partners.
c. The sum of the bases of individual assets the partner contributes to the firm, decreased by the
partner’s share of partnership liabilities.
d. The unamortized cost of the assets to the partner.
2. Mark, Conrad and Jason have been partners throughout the year 2018. Their average balances for the
year and their balances at the end of the year before closing the nominal accounts are as follows:

The profit for 2018 is ₱375,000 before charging partners’ drawing, allowances and before interest on
average balances at the agreed rate of 4% per annum. Mark is entitled to a drawing account credit of
₱50,000, Conrad of ₱35,000, and Jason of ₱25,000 per annum. The balance of the profit is to be
distributed at the rate of 60% to Mark, 30% to Conrad, and 10% to Jason.
The partners agreed that, after credits distribution as indicated in the preceding paragraph, it is intended
to adjust the capital accounts of the partners by investing the highest amount of cash, so that, the
balance in the partners’ accounts will be proportionate to their profit-sharing ratios. None of the partners
will withdrew cash from the partnership.
What amount of investment must be made by each partners?
a. Mark, None; Conrad, ₱289,000; Jason, None
b. Mark, ₱90,400; Conrad, ₱198,600; Jason, None
c. Mark, None; Conrad, ₱148,400; Jason, None
d. Mark, None; Conrad, ₱148,400; Jason, (₱15,066.50)
3. D, E and F agreed to share profit and losses as follows:
a. Salaries of ₱500,000, ₱400,000 and ₱200,000 to D, E and F, respectively
b. First ₱1,000,000 of profits after salaries, 20% bonus to D
c. Excess profits after salaries and the bonus to D above ₱1,000,000, 10% bonus to E
d. Residual profits or loss to F
The partnership made ₱2,500,000 net profit. How much is E’s profit sharing?
a. ₱480,000 b. ₱420,000 c. ₱412,000 d. ₱450,000
4. Math, Science and PE share profits and losses from their partnership in the ratio of 35%, 45% and 20%
respectively. Capital and loan balances related to each partner are as follows:

In addition to loan to partner, assets of the partnership includes cash of ₱110,000, inventory of
₱360,000, receivable of ₱260,000 and plant and equipment of ₱710,000. Partnership liabilities to
non-partners amount to ₱180,000.
If Math receives already ₱450,000, how much PE receives at this point?
a. ₱364,286 b. ₱321,155 c. ₱375,000 d. ₱450,000
5. Southwood Industries uses a process costing system and inspects its goods at the end of manufacturing.
The inspection as of June 30 revealed the following information for the month of June.
Good units completed 16,000
Normal spoilage (units) 300
Abnormal spoilage (units) 100
Unit costs were: materials, ₱3.50; and conversion costs, ₱6.00. The number of units that Southwood
would transfer to its finished goods inventory and the related cost of these units are
a. 16,000 units transferred at a cost of ₱152,000.

AFAR Final Exam SET A Page 1 of 12

 b. 16,000 units transferred at a cost of ₱155,800.
c. 16,000 units transferred at a cost of ₱154,850.
d. 16,300 units transferred at a cost of ₱154,850
6. The trustee for Ardolio, Inc. prepares a statement of affairs which shows that unsecured creditors whose
claims total ₱60,000 may expect to receive approximately ₱36,000 if assets are sold for the benefit of
creditors.
● Michael is an employee who is owed ₱150.
● Meldcan holds a note for ₱1,000 on which interest of ₱50 is accrued; nothing has been pledged on
the note.
● Compboy holds a note of ₱6,000 on which interest of ₱300 is accrued; securities with a book value of
₱6,500 and a present market value of ₱5,000 are pledged on the note.
● Ropres holds a note for ₱2,500 on which interest of ₱150 is accrued; properly with a book value of
₱2,000 and a present market value of ₱3,000 is pledged on the note.
How much may each of the following creditors hope to receive?
Michael Meldcan Compboy Ropres
a. ₱ 0 ₱ 0 ₱ 0 ₱ 0
b. 90 0 6,300 2,390
c. 150 1,050 5,780 0
d. 150 630 5,780 2,650
7. Selected balances from the Taloy Company’s Branch A and B are as follows:

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 on January 1, 2016.
Branch A Books Branch B Books
a. ₱780,000 ₱670,000
b. 750,000 640,000
c. 640,000 780,000
d. 780,000 640,000
8. A and B jointly establish a corporation (C) over which they have joint control. The existence of a
separate vehicle, which is in the legal form of a corporation, initially indicates that the assets and
liabilities held in C are the assets and liabilities of C, and therefore that C is a joint venture. No
contractual terms indicate that A and B have rights to the assets, or obligations for the liabilities, so the
arrangement still appears to be a joint venture.
However, A and B agree to the following:
• A and B will purchase all the output produced by C in a ratio of 50:50.
• C cannot sell any of the output to third parties, unless A and B approve it. Because the purpose of
the arrangement is to provide A and B with output they require, sales to third parties are expected
to be uncommon and not material.
• The price of the output sold to A and B is set by A and B at a level that is designed to cover the costs
of production and administrative expenses incurred by C. The arrangement is intended to operate at
a breakeven level.
Based on the preceding information, the joint arrangement is classified as:
a. Joint venture to be accounted under PAS 28
b. Joint venture to be accounted under PFRS 11
c. Joint operation to be accounted under PAS 28
d. Joint operation to be accounted under PFRS 11
9. Sotto Builders Construction Company enters into a contract with a customer to build a 50 kilometers
road for ₱100,000,000, with a performance bonus of ₱60,000,000 that will be paid based on the timing
of completion. The amount of the performance bonus decreases by 10% per week for every week
beyond the agreed-upon completion date. The contract requirements are similar to contracts that Sotto
Builders has performed previously, and management believes that such experience is predictive for this
contract. Management estimates that there is a 60% probability that the contract will be completed by
the agreed-upon completion date, a 30% probability that it will be completed one week late, and only a
10% probability that it will be completed two weeks late. Determine the probability-weighted amount
for the management to determine the transaction price.
a. ₱ 96,000,000 b. ₱142,200,000 c. ₱111,000,000 d. ₱157,000,000

AFAR Final Exam SET A Page 2 of 12

10. Nagaget and Nasingpet, entities, conduct their operation through Entity CPA, after contributing their
properties. Their contract states that the said entities have the right to the net assets of Entity CPA.
What was the joint arrangement?
a. Joint Venture. c. There was no joint arrangement ab initio.
b. Joint Operations. d. It may either be A or B.
11. On January 1, Silver Construction Company signed a contract to build a custom garage for a customer
and received ₱100,000 in advance for the job. The new garage will be built on the customer’s land. To
complete this project, Silver must first build a concrete floor, construct wooden pillars and walls, and
finally install a roof. Silver normally charges stand-alone prices of ₱30,000, ₱40,000, and ₱50,000,
respectively, for each of these three smaller tasks if done separately. How many performance obligations
exist in this contract?
a. 0 b. 1 c. 2 d. 3
12. If a promise to grant license is distinct, revenue recognition depends on whether the right granted is
right to access or right to use. Which of the following appropriately describes revenue recognition of right
to access or right to use?
Right to Access Right to Use
a. Over time Point in time
b. Over time Over time
c. Point in time Over time
d. Point in time Point in time
13. On January 1, 2019, Gaga Ulala Inc. granted a franchise right to a franchisee for the operation of coffee
shop using Gaga Ulala’s trade name for a period of 10 years starting January 1, 2019. The franchisee is
required to pay nonrefundable initial franchise fee of ₱10M and continuing franchise fee of 10% of
franchisee’s annual sales. It is the obligation of Gaga Ulala to construct the coffee shop and to deliver the
movables. In addition to that, Gaga Ulala has the obligation to deliver 100,000 units of raw materials to
the franchisee. The stand-alone selling price of the right to use Gaga Ulala’s trade name is ₱4M. The
stand-alone selling price of the construction of the coffee shop and delivery of movables is ₱3M while the
stand-alone selling price of the 100,000 units of raw materials is ₱1M.
On July 1, 2019, Gaga Ulala finished the construction of the coffee shop and delivered all the required
movables. 20,000 units of raw materials have been delivered as of December 31, 2019. The franchisee
reported sales revenue amounting to ₱2M for year 2019.
What is the amount of total revenue to be reported by Gaga Ulala Inc. for the year ended December 31,
2019?
a. ₱10,000,000 b. ₱4,700,000 c. ₱8,750,000 d. ₱5,700,000
14. Examination of the reciprocal accounts between Pangasinan Home Office and Ilocos Branch shows the
following:
● ₱10,000 advertising expense of another branch was erroneously charged by the Home Office to
Ilocos Branch.
● Ilocos recorded shipments of merchandise from Home Office amounting to ₱75,000 twice.
● Home Office recorded cash transfer of ₱65,700 from Ilocos Branch as coming from Abra Branch.
● Transfer of equipment from Home Office amounting to ₱53,000 was not recorded by the branch.
● Ilocos recorded a debit memo from Home Office of ₱5,540 as ₱5,450.
How much is the net adjustments to Ilocos Branch Current Account and to the Home Office Current
Account?
Ilocos Branch
Current Account Home Office Account
a. ₱75,700 (₱20,910)
b. (₱75,700) ₱21,910
c. ₱75,700 (₱21,910)
d. (₱75,500) (₱21,910)
15. On January 2, 2019, P Company purchased 100 percent of the outstanding ordinary shares of S
Company for ₱500,000 payable in cash. The condensed statement of financial position of the two
companies on January 2, 2019 is shown below:

If P Company uses push-down accounting, what is the amount of land and building (net) to be presented
in the separate FS of S and in the consolidated FS, respectively?
a. ₱450,000; ₱1,110,000 c. ₱410,000; ₱1,110,000
b. ₱450,000; ₱1,150,000 d. ₱410,000; ₱1,150,000

AFAR Final Exam SET A Page 3 of 12

16. Baguio Co. owns 70% of Benguet, Inc.’s ordinary shares. On July 1, 2019, Baguio Co. sold half of its
investment for ₱1,600,000. The adjusted balances of the related accounts as of July 1, 2019
immediately before the sale are:

The remaining ownership of 35% (70% x 1/2) does not give Baguio control over Benguet. How much is
the reclassification gain (loss) on July 1, 2019?
a. ₱800,000 b. (₱800,000) c. ₱2,000,000 d. ₱1,000,000
17. At the end of the period, a significant Material Quantity Variance should be
a. Closed to COGS
b. Allocated among Raw Mat, WIP, FG, and COGS
c. Allocated among WIP, FG, and COGS
d. None of the above
Use the following data to answer the next two questions:
18. Entity A owns a 60 per cent voting interest in Entity B. Entity B owns a 70 per cent voting interest in
Entity C. How should Entity A account for its investment in Entity C in its consolidated financial
statements?
a. Consolidate Entity C.
b. Account for its investment in Entity C using the equity method.
c. Account for its investment in Entity C using the policy it has adopted to account for associates.
d. Account for its investment in Entity C using fair value.
19. Determine the appropriate percentage for the attribution of post-acquisition increases in Entity C’s equity
to Entity A.
a. 70 per cent. b. 60 per cent. c. 42 per cent. d. 130 per cent.
20. Which of the following is correct in accounting for foreign currency denominated transaction?
a. One-transaction perspective
b. Two-transaction perspective
c. Three-transaction perspective
d. Four-transaction perspective
21. If the functional currency of an entity is that of a hyperinflationary economy, which of the following items
are restated for the effects of general inflation (ie using a general price index)?
a. Assets and liabilities linked by agreement to changes in prices.
b. Assets and liabilities carried at fair value (fair value is determined at the end of the reporting period).
c. Non-monetary assets and non-monetary liabilities carried at cost (or cost less depreciation) and all
equity items.
d. Monetary assets and monetary liabilities.
22. The following “equity” relates to an entity operating in a hyperinflationary economy (in millions):

What would be the balances on the revaluation reserve and retained earnings after the restatement for
PAS 29?
a. Revaluation reserve ₱0, retained earnings ₱100.
b. Revaluation reserve ₱100, retained earnings ₱0.
c. Revaluation reserve ₱20, retained earnings ₱80.
d. Revaluation reserve ₱70, retained earnings ₱30.
Use the following information to answer the next four questions:
23. On November 1, 2018, Near AFAR Inc., which is operating in the Philippines, purchased investment
property in USA at a price of $10,000 payable on January 31, 2019. In order to hedge this exposed
foreign currency denominated accounts payable, Near AFAR entered into a forward contract with BDO for
the purchase of $10,000 to be collected on January 31, 2019. Near AFAR Inc. accounts for its investment
property using the fair value model. On December 31, 2018, the fair market value of the investment
property is $12,000. The following direct exchange rates are provided by the bank:

What is the gain (loss) on changes in fair market value of investment property exclusive of foreign
currency gain for the year ended December 31, 2018?
a. ₱90,000 b. ₱150,000 c. ₱60,000 d. ₱100,000

AFAR Final Exam SET A Page 4 of 12

24. What is the foreign currency gain or (loss) in relation to investment property translation for the year
ended December 31, 2018?
a. ₱90,000 b. ₱150,000 c. ₱60,000 d. ₱100,000
25. What is the foreign currency gain or (loss) in relation to the hedging instrument for the year ended
December 31, 2018?
a. (₱20,000) b. ₱50,000 c. ₱30,000 d. (₱10,000)
26. What is the amount of premium or discount on forward contract?
a. Zero c. ₱20,000 premium expense
b. ₱20,000 premium revenue d. ₱20,000 discount expense
27. BDO US is a subsidiary of BDO Philippines. The functional currency of BDO US is US$ while its
presentation currency is the Philippine Peso. The following items are translated at

In the consolidated financial statements of BDO Philippines, the following items shall be presented at
Accounts receivable Inventory Sales
a. ₱3M ₱4M ₱15M
b. ₱3M ₱4M ₱10M
c. ₱3M ₱5M ₱10M
d. ₱2M ₱5M ₱10M
28. Using the same information in the previous number, but assuming the economy of US is experiencing
hyperinflation, the following items shall be presented in the consolidated financial statements of BDO
Philippines at
Accounts receivable Inventory Sales
a. ₱3M ₱4M ₱15M
b. ₱3M ₱4M ₱10M
c. ₱3M ₱5M ₱10M
d. ₱2M ₱5M ₱10M
29. Belle Corporation manufactures rattan furniture sets for export and uses the job order cost system in
accounting for its costs. You obtained from the corporation’s books and records the following information
for the year ended December 31, 2019:
- The work in process inventory on January 1 was 20% less than the work in process inventory on
December 31.
- The total manufacturing costs added during 2019 was ₱900,000 based on actual direct materials and
direct labor but with manufacturing overhead applied on actual direct labor pesos.
- The manufacturing overhead applied to process was 72% of the direct labor pesos, and it was equal
to 25% of the total manufacturing costs.
- The cost of goods manufactured, also based on actual direct materials, actual direct labor and
applied manufacturing overhead, was ₱850,000.
The cost of direct materials used and the work-in-process inventory on December 31, 2019:
Direct Materials Work-in-process
Used Inventory
a. ₱1,075,000 ₱200,000
b. 362,500 250,000
c. 312,500 250,000
d. 312,500 275,000
30. The following information is given based on the contents of the clock cards and time tickets for a week.

Assuncion is the foreman with the others as his workers. Overtime premium is 25%.
The time tickets show that overtime work was done on Job No. 25 and the corresponding hours are
included already in the tabulation given above.
The total amount to be debited to FOH Control if the overtime work is due to the seasonal changes in the
demand of the product is?
a. ₱1,680 b. ₱50 c. ₱1,730 d. ₱250
31. During May, Mercer Company completed 50,000 units costing ₱600,000, exclusive of spoilage allocation.
Of these completed units, 25,000 were sold during the month. An additional 10,000 units, costing

AFAR Final Exam SET A Page 5 of 12

 ₱80,000, were 50% complete at May 31. All units are inspected between the completion of
manufacturing and transfer to finished goods inventory. Normal spoilage for the month was ₱20,000, and
abnormal spoilage of ₱50,000 was also incurred during the month. The portion of total spoilage that
should be charged against revenue in May is
a. ₱50,000. b. ₱20,000. c. ₱70,000. d. ₱60,000.
32. Which of the industries listed is most likely to use process costing in accounting for production costs?
a. Road builder. c. Electrical contractor.
b. Newspaper publisher. d. Clothing manufacturing.
33. Traditional overhead allocations result in which of the following situations?
a. Overhead costs are assigned as period costs to manufacturing operations.
b. High-volume products are assigned too much overhead, and low-volume products are assigned too
little overhead.
c. Low-volume products are assigned too much, and high-volume products are assigned too little
overhead.
d. The resulting allocations cannot be used for financial reports.
34. In the separate FS of a parent entity, investments in subsidiaries, associate or joint venture that are
classified as held for sale should be accounted for
a. At cost, fair value or equity method
b. At cost or fair value method only
c. At cost only
d. None of the choices
35. Gold Corporation has three production departments A, B and C. Gold Corporation also has two service
departments, Administration and Personnel. Administration costs are allocated based on value of assets
employed, and Personnel costs are allocated based on number of employees. Assume that
Administration provides more service to the other departments than does the Personnel Department
(they are presented in a benefits-provided ranking):

Using the direct method, what amount of Administration costs is allocated to A (round to the nearest
peso)?
a. ₱216,000 b. ₱288,000 c. ₱150,000 d. ₱54,000
36. A successful JIT system is based upon which of the following concepts?
a. The company must rely upon a large number of suppliers to ensure frequent deliveries of small lots.
b. The company should always choose those suppliers offering the lowest prices.
c. The company should avoid long-term contracts with suppliers so as to exert pressure on suppliers to
make prompt and frequent deliveries.
d. A small number of suppliers make frequent deliveries of specific quantities thus avoiding the buildup
of large inventories of materials on hand.
37. Arlene, Inc. is a small company that acquires high-grade crude oil from low-volume production wells
owned by individuals and small partnerships. The crude oil is processed in a single refinery into Two Oil,
Six Oil, and impure distillates. Arlene does not have the technology or capacity to process these products
further and sells most of its output each month to major refineries. There were no beginning inventories
for finished goods or work in process on November 1. The production costs and output of Arlene for
November are as follows:

Production and sales:

The portion of the joint production costs assigned to Two Oil based on the relative sales value of output
would be:
a. ₱4,800,000. b. ₱4,000,000. c. ₱2,286,000. d. ₱2,500,000.
38. The Philippine Government and St. Lukes Inc. entered into a concession arrangement for the
construction and operation of Pro-poor Hospital for a period of 10 years. On December 31, 2018, the
concession operator constructed the Hospital at cost of ₱49M. The arrangement stipulates that St. Lukes
Inc. will be paid a specified amount that will enable it to recover the investment made provided that it

AFAR Final Exam SET A Page 6 of 12

 has a pre-determined minimum order of hospital beds operating and available. St. Lukes has a
guaranteed right to receive ₱8M every end of the year. The interpolated effective interest rate is 10%.
What is the book value of the infrastructure asset on December 31, 2019?
a. ₱44,100,000 b. ₱41,000,000 c. ₱45,900,000 d. ₱45,100,000
39. S1: The capitalization threshold of PPE under the GAM is ₱15,000.
S2: Operating cash flows of a government agency may be presented using direct or indirect method.
a. True, True b. False, False c. False, True d. True, False
40. On April 1, 2019, Phil Insurance Company issues a one-year, fire insurance contract for a total premium
of ₱36,000. Using the 24th method, the earned portion of the premium for the year ended December 31,
2019
a. ₱36,000 b. ₱27,000 c. ₱25,500 d. ₱24,000
41. Guillain-Barré Syndrome Hospital has the following account balances:

What is the hospital’s net patient service revenue?

a. ₱880,000 b. ₱690,000 c. ₱800,000 d. ₱680,000
42. The approved appropriation of Department You for 2019 was ₱18,000,000. Eighty five percent of this
appropriation was allotted by the Department of Budget and Management DBM) accompanied with
Notice of Cash allocation (80%) of the allotment. During the year, the amount of obligations incurred
was equivalent to ninety percent of the NCA but only seventy percent of these obligations were paid by
checks. Determine which of the following is incorrect?
a. Department You records the receipt of NCA by debiting to Cash-MDS an amount equivalent to
₱12,240,000.
b. The receipt of the allotment is recorded by means of a memorandum entry.
c. At the end of the year, to adjust unused NCA, Subsidy Income from National Government would be
debited by ₱4,528,800.
d. At the end of the year, to adjust the unused NCA, Cash-MDS would be credited by ₱7,7711,200.
43. Entity P has a 90% controlling interest in Entity S. On December 31, 2010, the carrying value of Entity
S’s net assets in Entity P’s consolidated financial statements is ₱450,000 and the carrying amount
attributable to the non-controlling interests in Entity S (including the non-controlling interest’s share of
accumulated other comprehensive income) is ₱45,000. On January 1, 2019, Entity P sells 80% of the
share in Entity S to a third party for cash proceeds of ₱540,000. As a result of the sale, Entity P loses
control of Entity S but retains a 10% non-controlling interest in Entity S. The fair value of the retained
interest on that date is ₱54,000. Goodwill presented in the consolidated financial statement amounted to
₱45,000.
Determine the gain or loss on disposal (deconsolidation)
a. ₱144,000 gain c. ₱189,000 gain
b. ₱144,000 loss d. ₱189,000 loss
44. The statements of financial position of Entity A and Entity B immediately before the business
combination are (in thousands):

On September 30, 2019, Entity A issues 2.5 shares in exchange for each ordinary share of Entity B. All
of Entity B’s shareholders exchange their shares in Entity B. Therefore, Entity A issues 150 ordinary
shares in exchange for all 60 ordinary shares of Entity B. The fair value of each ordinary share of Entity
B at September 30, 2019 is ₱40. The quoted market price of Entity A’s ordinary shares at that date is
₱16. All assets and liabilities book values equal their fair values except Entity A’s non-current assets with
fair value of ₱1,500,000 and Entity B non-current assets at ₱3,500,000. What is the amount of goodwill
to be reported in the consolidated financial statements?
a. ₱200,000 b. ₱300,000 c. ₱400,000 d. ₱500,000

AFAR Final Exam SET A Page 7 of 12

45. An entity is reporting according to PAS29 Financial reporting in hyperinflationary economies. Its
monetary assets exceed its monetary liabilities. Are the following statements true or false?
(1) There will be a loss on the net monetary position.
(2) Any gain or loss in the net monetary position of the company is recognized in the statement of
comprehensive income.
Statement (1) Statement (2)
a. False False
b. False True
c. True False
d. True True
46. Given the following information, how is goodwill from an acquisition of net assets computed under
PFRS3?
A. Consideration transferred
B. NCI in net identifiable asset of subsidiary
C. Previously held equity interest
D. Fair value of net identifiable assets of subsidiary
% Percentage of ownership by the parent/acquirer in the subsidiary
a. [(A+C)/%] less D b. (A+B+C) less D c. A or B d. None of the choices
47. A soft drink producer acquiring a bottle manufacturer is an example of a
a. Congeneric merger. c. Horizontal merger.
b. Conglomerate merger. d. Vertical merger.
48. A contract, traded on an exchange, that allows an company to buy a specified quantity of a commodity
or a financial security at a specified price on a future date is referred to as
a. Interest rate swap b. Forward contract c. Futures contract d. Option
49. On October 2, 2019, Vhong Navarro, Inc. ordered a custom-built passenger van from a Japanese firm.
The purchase order is noncancelable. The purchase price is 1,000,000 yens with delivery and payment to
be on March 31, 2020. On October 2, 2019, Vhong Navarro, Inc. entered into a forward contract to buy
1,000,000 yens on March 31, 2020 for ₱.53. On March 31, 2020, the custom-built passenger van was
delivered.

Assume that the hedge is accounted for as a fair value hedge, what is the December 31, 2019 profit and
loss statement, net foreign exchange gain or loss on the forward contract and commitment:
a. ₱10,000 net gain
b. ₱10,000 net loss
c. Zero
d. Not applicable since hedge accounting does not apply
50. An acquirer made the following entry to report an acquisition:

Six months after the acquisition, the customer lists are determined to be worthless. How is this
information reported if (1) the new information relates to the value of the customer lists as of the date
of acquisition, and (2) the new information relates to changes in value since acquisition?
Customer lists are written off, and
(1) (2)
a. A gain on acquisition of ₱600 is recorded. Goodwill decreases ₱600.
b. Goodwill increases ₱600. A loss of ₱600 is recorded.
c. A loss of ₱600 is recorded. Goodwill increases ₱600.
d. Cash is reduced by ₱600. A loss of ₱600 is recorded.
51. Culas Corp. acquired an 80% interest in Paeng Corp. on January 1, 2019 for ₱700,000. On this date
capital stock and retained earnings of Culas Corp. were ₱1,800,000 and ₱800,000 respectively; and
Paeng’s ₱500,000 and ₱100,000 respectively. The assets and liabilities of Paeng Corp. were stated at
their fair value when Culas acquired its 80% interest. Culas uses the cost method to account for its
investment in Paeng. The non-controlling interest is computed based on the estimated fair values.
The net income and dividends for 2019 for the affiliated companies were as follows: Culas net income –
₱300,000; Dividends Declared – ₱180,000; Dividend payable December 31, 2019 – ₱90,000. Paeng’s net
income – ₱90,000; Dividend declared – ₱50,000 and dividend payable December 31, 2019 – ₱25,000.
End of the year evaluation indicates ₱5,500 impairment in goodwill. The non-controlling interest at
December 31, 2019 is:
a. ₱128,000 coursehero ito
b. ₱184,000 c. ₱123,000 d. ₱181,900

AFAR Final Exam SET A Page 8 of 12

52. Under the build-operate-transfer (BOT) scheme covered by IFRIC 12, any borrowing costs incurred by
the private operator for infrastructure projects shall be:
a. Expensed (Financial Asset model); Capitalized (Intangible Asset Model)
b. Expensed (Financial Asset model); Expensed (Intangible Asset Model)
c. Capitalized (Financial Asset model); Expensed (Intangible Asset Model)
d. Capitalized (Financial Asset model); Capitalize (Intangible Asset Model)
53. The following assets appear on the statement of financial position of Flicker Company:

In preparing financial statement in a hyperinflationary economy, how much should the company classify
as monetary assets?
a. ₱6,200,000 b. ₱6,600,000 c. ₱6,700,000 d. ₱7,700,000
54. A contract, traded on an exchange, that allows an company to buy a specified quantity of a commodity
or a financial security at a specified price on a future date is referred to as
b. Interest rate swap b. Forward contract c. Futures contract d. Option
55. In accordance with PFRS7 Financial instruments: disclosures, which of the following best describes credit
risk?
a. The risk that one party to a financial instrument will cause a financial loss for the other party by
failing to discharge an obligation
b. The risk that an entity will encounter difficulty in meeting obligations associated with financial
liabilities
c. The risk that the fair value associated with an instrument will vary due to changes in the
counterparty's credit rating
d. The risk that an entity's credit facilities will be withdrawn due to cash flow sensitivities
56. Princess, Inc. placed an order for inventory costing 500,000 foreign currency (FC) with a foreign vendor
on April 15 when the spot rate was 1 FC =₱0.683. Princess received the goods on May 1 when the spot
rate was 1 FC=₱0.687. Also, on May 1, Princess entered into a 90-day forward contract to purchase
500,000 FC at a forward rate of 1 FC=₱0.693. Payment was made to the foreign vendor on August 1,
when the spot rate was 1 FC=₱0.696. Princess has a June 30 year-end. In that date, the spot rate was 1
FC=₱0.691, and the forward rate on the contract was 1 FC=₱0.695. Changes in the current value of the
forward contract are measured as the present value of the changes in the forward rates over time. The
relevant discount rate is 6%. ahhdsadhsahdeqfueqofbovef
The net income effect on June 30 amounted to:
a. ₱2,000 b. ₱1,000 c. ₱1,005 d. ₱505
57. On January 2, 2019, PP Company purchased 80% of the shares of SS Company for ₱3,200,000. On that
date, the fair value of identifiable assets of SS is ₱3,700,000. At the acquisition date, the book values
equal fair values except for a certain equipment which is undervalued by ₱120,000. The fair value of
noncontrolling interest is ₱900,000. Goodwill had been impaired and should be reported at ₱250,000 on
December 31, 2019. The share of PP and SS in the impairment of goodwill allocated to PP and SS
amounted to
PP SS
a. ₱200,000 ₱ 50,000
b. 40,000 10,000
c. 120,000 30,000
d. 90,000 60,000
58. NCPAR Company has several investments and reported the following dividends from its affiliates:

What amount will be reported as dividend income in the consolidated financial statement?
a. ₱481,950 b. ₱300,700 c. ₱151,200 d. ₱532,950
59. X-Rated Co. owns 4 subsidiaries in the Cement manufacturing industry. 3 subsidiaries in Iron and Steel
manufacturing industry and 2 subsidiaries in the service industry. While consolidating, how many
subsidiaries should be consolidated?
a. 4 b. 7 c. 9 d. 6
60. On December 31, 2019, a branch in Singapore submitted the following financial statement stated in the
foreign currency:

AFAR Final Exam SET A Page 9 of 12

 Assuming the current rate method was used and that the retained earnings on January 1, 2019 of the
Singaporean Branch in Philippine Pesos is ₱1,790,000.
Translation gain or (loss) on December 31, 2019
a. ₱5,630,000 b. ₱(5,630,000) c. ₱7,930,000 d. ₱(7,930,000)
61. The Wiring Dept. is the second stage of Bern Company’s production cycle. On May 1, the beginning work
in process contained 25,000 units, which were 60% complete as to conversion costs. During May,
100,000 units were transferred in from the first stage of Fern’s production cycle. On May 31, the ending
work in process contained 20,000 units which were 80% complete as to conversion costs. Material costs
are added at the end of the process.
Using the weighted-average method, equivalent units were:
Transferred in Conversion
costs Materials Cost
a. 100,000 125,000 100,000
b. 125,000 105,000 105,000
c. 125,000 105,000 121,000
d. 125,000 125,000 121,000
62. When the parent company disposes of a part of the investment in its subsidiary, yet retains control over
the other enterprise, then cash flows arising from such sale should be included as part of cash inflows
from
a. Investing activities c. Financing activities
b. Operating activities d. Any of the choices
The next three questions are based on the following data:
63. The cost data and production data for KingKong Company for the month of May are as follows:

All materials are added at the start of the process and lost units are detected at the inspection point of
75% completion.
Using the average method, what are the cost assigned to units transferred out and units in ending work
in process?
Transferred out Ending WIP
a. ₱403,819 ₱56,725
b. ₱399,616 ₱56,725
c. ₱404,573 ₱55,971
d. ₱399,616 ₱55,971
64. What is the cost of abnormal lost units?
FIFO Average
a. ₱4,050 ₱4,056
b. ₱4,950 ₱4,960
c. ₱2,715 ₱2,700
d. ₱4,050 ₱4,050
65. In a reverse acquisition (takeover), the asset and liabilities of the parent and subsidiary is measured at
Legal subsidiary Legal parent
a. Fair value Carrying value
b. Fair value Fair value
c. Carrying value Fair value

AFAR Final Exam SET A Page 10 of 12

 d. Carrying value Carrying value
66. Rex Dr. Love Company has several debt investments as of December 31, 2019:

The following were the comparative exchange rates in 2019:

How much is the forex gain or loss to be presented in profit or loss?

a. ₱180,800 b. ₱240,200 c. ₱80,800 d. None of the choices
67. The Iloilo Company operates a branch. The data are as follows:

How much is the combined results of operations?

a. ₱30,800 b. (₱33,800) c. ₱33,800 d. ₱32,933
68. Income statement information for the year 2019 for P Corporation and its 60% owned subsidiary, S
Corporation, is as follows:

Intercompany sales for 2019 are upstream and totaled ₱100,000. P Corp’ December 31, 2018 and
December 31, 2019 inventories contain unrealized profits of ₱5,000 and ₱10,000, respectively.
The consolidated cost of sales for 2019:
a. ₱ 545,000 b. ₱550,000 c. ₱ 555,000 d. ₱655,000
69. Pare Corporation owns an 80% interest in Sare Corporation and Sare owns a 60% interest in Kare
Corporation. Both interests were acquired at book value which is equal to fair value. During 2018, Sare
sells land costing ₱700,000 to Kare at a profit of ₱120,000. Kare still holds the land at December 31,
2018. Also during the year, Pare sells land costing ₱800,000 to Gare at a profit of ₱150,000. Profits
(losses) and land account of the three companies for 2018 are:

What is the gain to be presented in the consolidated income statement?

a. ₱270,000 b. ₱150,000 c. ₱120,000 d. Nil
70. Which of the following describes interest rate options?

AFAR Final Exam SET A Page 11 of 12

 a. Contracts to purchase or sell a specific quantity of a financial instrument, a commodity, or a foreign
currency at a specified price determined at the outset, with delivery or settlement at a specified
future date. Settlement is at maturity by actual delivery of the item specified in the contract, or by a
net cash settlement.
b. Contracts that give the purchaser the right, but not the obligation, to buy or sell a specified quantity
of a particular financial instrument, commodity, or foreign currency, at a specified price (strike price),
during or at a specified period of time. These can be individually written or exchange-traded. The
purchaser of the option pays the seller (writer) of the option a fee (premium) to compensate the
seller for the risk of payments under the option.
c. Contracts to exchange cash flows as of a specified date or a series of specified dates based on a
notional amount and fixed and floating rates.
d. Contracts that will compensate the purchaser of the cap if interest rates rise above a predetermined
rate (strike rate) or will compensate the purchaser if rates fall below a predetermined rate.

Prepared by:

Mark Alyson B. Ngina

“You’re a winner when you decide to be.
No other person must give you permission to be successful. There’s no one else to blame when you’re not.
Your life is exactly what you determine to make of it.”
“Humble yourselves, therefore, under God’s mighty hand, that he may lift you up in due time. Cast all your
anxiety on him because he cares for you.” (1 Peter 5: 6,7)
“Commit to the Lord whatever you do, and your plans will succeed.” (Proverbs 16:3)
“Trust in the Lord with all your heart and lean not on your own understanding; in all your ways acknowledge
him, and he will make your paths straight.” (Proverbs 3:5,6)
☺ -- END OF EXAM -- ☺

AFAR Final Exam SET A Page 12 of 12

AFAR Comprehensive Exam – Set B
La Salle University - Dasmarinas
College of Business Administration and Accountancy

INSTRUCTIONS: Select the BEST answer for each of the following questions. Mark only one answer for each
item by shading the box corresponding to the letter of your choice on the sheet provided. STRICTLY NO
ERASURES ALLOWED. Use pencil no. 2 only.

1. LCP Corp. has provided the following information for transaction that occurred during April. This Corp.
uses a JIT costing system.
● Raw materials were purchased at cost of ₱291,000.
● All materials purchased were requisitioned for production.
● Direct labor costs of ₱231,000 were incurred.
● Actual factory overhead costs amounted to ₱675,000.
● Applied conversion costs totaled ₱900,000. This included ₱231,000 of direct labor
● All units were completed
Which of the following statements is incorrect?
a. The balance of conversion costs on April was ₱6,000 debit
b. The balance of finished goods account was ₱1,191,000 credit
c. The amount of factory overhead to be backflushed was ₱669,000.
d. The amount of direct labor to be backflushed was ₱231,000.
2. The following quantity schedules and related information are for Dept. 1 and dept. 2 for the current month
August 2019, of ZXC Corp

All beginning units in process for both departments are 100% complete for direct materials. Beginning
units in process are 60% complete as to conversion costs in Dept. 1 and 40% complete as to conversion
costs in Dept. 2. All ending units in process are 100% complete as to direct materials as well as 50%
complete as to conversion costs in both departments.
For Dept. 2, what is the equivalent production conversion costs using FIFO?
a. 563,200 unit’s b. 463,615 unit’s c. 495,615 units d. 428,030 units
3. Early Bird Company has a production run of 8,000 pairs of slacks during the last week of July, at the
following cost per pair:

Final inspection revealed 600 pair not meeting quality standards salable as seconds at ₱40.00 per pair.
The cost per unit assuming the spoilage cost is (1) charged to all production run and (2) charged to
production run?
a. (1) ₱120.00; (2) ₱110.00 c. (1) ₱120.00; (2) ₱118.92
b. (1) ₱120.00; (2) ₱126.49 d. (1) ₱118.92; (2) ₱120.00
4. A separate vehicle is established, over which two parties have joint control. Neither the legal form nor the
contractual terms of the joint arrangement give the parties rights to the assets or obligations for the
liabilities of the arrangement. Other facts and circumstances are as follows:
• the purpose of the joint arrangement is to construct a residential complex for selling residential units
to the public; contributed equity by the parties is sufficient to purchase land and raise debt finance
from third parties to fund construction; and
• sales proceeds will be used as follows (in this priority):
o repayment of external debt; and
o remaining profit distributed to parties.
Based on the preceding information, the joint arrangement is classified as:
a. Joint venture to be accounted under PAS 28
b. Joint venture to be accounted under PFRS 11
c. Joint operation to be accounted under PAS 28
d. Joint operation to be accounted under PFRS 11
5. A and B (the parties) are two companies whose businesses are the provision of many types of public and
private construction services. They set up a contractual arrangement to work together for the purpose of
fulfilling a contract with the government for the design and construction of a zip line from Baguio to
Manila. The contractual arrangement determines the participation shares of A and B and establishes joint
control of the arrangement, the subject matter of which is the delivery of the zip line.
The parties set up a separate vehicle (entity Z) through which to conduct the arrangement. Entity Z, on
behalf of A and B, enters into the contract with the government. In addition, the assets and liabilities

Page 1 of 13
AFAR Comprehensive Exam – Set B
relating to the arrangement are held in entity Z. The main feature of entity Z's legal form is that the
parties, not entity Z, have rights to the assets, and obligations for the liabilities, of the entity.
The contractual arrangement between A and B additionally establishes that:
● the rights to all the assets needed to undertake the activities of the arrangement are shared by the
parties on the basis of their participation shares in the arrangement;
● the parties have several and joint responsibility for all operating and financial obligations relating to
the activities of the arrangement on the basis of their participation shares in the arrangement; and
● the profit or loss resulting from the activities of the arrangement is shared by A and B on the basis of
their participation shares in the arrangement.
For the purposes of coordinating and overseeing the activities, A and B appoint an operator, who will be an
employee of one of the parties. After a specified time, the role of the operator will rotate to an employee
of the other party. A and B agree that the activities will be executed by the operator's employees on a 'no
gain or loss' basis.
In accordance with the terms specified in the contract with the government, entity Z invoices the
construction services to the government on behalf of the parties.
Based on the preceding information, the joint arrangement is classified as:
a. Joint venture to be accounted under PAS 28
b. Joint venture to be accounted under PFRS 11
c. Joint operation to be accounted under PAS 28
d. Joint operation to be accounted under PFRS 11
6. An entity holds an investment of 30% in the common shares of an associate that has net assets of
₱2,000,000 and net profit for the year of ₱245,000. The associate has issued 5,000 noncumulative
preference shares with a nominal value of ₱100 which entitle its holders to a 9% dividend. The
noncumulative preference shares are classified by the associate as equity in accordance with the
requirements of PAS 32 – Financial Instruments: Presentation. The associate has declared ₱160,000
dividends on the preference shares during the current year
What would be the investors share in the associate's net profit?
a. ₱73,500 b. ₱60,000 c. ₱59,100 d. ₱46,500
7. A chemical company manufactures joint products Pep and Vim, and a by-product, Zest. Costs are assigned
to the joint products by the market value method, which considers further processing costs in subsequent
operations. For allocating cost to the by-product, the market value, or reversal cost method is used.
The total manufacturing costs for 10,000 units were ₱172,000 during the quarter. Production and costs
data follow:

Compute the gross profit for Pep:

a. ₱70,000 b. ₱80,000 c. ₱100,000 d. Zero
8. The following assets appear on the statement of financial position of Flicker Company:

In preparing financial statement in a hyperinflationary economy, how much should the company classify as
monetary assets?
a. ₱6,200,000 b. ₱6,600,000 c. ₱6,700,000 d. ₱7,700,000
9. A contract, traded on an exchange, that allows an company to buy a specified quantity of a commodity or
a financial security at a specified price on a future date is referred to as
a. Interest rate swap b. Forward contract c. Futures contract d. Option
10. In accordance with PFRS7 Financial instruments: disclosures, which of the following best describes credit
risk?
a. The risk that one party to a financial instrument will cause a financial loss for the other party by failing
to discharge an obligation
b. The risk that an entity will encounter difficulty in meeting obligations associated with financial
liabilities
c. The risk that the fair value associated with an instrument will vary due to changes in the
counterparty's credit rating
d. The risk that an entity's credit facilities will be withdrawn due to cash flow sensitivities
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AFAR Comprehensive Exam – Set B

11. Partner Dong first contributed ₱50,000 of capital into an existing partnership on March 1, 2019. On June
1, 2019, the partner contributed another ₱20,000. On September 1, 2019, the partner withdrew ₱15,000
from the partnership. Withdrawals in excess of ₱10,000 are charged to the partner’s capital account. The
weighted average capital balance is:
a. ₱62,000 b. ₱51,667 c. ₱60,000 d. ₱48,333
12. Bridgette, Benny and Kenny are partners with existing capital balances of ₱500,000, ₱1,200,000 and
₱1,300,000, respectively. The partners also share profits and losses 30:35:35, respectively. Bridgette sold
her interest to the partnership for ₱400,000. As part of the settlement she shall take an item of equipment
with a book value of ₱200,000 at its fair value of ₱250,000. The capital of Benny and Kenny, respectively,
after Bridgette’s sale of interest is
a. ₱1,250,000; ₱1,350,000 c. ₱1,160,000; ₱1,260,000
b. ₱1,275,000; ₱1,375,000 d. ₱1,217,500; ₱1,317,500
13. An entity is reporting according to PAS29 Financial reporting in hyperinflationary economies. Its monetary
assets exceed its monetary liabilities. Are the following statements true or false?
(1) There will be a loss on the net monetary position.
(2) Any gain or loss in the net monetary position of the company is recognized in the statement of
comprehensive income.
Statement (1) Statement (2)
a. False False
b. False True
c. True False
d. True True
14. An entity has a subsidiary that operates in a hyperinflationary economy. The subsidiary’s financial
statements are measured in terms of the local currency, which is the Malaysian Ringgit. The subsidiary’s
financial statements have been restated in accordance with PAS 29. The parent is located in the
Philippines and prepares the consolidated financial statements in Philippine peso. Which of the following
accounting procedures is correct in terms of the consolidation of the subsidiary’s financial statements?
a. The subsidiary’s financial statements should be prepared using the ringgit and then retranslated into
peso.
b. The subsidiary’s financial statements should be prepared using the ringgit, then restated according to
PAS 29, and then retranslated into peso at closing rates.
c. The subsidiary’s financial statements should be remeasured in peso, then restated according to PAS 29
and consolidated.
d. The subsidiary’s financial statements should be deconsolidated and not included in the consolidated
financial statements.
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AFAR Comprehensive Exam – Set B

15. Given the following information, how is goodwill from an acquisition of net assets computed under PFRS3?
A. Consideration transferred
B. NCI in net identifiable asset of subsidiary
C. Previously held equity interest
D. Fair value of net identifiable assets of subsidiary
% Percentage of ownership by the parent/acquirer in the subsidiary
a. [(A+C)/%] less D b. (A+B+C) less D c. A or B d. None of the choices
16. Which of the following statements is/are true about contingent consideration under PFRS 3?
I. Contingent consideration in a business acquisition that is not classified as equity is subsequently
measured at fair value through profit or loss whether or not it falls within the scope of PFRS 9
Financial Instruments.
II. Contingent consideration cannot be measured at fair value through other comprehensive income.
a. I only b. II only c. I and II d. None of the choices
17. MNO Philippines Co. is a branch of MNO U.S. Co. ABC Philippines operates in a Philippine Zone Authority
(PEZA) Special Economic Zone. MNO Philippines is engaged in the furniture business. All of its raw
materials are imported from the main office in the U.S. and all of its finished products are exported
directly to U.S. customers. The U.S. customers will remit payments to the U.S. main office. The U.S. main
office will then provide the Philippine branch its working capital needs. None of MNO Philippines’ finished
products are sold in the Philippines. The raw materials imported, and finished goods exported are
denominated in U.S. dollars. Determine the functional currency of MNO Philippines and its presentation
currency in the Philippines.
Functional Currency Presentation Currency
a. U.S. dollars U.S. dollars
b. U.S. dollars Philippine peso
c. Philippine peso U.S. dollars
d. Philippine peso Philippine peso
18. Culas Corp. acquired an 80% interest in Paeng Corp. on January 1, 2019 for ₱700,000. On this date
capital stock and retained earnings of Culas Corp. were ₱1,800,000 and ₱800,000 respectively; and
Paeng’s ₱500,000 and ₱100,000 respectively. The assets and liabilities of Paeng Corp. were stated at their
fair value when Culas acquired its 80% interest. Culas uses the cost method to account for its investment
in Paeng. The non-controlling interest is computed based on the estimated fair values.
The net income and dividends for 2019 for the affiliated companies were as follows: Culas net income –
₱300,000; Dividends Declared – ₱180,000; Dividend payable December 31, 2019 – ₱90,000. Paeng’s net
income – ₱90,000; Dividend declared – ₱50,000 and dividend payable December 31, 2019 – ₱25,000.
End of the year evaluation indicates ₱5,500 impairment in goodwill. The non-controlling interest at
December 31, 2019 is:
a. ₱128,000 b. ₱184,000 c. ₱123,000 d. ₱181,900
19. Redgrapes has a 70% ownership interest in EHC, giving it control. On January 1, 2019, Redgrapes
acquires an additional 15% interest. At that date, equity of EHC is as follows: share capital – ₱1,000,000;
OCI – ₱500,000; accumulated profits – ₱800,000. On January 1, 2019, the non-controlling interest in EHC

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AFAR Comprehensive Exam – Set B
had a value of ₱610,000. Redgrapes paid ₱400,000 for the additional 15% interest in EHC. Which of the
following statements is correct?
a. Redgrapes recognizes a decrease in non-controlling interest of ₱400,000 and an increase in the
parent's equity attributable to EHC of ₱400,000.
b. Redgrapes recognizes a decrease in non-controlling interest of ₱305,000 and an increase in goodwill of
₱305,000. The remaining ₱95,000 is recognized as a reduction of equity.
c. Redgrapes recognizes a decrease in non-controlling interest of ₱305,000 and an increase in the
parent's equity attributable to EHC of ₱305,000. The remaining ₱95,000 is recognized as goodwill.
d. Redgrapes recognizes a decrease in non-controlling interest of ₱305,000 and an increase in the
parent's equity attributable to EHC of ₱305,000. The remaining ₱95,000 is recognized as a reduction
of the parent's equity.
20. Generally speaking, a gain or loss arising from (1) foreign currency transaction and (2) foreign currency
translation are reported in the
a. (1) Income statement (2) Income statement
b. (1) Income statement (2) Balance sheet
c. (1) Balance sheet (2) Income statement
d. (1) Balance sheet (2) Balance sheet
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/
Use the following data to answer the next three questions:
21. The following information is available for Anya Ngay Nga Road Company for April:

All
materials are added at the start of production and the inspection point is at the end of the process.
What is the cost assigned to ending inventory using FIFO (round of calculations to two decimal places)?
a. ₱58,955 b. ₱58,994 c. ₱56,420 d. ₱53,114
22. What is cost per equivalent unit for material using weighted average?
a. ₱1.49 b. ₱1.56 c. ₱1.63 d. ₱1.44
23. What is the total cost assigned to goods transferred out using weighted average (round of calculations to
two decimal places)?
a. ₱423,330 b. ₱429,824 c. ₱429,754 d. ₱423,400
24. Under the build-operate-transfer (BOT) scheme covered by IFRIC 12, any borrowing costs incurred by the
private operator for infrastructure projects shall be:
a. Expensed (Financial Asset model); Capitalized (Intangible Asset Model)
b. Expensed (Financial Asset model); Expensed (Intangible Asset Model)
c. Capitalized (Financial Asset model); Expensed (Intangible Asset Model)
d. Capitalized (Financial Asset model); Capitalize (Intangible Asset Model)
25. A company has two service departments, Power and Maintenance, and two production departments,
Machining and Assembly. All costs are regarded as strictly variable. For September the following
information is available:

Assume the company uses the sequential or step method for allocating service department costs to
production departments. The company begins with the service department which receives the least service
from other service departments. What peso amount of Power Department costs will be allocated to the
Maintenance Department for September?
a. ₱0 b. ₱12,500 c. ₱6,250 d. ₱8,000
26. How are exchange differences arising from a foreign currency transaction normally treated in the financial
statements of a single entity in respect of monetary items?
a. Exchange differences are recognized in other comprehensive income in the period in which they arise,
with a few exceptions
b. Exchange differences are recognized in profit or loss in the period in which they arise, with a few
exceptions.

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AFAR Comprehensive Exam – Set B
c. All exchange differences are recognized in profit or loss in the period in which they arise, without any
exceptions
d. All exchange differences are recognized in other comprehensive income in the period in which they
arise, without any exceptions.
27. Which of the following pertains to depreciation of assets under PPSAS?
a. A residual value equivalent to at least five percent (5%) of the cost shall be adopted unless a more
appropriate percentage is determined by the entity based on its operation subject to the approval of
COA.
b. Generally, infrastructure assets have no residual value. In case, the residual value of parts of the
infrastructure assets can be determined, the policy of at least five percent (5%) of the cost of that
part shall be applied.
c. Depreciation shall be recognized as a credit to the “Depreciation Expense” account and a debit to the
“Accumulated Depreciation” account.
d. Depreciation expense shall be recognized on a monthly basis
28. Under applicable accounting standards, Build-Operate-Transfer (BOT) should be accounted by the grantor
using
a. Financial liability model or grant of right to operator model or both
b. Financial asset model or intangible asset model or both
c. Financial asset model, intangible asset model or PPE model
d. Financial liability model, grant of right to operator model or haphazard model
29. The statement of financial position of NPO shall report separately 3 classes of net assets that exclude
a. Donated net assets c. Unrestricted net assets
b. Temporarily restricted net assets d. Permanently restricted net assets
30. Which of the following statements pertaining to NPO is true?
a. In hospital accounting, restricted funds are not available unless the BOD removes the restrictions.
b. Medical City received an unrestricted bequest of ₱75,000 in 2019. This bequest should be recorded as
non-operating revenue.
c. A not-for-profit organization statement of financial position should report the net change for the net
assets that are unrestricted, temporarily restricted and permanently restricted.
d. In preparing the statement of cash flows for a not-for-profit organization, cash contribution that are
restricted for long term purposes are classified as investing activities.
The next two questions are based on the following information:
On September 1, Ramus Company purchased machine parts from Jacky Chan Company for 6,000,000 Hong
Kong dollars to be paid on January 1, 2019. The exchange rate on September 1 is HK $7.7 = ₱1. On the same
date, Ramus enters into a forward contract and agrees to purchase HK $6,000,000 on January 1, 2019, at the
rate of HK $7.7 = ₱1. On December 31, 2018 and on January 1, 2019, the exchange rate is HK $8.0 = ₱1.
31. What is the fair value of the forward contract on December 31, 2018?
a. ₱0 b. ₱29,221 c. ₱750,000 d. ₱779,221
32. What is the initial value of forward contract on September 1, 2018
a. ₱0 b. ₱29,221 c. ₱750,000 d. ₱779,221
The next four questions are based on the following information:
33. On December 12, 2019, Converge, Inc. Co. entered into three forward exchange contracts, each to
purchase 100,000 euros in ninety days. The relevant exchange rates are as follows:

Converge, Inc. entered into the first forward contract to hedge a purchase of inventory in November 2019,
payable in March 2020. At December 31, 2019, what amount of foreign currency transaction gain from
this forward contract should Converge, Inc. include in net income?
a. ₱0 b. ₱3,000 c. ₱ 5,000 d. ₱10,000
34. At December 31, 2019, what amount of foreign currency transaction loss should Converge, Inc. include in
income from the revaluation of the Accounts Payable of 100,000 euros incurred as a result of the purchase
of inventory at November 30, 2019, payable in March 2020?
a. ₱0 b. ₱3,000 c. ₱4,000 d. ₱5,000
35. Converge, Inc. entered into the second forward contract to hedge a commitment to purchase equipment
being manufactured to Converge, Inc.’s specifications. The expected delivery date is March 2020 at which
time settlement is due to the manufacturer. The hedge qualifies as a fair value hedge.
At December 31, 2019, what amount of foreign currency transaction gain from this forward contract
should Converge, Inc. include in net income?
a. ₱0 b. ₱3,000 c. ₱ 5,000 d. ₱10,000
36. Converge, Inc. entered into the third forward contract for speculation. At December 31, 2019, what
amount of foreign currency transaction gain from this forward contract should Converge, Inc. include in
net income?
a. ₱0 b. ₱3,000 c. ₱ 5,000 d. ₱10,000
37. On December 1, 2017, Batch 75, a Philippine firm estimates or forecasted the purchase of 5,000 units of
inventory from Taiwan. The purchase would probably occur on January of 2018 and require the payment
of 500,000 Nt dollars. The transaction is probable, and it is to be denominated in Nt dollar. It is anticipated
that the inventory could be further processed and delivered to customers within six months.

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AFAR Comprehensive Exam – Set B
Batch 75 Company enters into a forward contract to purchase 500,000 Nt dollars on January 31, 2018 for
₱1.01.
Spot and forward rates at the January 31, 2018, settlement were as follows (pesos per Nt dollar):

The amount to be debited to inventory on January 31, 2018 assuming any adjustments (if any) regarding
exchange differential will be considered as a basis adjustment:
a. ₱515,000 b. ₱505,000 c. ₱490,000 d. ₱495,000
38. On December 1, 2017, Joseph Company, a Philippine Company, entered into a three-month forward
contract to purchase 1,000,000 foreign currencies on March 1, 2018. The following foreign currencies peso
exchange rates applies:

Joseph’s incremental borrowing rate is 12 percent. The present value factor for two months at an annual
interest rate of 12 percent (1 percent per month) is .9803.
Which of the following is included in Joseph’s December 31, 2017 balance sheet for the forward contract?
a. An asset in the amount of P1,960.60. c. As a liability in the amount of P6,862.10.
b. An asset in the amount of P3,921.20. d. As a liability in the amount of P4,901.50.
39. Dudongski Inc. uses the closing rate method (net investment method or current rate method as required
by PAS 21 wherein the functional currency is not the currency of a hyperinflationary economy) of
translation for its 100%-owned foreign subsidiary, Dong Suzuki (created in 2016). For 2017, Dong
Suzuki’s net income was 100,000 LCU (local currency unit, the yens), which translated into ₱33,000.
(Earnings occurred evenly throughout the year and were remitted to Dudongski Inc. monthly). An
unfavorable translation reserve/adjustment of ₱64,000 resulted for 2017. At December 31, 2016, the
cumulative translation reserve account had a credit balance of ₱18,000.
On December 31, 2016, in expectation that the LCU (the yens) would weaken throughout 2017, the
management entered into a one-year forward exchange contracts to sell 600,000 LCU (Dong Suzuki’s net
asset position at December 31, 2016) on December 31, 2017 at the forward rate of ₱.40 (no hedging was
done in 2016). The following direct exchange rates are assured:

The June 30, 2017 foreign exchange gain or loss on forward contract amounted to:
a. ₱24,000 gain – earnings c. ₱30,000 gain – OCI
b. ₱24,000 gain – OCI d. ₱24,000 loss – OCI
Use the following data to answer the next three questions:
On December 1, 2019, Noypi Inc., which is operating in the Philippines, sold goods on account to USA
company at a price of $1,000 collectible on March 2, 2020. In order to hedge this exposed foreign
currency denominated accounts receivable, Noypi entered into a forward contract with BPI for the sale of
$1,000 to be delivered on March 2, 2020. The following direct exchange rates are provided by the bank:

40. What is the amount of sales to be recognized by Noypi Inc. for the year ended December 31, 2019?
a. ₱40,000 b. ₱41,000 c. ₱34,000 d. ₱42,000
41. What is the foreign currency gain or (loss) to be recognized by Noypi on hedged item for the year ended
December 31, 2019?
a. ₱20,000 gain b. ₱30,000 loss c. ₱10,000 gain d. ₱40,000 loss
42. What is the foreign currency gain or (loss) to be recognized by Noypi on hedging instrument for the year
ended December 31, 2020?
a. ₱110,000 loss b. ₱10,000 loss c. ₱30,000 loss d. ₱20,000 gain
43. On November 1, 2018, Near AFAR Inc., which is operating in the Philippines, purchased debt securities in
USA at a price of $10,000 payable on January 31, 2019. To hedge this exposed foreign currency
denominated accounts payable, Near AFAR entered into a forward contract with BDO for the purchase of
$10,000 to be collected on January 31, 2019. Near AFAR Inc. accounts its investment as financial asset at

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AFAR Comprehensive Exam – Set B
fair value through profit or loss (FVTOCI). On December 31, 2018, the fair market value of the FVTOCI is
$12,000. The following direct exchange rates are provided by the bank:

What is the foreign currency gain or (loss) in relation to the FVTOCI translation for the year ended
December 31, 2018?
a. ₱30,000 b. ₱36,000 c. ₱60,000 d. ₱50,000
44. Which models are allowed to be used by the private operator for Build-Operate-Transfer (BOT) schemes
under IFRIC 12?
I. Financial Asset Model
II. Intangible Asset Model
III. Property, Plant and Equipment Model
a. I and II only c. I and III only
45. On April 1, 2020, Skeleton Insurance Company issues a one-year, fire insurance contract for a total
premium of ₱36,000.
Using the 24th method, the earned portion of the premium for the year ended December 31, 2020
a. ₱36,000 b. ₱27,000 c. ₱25,500 d. ₱24,000
46. Cash flow hedge may include
a. Hedge of recognized asset or liability
b. Hedge of highly probable forecast transaction
c. Both a and b
d. Neither a nor b
47. Costs of normal spoilage are usually charged to
a. EWIP but not cost of goods manufactured when the inspection point is at the end of the process.
b. Cost of goods manufactured but not EWIP if the goods are inspected when they are 50% complete and
EWIP is 75% complete.
c. Cost of goods manufactured and EWIP when the inspection point is at the end of the process.
d. Cost of goods manufactured and EWIP when the inspection point is prior to the end of the process,
and goods in EWIP have passed the inspection point.
48. Southwood Industries uses a process costing system and inspects its goods at the end of manufacturing.
The inspection as of June 30 revealed the following information for the month of June.

Unit costs were: materials, ₱3.50; and conversion costs, ₱6.00. The number of units that Southwood
would transfer to its finished goods inventory and the related cost of these units are
a. 16,000 units transferred at a cost of ₱152,000.
b. 16,000 units transferred at a cost of ₱155,800.
c. 16,000 units transferred at a cost of ₱154,850.
d. 16,300 units transferred at a cost of ₱154,850
49. S1: Abnormal spoilage is generally thought to be more controllable by production management than
normal spoilage.
S2: Normal spoilage is generally thought to be less controllable by production management than abnormal
spoilage.
a. True, true b. True, false c. False, true d. False, false
50. S1: Abnormal spoilage (discrete or continuous) in a process costing has no effect on unit cost.
S2: Normal spoilate (discrete or continuous) in a process costing will always increase unit cost.
a. True, true b. True, false c. False, true d. False, false

51. On April 1, 2018, Añonuevo Corp. acquired 80% of the outstanding stocks of Sy Corp. for ₱2,500,000. Sy
Corp.’s stockholders’ equity at the end of 2018 is as follows: Ordinary shares, ₱80 par ₱2,000,000, Share
premium ₱500,000, and Retained Earnings ₱750,000. The fair value of the non-controlling interest is
₱685,000. All the assets of Sy were fairly valued except for its inventories which are overvalued by
₱90,000, land which is undervalued by ₱50,000, and patent which is undervalued by ₱125,000. The said
patent has a remaining useful life of five years. Both companies use the straight-line method for
depreciation and amortization. Shareholders’ equity of Añonuevo Corp. on December 31, 2018 is
composed of: Ordinary shares, ₱50 par ₱3,500,000, Share premium ₱750,000, and Retained Earnings
₱2,460,000. Goodwill, if any, should be decreased by ₱22,500 every year-end. No additional issuance of
capital stocks occurred.
For the two years ended, December 31, 2018 and 2019, Añonuevo Corp. and Sy Corp. reported the
following:

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AFAR Comprehensive Exam – Set B

*from date of acquisition

The non-controlling interest on December 31, 2018 is
a. ₱781,150 b. ₱701,320 c. ₱781,150 d. ₱718,510
52. Petty cash fund for NGAs, LGUs and GOCCs are accounted using
a. Imprest system c. Either a or b
b. Fluctuating balance method d. Neither a nor b
53. Cinco Corp. owns a subsidiary in Japan whose balance sheet in Japanese Yen for the last years follow:

Relevant exchange rates are:

Cinco formed the subsidiary on January 1, 2018. Income of the subsidiary was earned evenly throughout
the years and the subsidiary declared dividends worth ¥15,000 on September 12, 2018 and none were
declared during 2019.
How much is the cumulative translation adjustment for 2019?
a. ₱568,750 b. ₱625,000 c. ₱1,006,250 d. ₱875,000
54. Entity A writes a single policy for ₱100,000 premium and expects claims to be made of ₱60,000 in 2020.
At the time of writing the policy, there are commission costs of ₱20,000. Assume a discount rate of 3%
risk-free. The entity says that is a provision for risk and uncertainty were to be made, it would amount to
₱25,000 and that the risk would expire evenly over years 2018, 2019 and 2020. Under the existing
policies, the entity would spread the premiums, the claims expense and the commissioning costs over the
first two years of the policy. Investment returns in years 2017 and 2018 are ₱2,000 and ₱4,000,
respectively. What is the profit in year 2017 and 2018, using the matching and deferral approach in years
2017 and 2018?
a. ₱12,000; ₱14,000 c. ₱10,000; ₱10,000
b. ₱26,000; ₱0 d. ₱0; ₱26,000
55. Entity P has a 90% controlling interest in Entity S. On December 31, 2010, the carrying value of Entity S’s
net assets in Entity P’s consolidated financial statements is ₱450,000 and the carrying amount attributable
to the non-controlling interests in Entity S (including the non-controlling interest’s share of accumulated
other comprehensive income) is ₱45,000. On January 1, 2019, Entity P sells 80% of the share in Entity S
to a third party for cash proceeds of ₱540,000. As a result of the sale, Entity P loses control of Entity S
but retains a 10% non-controlling interest in Entity S. The fair value of the retained interest on that date
is ₱54,000. Goodwill presented in the consolidated financial statement amounted to ₱45,000. Determine
the gain or loss on disposal (deconsolidation)
a. ₱144,000 gain c. ₱189,000 gain
b. ₱144,000 loss d. ₱189,000 loss
56. The statements of financial position of Entity A and Entity B immediately before the business combination
are (in thousands):

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AFAR Comprehensive Exam – Set B

On
September 30, 2019, Entity A issues 2.5 shares in exchange for each ordinary share of Entity B. All of
Entity B’s shareholders exchange their shares in Entity B. Therefore, Entity A issues 150 ordinary shares in
exchange for all 60 ordinary shares of Entity B. The fair value of each ordinary share of Entity B at
September 30, 2019 is ₱40. The quoted market price of Entity A’s ordinary shares at that date is ₱16. All
assets and liabilities book values equal their fair values except Entity A’s non-current assets with fair value
of ₱1,500,000 and Entity B non-current assets at ₱3,500,000. What is the amount of goodwill to be
reported in the consolidated financial statements?
a. ₱200,000 b. ₱300,000 c. ₱400,000 d. ₱500,000
57. Baguio Museum, received a contributions restricted for research totaling ₱100,000 in 2019. Assume the
₱100,000 was not expected in 2019. These contributions were used for purchase ₱70,000 of research
equipment in 2019. As a result of these transactions, for this year ended December 31, 2019, Baguio
Museum will report, on its statement of activities, a
a. ₱30,000 increase in temporarily restricted net assets
b. ₱100,000 increase in temporarily restricted net assets
c. ₱70,000 increase in unrestricted net assets
d. ₱30,000 increase in unrestricted net assets
58. Konstruk Construction, Inc. uses the Percentage of Completion method in recognizing income. In 2019,
Konstruk was engaged by Session on a fixed price contract to build a 2 storey office building.
On January 1, 2020, a fire damaged the accounting records of Konstruk Construction, Inc. The following
data were taken from the salvage files:

What is the percentage of completion in 2019?

a. 40% b. 25% c. 20% d. 30%
Use the following to answer the next five questions:
Frozen Delight, Inc. charges an initial franchise fee of ₱75,000 for the right to operate as a franchisee of
Frozen Delight. Of this amount ₱25,000 is collected immediately. The remainder is collected in four equal
annual instalments of ₱12,500 each. These instalments have a present value of ₱41,402. As part of the total
franchise fee, Frozen Delight also provides training (with a fair value of ₱2,000) to help franchisees get the
store ready to open. The franchise agreement is signed of April 1, 2019, training is completed, and the store
opens on July 1, 2019.
59. The amount of revenue from training and franchise on April 1, 2019 to:
a. Zero. b. ₱66,402 c. ₱64,402 d. ₱75,000
60. The amount of revenue from training and franchise on July 1, 2019 to:
a. Zero. b. ₱66,402 c. ₱64,402 d. ₱75,000
61. Kulot Hairs sells hairstyling franchises. Kulot Hairs receives ₱50,000 from a new franchisee for providing
initial training, equipment and furnishings that have a stand-alone selling price of ₱50,000. Kulot Hairs
also receives ₱30,000 per year for use of the Kulot Hairs name and for ongoing consulting services
(starting on the date the franchise is purchased). Curly Hair became a Kulot Hairs franchisee on July 1,
2019, and on August 1, 2019, had completed training and was open for business. How much revenue in
2019 will Kulot Hairs recognize for its arrangement with Curly Hair?
a. Zero b. ₱65,000 c. ₱10,000 d. ₱70,000
62. Franchise revenue are recognized over time if
a. Franchise rights are transferred at a point in time.
b. The franchisor is providing access to the right rather than transferring control.
c. Performance obligations regarding franchise rights are completed when the franchise opens.
d. The franchise fee is payable upon signing of contract.
https://quizlet.com/204956549/intermediate-acc-i-final-topic-19revenue-recognition-ch18-conceptional-only-f
lash-cards/

Page 10 of 13
AFAR Comprehensive Exam – Set B

63. The ABC Manufacturing Company delivered ten DVD players to XYZ Company on consignment. These DVD
player cost ₱3,000 each and are to be sold at ₱5,000 each. The ABC Manufacturing Co. paid shipment cost
of ₱2,500.
XYZ Co. submitted an account sale stating that it had returned one unit and was remitting ₱21,900. This
amount represents the total amount due to ABC Manufacturing Co. after deducting the following from the
selling price of the DVD player sold:

The profit (loss) on consignment realized by ABC Manufacturing Company is:

a. ₱2,300 c. (₱2,550) c. ₱2,480 d. None of the choices
64. Which of the following is most true regarding consignment arrangements?
a. Revenue is recognized at the point in time when the consignment arrangement is made.
b. Revenue is recognized when goods are transferred to the consignee.
c. Revenue is recognized upon sale by the consignee to an end customer.
d. Revenue is never recognized because GAAP does not allow such arrangements.
https://quizlet.com/450788679/intermediate-accounting-ch-567-flash-cards/

65. All types of organizations can benefit from budgeting. A major difference between governmental budgeting
and business budgeting is that:
a. Business budgeting is required by the SEC.
b. Governmental budgeting usually represents a legal limit on proposed expenditures.
c. Business budgeting can be used to measure progress in achieving company objectives whereas
governmental budgeting cannot be used to measure progress in achieving objectives.
d. Governmental budgeting is usually done on a zero-base.
http://www.accountingmcqs.com/all-types-of-organizations-can-benefit-from-budget-mcq-3104

Page 11 of 13
AFAR Comprehensive Exam – Set B

66. Tito, Vic and Joey formed a joint operation in 2019 to sell sportswear merchandise. Joey is designated as
the manager of the joint operation. The operators agreed to divide profits and losses equally. The joint
operation is terminated on December 31, 2019 even though there is still unsold merchandise. On this
date, Joey’s trial balance shows the following account balances before profit or loss distribution:

Joey receives ₱7,500 for his share in the joint operation profit. Furthermore, he agrees to be charged for
the unsold merchandise as of December 31, 2019. What is the cost of the unsold merchandise charged to
Joey?
a. ₱18,000 b. ₱3,000 c. ₱33,000 d. ₱12,000
67. Nora and Vilma formed a joint operation to purchase and sell a special type of merchandise. The operators
agreed to contribute cash of ₱270,000 each to be used in purchasing the merchandise, and to share
profits and losses equally. They also agreed that each shall record their purchases, sales, and expenses in
their own books.
Upon termination of the joint operation, the following data are made available:

How much cash is to be invested by Vilma in the final settlement?

a. ₱267,950 b. ₱290,225 c. ₱323,975 d. ₱280,325
68. On January 1, 2019, two real estate companies (the parties – Katniss Company and Everdeen Company)
set up a separate vehicle (Hunger Games Company) for the purpose of acquiring and operating a shopping
center. The contractual arrangement between the parties establishes joint control of the activities that are
conducted in Hunger Games Company. The main feature of Hunger Games’ legal form is that the entity,
not the parties, has rights to assets, and obligations for the liabilities, relating to the arrangement. These
activities include the rental of the retail units, managing the car park, maintaining the center and its
equipment, such as lifts, and building and reputation and customer base for the center as a whole.
As a result, Katniss Company paid ₱1,600,000 for 50,000 shares of Hunger Games’ voting common stock,
which represents a 40% investment. No allocation to goodwill or other specific account was made. The
joint control over Hunger Games is achieved by this acquisition and so Katniss applies the equity method.
Hunger Games distributed a dividend of ₱2 per share during the year and reported net income of
₱560,000. What is the balance of the Investment in Hunger Games account found in Katniss’ financial
records as of December 31, 2019?

Page 12 of 13
AFAR Comprehensive Exam – Set B
a. ₱1,724,000 b. ₱1,784,000 c. ₱1,844,000 d. ₱1,884,000
69. Boo Company purchases 40% of Basket Company on January 1 for ₱500,000 that carry voting rights at a
general meeting of shareholders of Basket Company. Boo Company and Blake Company immediately
agreed to share control (wherein unanimous consent is needed to all the parties involved) over Basket
Company. Basket reports assets on that date of ₱1,400,000 with liabilities of ₱500,000. One building with
a seven-year life is undervalued on Basket’s books by ₱140,000. Also, Basket’s book value for its
trademark (10-year life) is undervalued by ₱210,000. During the year, Basket reports net income of
₱90,000, while paying dividends of ₱30,000. What is the Investment in Basket Company balance (equity
method) in Boo’s financial records as of December 31?
a. ₱504,000 b. ₱513,900 c. ₱507,600 d. ₱516,000
70. GX Builders Corp. and JQ Progress Co. are two companies whose businesses are the construction of many
types of public and private construction services. They set up a contractual arrangement to work together
for the purpose of fulfilling a contract with the government for the construction of a sky way from Baguio
City to La Trinidad for ₱144 million fixed price contract.
The contractual arrangement determines the participation of GX and JQ and establishes:
● Joint control of the arrangement
● The rights to all the assets needed to undertake the activities of the arrangement are shared by the
parties on the basis of their participation shares in the arrangement
● The parties have joint responsibility for all operating and financial obligations relating to the activities
of the arrangement on the basis of their participation shares in the arrangement; and
● The profit and loss resulting from the activities of the arrangement is shared by GX and JQ on the
basis of their participation shares in the arrangement.
In 2018, in accordance with the agreement between GX and JQ:
● GX and JQ each used their own equipment and employees in the construction activity
● GX constructed the foundation and skeleton of the skyway on the route at a cost of ₱48 million
● JQ constructed all of the other elements of the skyway at a cost of ₱60 million
● GX and JQ shares equally in the ₱144 million jointly invoiced to and received from the government
What is the gross profit of the joint arrangement?
a. ₱48 million b. ₱84 million c. ₱36 million d. ₱24 million

Prepared by: Mark Alyson Ngina, CMA , CPA

“Some people succeed because they are destined to, but most people succeed because they are determined
to.”
“I have fought the good fight, I have finished the race, I have kept the faith.” – 2 Timothy 4:7

☺ -- END OF FINAL PREBOARD -- ☺

Page 13 of 13
AFAR: Forex & Hyperinflation, Derivatives and Hedge Accounting

La Salle University - Dasmarinas

College of Business Administration and Accountancy

FOREIGN EXCHANGE ACCOUNTING AND HYPERINFLATION

EXERCISE 1
Determine whether the following are monetary (M) or non-monetary (N).
1. Investment in equity securities N 13. Advances to suppliers N
2. Investment in bonds: 14. Discount on bonds payable M
a.Held to maturity / FAAmo M 15. Intangible assets N
b.Trading /FVTPL and AFS / FVTOCI N 16. Goodwill N
3. Accounts and notes receivable M 17. Accounts/Notes payable M
4. Allowance for doubtful accounts M 18. Accrued expenses M
5. Inventories N 19. Liability for refundable deposit M
6. Advances to employees N 20. Deferred tax liabilities Gray
7. Prepaid insurance, taxes and rent N 21. Deferred income N
8. Prepaid interest M 22. Preference shares N
9. Receivable under finance lease M 23. Ordinary shares N
10. Special deposits which are recoverable M 24. Accumulated profits N
11. Property, plant and equipment N 25. Cash surrender value M
12. Accumulated depreciation N 26. Income and expense accounts N

EXERCISE 2
On December 1, 2020, Vinthentho Company purchased a $10,000-equipment from an American firm. The
invoice was due on January 15, 2021. The Peso and the Dollar have the following exchange rates:
Selling Buying
December 1, 2020 ₱1: $0.02000 ₱1: $0.02083
December 15, 2020 ₱1: $0.01923 ₱1: $0.02000
December 31, 2020 ₱1: $0.02222 ₱1: $0.02326
January 1, 2021 ₱1: $0.02174 ₱1: $0.02272
January 15, 2021 ₱1: $0.02083 ₱1: $0.02174
The useful life of the equipment is estimated at 10-years.
Required: Determine the following to be reported on December 31:
2020 2021
1. Cost of equipment ₱500,000 ₱500,000
2. Accounts payable ₱450,000 ₱0
3. Depreciation expense ₱4,167 ₱50,000
4. Forex gain or (loss) ₱50,000 (₱30,000)

EXERCISE 3
Cathano, a Philippine entity purchased the following items and is appropriately classified as follows:
Exchange rate at Fair value
Cost transaction date at year-end
FA@FVTPL $ 1,000 ₱48:$1 $ 1,100
Equipment (under cost model) $ 5,000 ₱49:$1 $ 5,100
Investment property (@ fair value) $10,000 ₱52:$1 $12,000
FA@FVTOCI $ 2,000 ₱49:$1 $ 1,900
FAAmo (acquired at face amount) $ 5,000 ₱50:$1 $ 4,800
At year-end (reporting date), the exchange rate was ₱55:$1.
Required: Compute the gain or loss to be recognized in profit or loss. ₱177,500

EXERCISE 4
Camille Company purchased equipment from U.S.A. for $100,000 on December 16, 2020, with payment due
on February 14, 2021, Valentine’s Day. On December 16, 2020, Camille also acquired a 60-day forward
contract to purchase dollars on February 14, 2021. The direct spot and forward rates were:
Spot Rate Forward rate
Selling Buying 60-day 45-day 30-day
December 16, 2020 ₱43.00 ₱42.00 ₱43.50 ₱44.50 ₱43.00
December 31, 2020 ₱45.00 ₱44.00 ₱43.00 ₱46.00 ₱45.50
February 14, 2021 ₱45.50 ₱44.50 ₱42.50 ₱46.50 ₱44.00
Required:
1) Prepare the journal entries for Camille to record the purchase of equipment, all entries associated with
the forward contract, the adjusting entries on December 31, 2020, and entry to record the payment on
February 14, 2021.
2) What was the effect on the income statement of the foreign currency transactions, including both the
accounts payable and the forward contract, for the year ended December 31, 2020? ₱50,000 gain
3) What was the overall effect on the income statement of these transactions from December 16, 2020
through February 14, 2021? ₱50,000 loss

Knowledge Engineer: Mark Alyson B. Ngina, CMA, CPA AFAR.002 Page 1 of 5

AFAR: Forex & Hyperinflation, Derivatives and Hedge Accounting

EXERCISE 5
Jamill, Inc. purchased merchandise for $10,000 from a foreign vendor on December 1, 2020. Payment in
dollar is due February 28, 2021. On December 1, 2020, Jamill signed an agreement with a foreign exchange
broker to buy $10,000 on February 28, 2021. Exchange rates to purchase $1 are as follows:
Spot Rate Fwd Rate
12/01/2020 ₱45 ₱40
12/31/2020 ₱44 ₱35
02/28/2021 ₱47 ₱47
Fiscal Year End is 12/31; Discount rate = 12%
Required:
1) Prepare all required journal entries to record the above transactions.
2) What was the effect on the income statement on December 31? ₱39,015 loss
3) What was the overall effect on the income statement of these transactions? ₱50,000 gain

EXERCISE 6
Dambie Electronics, Inc. sold electrical equipment to a US Company for $10,000 on May 15, 2020 with
collections due in 60 days. On the same day, Dambie entered into a forward contract to sell $10,000 on July
15, 2020. Dambie’s fiscal year ends on June 30. The direct spot and forward rates follow:
May 15, 2020 June 30, 2020 July 15, 2020
Buying spot ₱49.50 ₱48.00 ₱47.00
Selling spot ₱51.50 ₱50.00 ₱49.00
Buying forward – 15 days ₱47.00 ₱47.30 ₱45.00
Selling forward – 15 days ₱49.00 ₱49.30 ₱43.00
Buying forward – 30 days ₱47.50 ₱46.00 ₱47.00
Selling forward – 30 days ₱48.30 ₱47.00 ₱45.50
Buying forward – 45 days ₱48.00 ₱47.50 ₱48.50
Selling forward – 45 days ₱49.50 ₱46.40 ₱47.20
Buying forward – 60 days ₱48.50 ₱49.00 ₱48.00
Selling forward – 60 days ₱51.50 ₱50.20 ₱47.60
Required:
1) Prepare all required journal entries to record the above transactions.
2) What was the effect on the income statement on June 30? ₱3,000 loss
3) What was the overall effect on the income statement of these transactions? ₱10,000 loss

EXERCISE 7
Ellen of Ramsay Company suggested that the company speculate in foreign currency as a partial hedge
against its operations. On October 1, 2020, Ramsay bought a 180-day forward contract to purchase
5,000,000 Yen (¥) at a forward rate of ¥1 = ₱.75 when the spot rate was ₱.70. Other exchange rates were
as follows:
Forward Rate for
Date Spot Rate March 31, 2021
December 31, 2020 ₱.73 ₱.76
March 31, 2021 ₱.72
Required: Prepare all journal entries related to Ramsay Company’s foreign currency speculation from
October 1, 2020, through March 31, assuming the fiscal year ends on December 31, 2020.

Knowledge Engineer: Mark Alyson B. Ngina, CMA, CPA AFAR.002 Page 2 of 5

AFAR: Forex & Hyperinflation, Derivatives and Hedge Accounting
EXERCISE 8
On November 2, 2020, Derek Company entered into a firm commitment with a Japanese supplier to
purchase a machine, delivery and passage of title on March 31, 2021, at a price of 2,600,000 yen. On the
same date, to hedge against unfavorable changes in the exchange rate of the yen, Derek Corporation
entered into a 150-day forward contract with Metro Bank for 2,600,000 yen. The relevant exchange rates
were as follows:
11/02/2020 12/31/2020 03/31/2021
Bid spot rate ₱.4020 ₱.4250 ₱.3840
Offer spot rate ₱.4140 ₱.4370 ₱.3965
Bid forward rate ₱.4325 ₱.4170 ₱.3840
Offer forward rate ₱.4450 ₱.4295 ₱.3965
Required: Prepare all journal entries related to Derek Company’s foreign currency denominated purchase
commitment from November 2, 2020, through March 31, 2021, assuming the fiscal year ends on December
31, 2020 and the forward contract is classified as a:
Case No. 1: Fair value hedge Case No. 2: Cash flow hedge

EXERCISE 9
On December 1, 2020, Covid Batch, a Philippine firm estimates or forecasted the purchase of 5,000 units of
inventory from Taiwan. The purchase would probably occur on January of 2021 and require the payment of
500,000 Nt dollars. The transaction is highly probable, and it is to be denominated in Nt dollar. It is
anticipated that the inventory could be further processed and delivered to customers within six months.
Covid Batch Company enters into a forward contract to purchase 500,000 Nt dollars on January 31, 2021 for
₱1.01.
On June 30, 2021, the inventory was sold for ₱625,000 after further processing cost.
Spot and forward rates at the January 31, 2021 settlement were as follows (pesos per Nt dollar):

Spot Rate Forward Rate

December 1, 2020 ₱1.03 ₱1.01
December 31, 2020 1.00 0.99
January 31, 2021 0.98
The fiscal year ends on December 31, 2020.
Required: Prepare all journal entries related to Covid Batch Company’s hedge of forecasted transactions
from December 1, 2020 through June 30, 2021 using perpetual inventory system, assuming the exchange
differential is:
Case No. 1: Recycled to profit or loss Case No. 2: Accounted as a basis adjustment

Knowledge Engineer: Mark Alyson B. Ngina, CMA, CPA AFAR.002 Page 3 of 5

AFAR: Forex & Hyperinflation, Derivatives and Hedge Accounting

EXERCISE 10
1. On December 31, 2019, Harry Carpio Company, the parent of the 100% owned Japanese subsidiary
expected the yen to weaken by the end of 2020. Accordingly, Harry Carpio Company, the parent
contracted with a foreign exchange trader on December 31, 2019, to sell 2,300,000 yens (the
subsidiary’s net asset position at that date) in 365 days at the forward rate of ₱.435. The following direct
exchange rates are as follows:
12/31/2019 12/31/2020
(the inception (the expiration date and
date) financial reporting date)
Spot rate ₱.440 ₱.400
Forward rate (selling forward) .435 .400
The January 1, 2020 balance of the translation reserve (cumulative) – debit amounted to ₱129,000 and
translation reserve loss for 2020 of ₱100,000.
The December 31, 2020 foreign exchange gain or loss on forward contract: ₱80,500 OCI

2. On January 1, 2020, Inday Garutay Products, Inc. decides to hedge the portion of its investment that it
just made in Indian Company that is related to the book value of Indian Company’s net assets. Inday is
unsure whether the direct exchange rate for Indian rupees will increase or decrease for the year and
wishes to hedge its net asset investment. On January 1, 2020, Inday’s 100% ownership share of Indian
Company’s net assets is equal to 50,000,000 rupees (40,000,000 rupees capital stock plus 10,000,000
rupees retained earnings). Inday borrowed 50,000,000 rupees, at a 5% rate of interest to hedge its
investment in Indian Company, and the principal and interest are due and payable on January 1, 2021. A
favorable translation reserve/adjustment of ₱950,000 resulted for 2020. At December 31, 2019, the
cumulative translation reserve account had a credit balance of ₱11,000,000.
The relevant direct spot exchanges (Peso/Rupee) are:
Date Rate
January 1, 2020 ₱1.20
October 1, 2020 1.36
December 31, 2020 1.40
2020 average 1.30
The December 31, 2020 loans payable account balance obtained to hedge the net investment amounted
to: ₱70,000,000

EXERCISE 11
Certain statement of financial position accounts in foreign subsidiary of Pinay Company on December 31,
2020, has been translated or remeasured in Philippine Peso as follows:
Current Historical
Rates Rates
Accounts receivable ₱ 100,000 ₱ 110,000
Prepaid insurance 25,000 30,000
Property plant and equipment 50,000 55,000
Patents 40,000 45,000
Totals ₱ 215,000 ₱ 240,000
Required: How much should be included in Pinay’s statement of financial position for the above assets if:
1. The foreign subsidiary’s functional currency is the foreign currency ₱215,000
2. The foreign subsidiary’s functional currency is the Philippine Peso ₱230,000

EXERCISE 12
On January 1, 2020, Preggy Corporation, a Philippine corporation, acquired 100% of Plastik Corporation of
India, paying an excess of 90,000 Indian rupees over the book value of Plastik’s net assets. The excess was
allocated to undervalued equipment with a three-year remaining useful life. Plastik’s functional currency is
the Indian rupee. Exchange rates for Indian rupee for 2020 are:
January 1, 2020 ₱.77
Average rate for 2020 .75
December 31, 2020 .73
Required:
1) Determine the depreciation expense stated in Philippine peso on the excess allocated to equipment for
2020. ₱22,500
2) Determine the unamortized excess allocated to equipment on December 31, 2020. ₱43,900
3) If Plastik’s functional currency was the Philippine peso, what would be the depreciation expense on the
excess allocated to the equipment for 2020? ₱23,100

Knowledge Engineer: Mark Alyson B. Ngina, CMA, CPA AFAR.002 Page 4 of 5

AFAR: Forex & Hyperinflation, Derivatives and Hedge Accounting

EXERCISE 13
Maganda Company sold inventory to Bombay Co., an Indian subsidiary. The goods cost Maganda ₱160,000
and were sold to Bombay for ₱240,000 on November 27, payable in Rupee. The goods are still on hand at
the end of the year on December 31. The exchange rates follow:
November 27 1 rupee = ₱1.60
December 31 1 rupee = ₱1.70
Required:
1. What peso amount is the ending inventory shown in the trial balance of the consolidated working paper?
2. What amount of inventory will be shown on the consolidated statement of financial position?

EXERCISE 14
Pronix Corporation acquired 80% of the common stocks of Subset Corporation on January 1, 2020. The
following accounts from Subset Corporation’s adjusted trial balance in dollars at December 31, 2020 are as
follows:
Debits Credits
Cash $ 10,000 Accounts payable $ 8,000
Accounts receivable 20,000 Unearned rent 4,000
Equipment, net (acquired 3/1/2019) 12,000 Capital stock 20,000
Cost of sales 4,000 Retained earnings, January 1 8,000
Depreciation expense 800 Sales 10,000
Operating expenses 2,700
Dividends 500 -
Total $ 50,000 $ 50,000
The relevant exchange rates in Philippines pesos for US $1 are as follows:
March 1, 2019 (issue date of common stock and acquisition of equipment) = ₱50
Average exchange rate for 2020 = ₱52
Date the dividends are declared = ₱53
Date the dividends are paid = ₱54
At the end of 2020 = ₱55
The Philippine peso equivalent of retained earnings, January 1 amounted to ₱392,000. Assume all sales, cost
of sales and expenses were incurred evenly throughout the year and that the functional currency of the
subsidiary is NOT the currency of a hyperinflationary economy.
Required:
1. Net income 5. Total liabilities, 12/31/2020
2. Dividends 6. Translation reserve
3. RE, 12/31/2020 7. SHE, 12/31/2020
4. Total assets, 12/31/2020

EXERCISE 15
Noodles Corporation, a Philippine based company wholly owns Sardines Company in Hongkong. The trial
balance of the latter as of December 31, 2020 in Hong Kong Dollar is as follows:
Debits Credits
Cash HK$ 90,000
Accounts receivable 18,000
Land and building, net 45,000
Accounts payable HK$ 18,000
Bonds payable, 10% 45,000
Capital stock 50,000
Retained earnings, January 1 30,000
Sales 75,000
Cost of sales and expenses 65,000
Totals HK$ 218,000 HK$ 218,000
In addition, the following information is available:
1. Transaction involving land and buildings, bonds payable, and capital stock all occurred in 2016.
2. Income statements accounts are assumed to have occurred evenly.
3. The general price index for:
2016 100
January 1, 2020 150
Average price index for 2020 400
December 31, 2020 525
4. The relevant exchange rates for every HK $1 were as follows:
2016 ₱ 15.00
January 1, 2020 21.00
January 31, 2020 22.00
March 15, 2020 26.00
October 15, 2020 28.00
Average for 2016-2020 28.50
Average for 2020 27.00
December 31, 2020 29.00
5. The peso balance of retained earnings on December 31, 2019 was ₱5,000,000.

Knowledge Engineer: Mark Alyson B. Ngina, CMA, CPA AFAR.002 Page 5 of 5

AFAR: Forex & Hyperinflation, Derivatives and Hedge Accounting

6. The functional currency is the currency of a hyperinflationary economy

Required: Determine the following:
1. Total assets 5. NI before restatement
2. Total liabilities 6. NI for the year
3. Stockholder’s equity 7. Gain/loss on net monetary position
4. RE, 12/31/2020 8. Translation gain or loss

“Most people don’t fail – they quit. They give up on their dreams and blame fate and bad luck. Too late they
realize they gave up too soon.” - From the book, “How to control your Life” – by R. Sieger

End of Handouts

Knowledge Engineer: Mark Alyson B. Ngina, CMA, CPA AFAR.002 Page 6 of 5

AFAR: Business Combination, Separate and Consolidated FS

La Salle University - Dasmarinas

College of Business Administration and Accountancy

BUSINESS COMBINATION, SEPARATE AND CONSOLIDATED F/S

1. Which of the following statements is false about a business, according to PFRS 3?
a. Although businesses 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 thatbusiness 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 as a business, just as long as it is
capable.
2. Which of the following accounting methods must be applied to all business combinations under PFRS 3,
Business Combinations?
a. Pooling of interests method. c. Equity method.
b. Proportionate consolidation. d. Acquisition method.
3. 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. The acquirer is required to recognize the identifiable assets and liabilities of the acquiree that existed
at the date of acquisition at their fair values at that date, as long as certain conditions are met.
b. For contingent liabilities, it must be a present obligation, the fair value must be reliably
measurable,and outflow of future economic benefits need to be probable.
c. Liabilities that were existing obligations of the acquiree at the acquisition date shall be recognized.
d. 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.
4. Apple Company granted Coca-Cola Company a right to use its intellectual property in the year 2019. In
2020, Apple Company acquired control over Coca-Cola Company. In this case:
a. Both the transactions are combined and goodwill is accordingly accounted
b. One of the transactions should be voided and closed
c. Both the transactions are ignored
d. Both the transactions are accounted independently
5. Which is a measurement period adjustment?
a. Meeting an earnings target
b. Reaching a specified share price
c. Reaching a milestone in research and development project
d. Contingent consideration based on a pending lawsuit at the date of acquisition
6. The National Company acquired 80% of The Local Company for a consideration transferred of
₱1,000,000. The consideration was estimated to include a control premium of ₱240,000. Local's net
assets were ₱850,000 at the acquisition date. Which of the following statements is in accordance to
PFRS3 Business combinations?
I. Goodwill should be measured at ₱320,000 if the non-controlling interest is measured at its share of
Local's net assets.
II. Goodwill should be measured at ₱340,000 if the non-controlling interest is measured at fair value.
a. I only b. II only c. Both I and II d. Neither I nor II
7. Beauty Company had these accounts at the time it was acquired by Pretty Company:
Cash ₱ 36,000 Inventories ₱ 120,000
Accounts receivable 457,000 Plant Assets 696,400
Liabilities 350,800
Pretty Company paid ₱1,400,000 for 100% of the net asset of Beauty. It was determined that fair values
of inventories and plant assets were ₱133,000 and ₱900,000.
An assumed contingent liability with a fair value amounting to ₱10,000 and such amounts is considered
a reliable measurement. Also, a ₱25,000 future losses or reorganization/restructuring costs are expected
to be incurred as a result of the business combination.
In the books of Pretty Company, this transaction resulted to:
a. Goodwill recorded at ₱259,800 c. Goodwill recorded at ₱224,800
b. Goodwill recorded at ₱234,800 d. Current assets increased by ₱234,800
8. On January 1, 2020, Acquirer acquired a 50% interest in Acquiree for ₱50M cash and a land with a
carrying amount of ₱8M and a fair value of ₱10M. Acquirer already held a 20% interest which had been
acquired for ₱20M but which was valued at ₱24M at January 1, 2020. The consideration transferred
includes a control premium of ₱1M, and the fair value of the identifiable net assets of Acquiree was
₱110M.
Required:
1. Compute for the goodwill using the
a. Full goodwill method: ₱9,400,000 b. Partial goodwill method: ₱7,000,000
2. Prepare the journal entry in the books of Acquirer assuming the previous interest is classified as:

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AFAR: Business Combination, Separate and Consolidated FS
a. Investment in associate

b. Financial asset at FVTOCI

c. Financial asset at FVTPL

d. Investment in Joint Venture

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AFAR: Business Combination, Separate and Consolidated FS

9. Parentis held a 540 out of the 1,200 outstanding shares of Subsidyaris Corporation. Parentis accounts for
its investment as investment in associate and have ₱3,000,000 carrying value on December 31, 2019.
On January 1, 2020, Subsidyaris Corporation acquired 200 of its outstanding shares to be held in
treasury at fair value of ₱6,000 per share. Just after the acquisition, Subsidyaris has net assets which
equal their fair value of ₱5,000,000.
Required: Compute for the following items to be recognized at the acquisition date:
a. Goodwill on combination: ₱1,000,000 (full goodwill); ₱540,000 (partial goodwill)
b. Gain on exchange: ₱240,000 :

10. Soar High Eagle Corporation (SHEC) and Mediocre Maya Co. (MMC) have announced terms of an
exchange agreement under which, SHEC will pay ₱60,000 cash and will issue 8,000 shares of its ₱10 par
value common stock to acquire all the assets of MMC. SHEC share currently trading at ₱50, and MMC ₱5
par value shares are trading at ₱18 each. Book value and fair value statement of financial position data
on January 1 prior to acquisition are as follows:
SHEC Company MMC Company
Book Value Fair Value Book Value Fair Value
Cash and Receivable ₱150,000 ₱150,000 ₱ 40,000 ₱ 40,000
Land 100,000 170,000 50,000 85,000
Building & Equipment, net 300,000 400,000 160,000 230,000
TOTAL ASSETS ₱550,000 ₱720,000 ₱250,000 ₱355,000
Ordinary shares ₱200,000 ₱100,000
Share premium 20,000 10,000
Accumulated profits 330,000 140,000
TOTAL EQUITIES ₱550,000 ₱250,000

In addition, SHEC incurred the following costs:

• Legal fees to arrange the business combination ₱ 5,000
• Other professional fees 6,000
• Cost of SEC registration & other stock issuance costs 12,000
• Indirect costs 17,000
Determine the following adjusted amounts to be reported on the SHEC’s statement of financial position
after the acquisition:
Cash and Receivables Goodwill Share premium Accumulated profits
a. ₱90,000 ₱105,000 ₱308,000 ₱313,000
b. ₱90,000 ₱105,000 ₱328,000 ₱302,000
c. ₱90,000 ₱116,000 ₱328,000 ₱313,000
d. ₱150,000 ₱116,000 ₱308,000 ₱302,000

11. Separate financial statements

a. Refers to the structured representation of historical financial information, including related notes,
intended to communicate an entity’s economic resources or obligations at a point in time or the
changes therein for a period of time in accordance with a financial reporting framework.
b. Are those presented by a parent (i.e. an investor with control of a subsidiary) or an
investor with joint control of, or significant influence over, an investee, in which the
investments are accounted for at cost, in accordance with PFRS 9, or using the equity
method as described in PAS 28.
c. Are those of a group in which the assets, liabilities, equity, income, expenses and cash flows of the
parent and its subsidiaries are presented as those of a single economic entity
d. Refers to an information expressed in financial terms in relation to a particular entity, derived
primarily from that entity’s accounting system, about economic events occurring in past time periods
or about economic conditions or circumstances at points in time in the past.
12. In the separate financial statements of a parent entity, investments in subsidiaries that are not classified
as held for sale should be accounted for
a. At cost.
b. In accordance with PFRS 9.
c. Using the equity method.
d. Any of the above.
13. Which of the following indicate the required criteria 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 of the parent has PFRS consolidated financial statements for
public use complying with PFRS.
III. The parent did not file nor is it 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 b. I and IV only c. I, II and III d. I, II, III and IV
14. Which of the following is not a characteristic of control under PFRS 10?
a. An investor has power over the investee
b. An investor has the power to govern the investee
c. An investor has exposure or rights to variable returns from its involvement with the investee

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AFAR: Business Combination, Separate and Consolidated FS

d. An investor has the ability to use its power to affect the investor's returns from its involvement with
the investee.
15. 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 withthose 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 or losses resulting from intragroup transactions that are recognized in assets, such as
inventory and fixed assets, are eliminated in full.
16. 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 cease 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 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
financial statements shall be no more than three years.
17. Which of the following statements is not true about non-controlling interests?
a. Non-controlling share of losses in excess of the interest is not recognized against the non-
controlling interest unless the non-controlling interest has a binding obligation and is able
to make an additionalinvestment to cover the losses.
b. In cases when the non-controlling interests hold outstanding cumulative preference shares, the
parent’s share of profits or losses is computed after adjusting for dividends on such shares, whether
or not such dividends have been declared.
c. Non-controlling interests should be presented separately in both the income statement and the
balance sheet, within equity, separately from the parent’s equity.
d. Non-controlling interest comprises the amount calculated at the date of the original combination and
the non-controlling’s share of changes in equity that occur after the date of the combination.
18. When control over a subsidiary is lost, then the goodwill on acquisition is derecognized at:
a. Carrying amount c. Realizable amount
b. Fair value d. Replacement cost
19. Changes in parent’s ownership interest in a subsidiary that do not result in a loss of control are
accounted as:
a. Equity transactions c. Control transactions
b. Loan transactions d. Non-control transactions
20. In a reverse acquisition, the public entity is usually the
a. Economic parent c. Economic subsidiary
b. Accounting acquirer d. Purchaser.
21. The capital structure of the combined entity under a reverse acquisition reflects the equity of the
a. Legal parent c. Legal subsidiary
b. Accounting acquirer d. Any of these
22. The non-controlling interest in a group combined in a reverse stock acquisition is not shareholders of the
a. Legal subsidiary c. Accounting acquirer
b. Legal parent d. Economic parent
23. The statement of financial position of San Bartolome Company as of December 31, 2020 is as follows
Liabilities and
Assets Stockholders’ Equity
Cash ₱ 175,000 Current liabilities ₱ 250,000
Accounts receivable 250,000 Mortgage payable 450,000
Inventories 725,000 Common stock 200,000
PPE 950,000 Additional paid-in capital 400,000
-- Retained earnings 800,000
₱2,100,000 ₱2,100,000
On December 31, 2020, the Sta. Clara, Inc. bought all the outstanding stock of San Bartolome Company
for ₱1,800,000 cash. On the date of purchase, the fair (market) value of San Bartolome inventories was
₱675,000, while the fair value of San Bartolome’s property, plant and equipment was ₱1,100,000. The
fair values of all other assets and liabilities of San Bartolome Company were equal to their book values.
Compute the amount of goodwill in the book of Sta. Clara and in the consolidated statement of financial
position, respectively.
a. ₱ 300,000; ₱ 300,000 c. ₱ 0; ₱ 0
b. ₱ 300,000; ₱ 0 d. ₱ 0; ₱ 300,000

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24. On January 1, 2020, Mickey Corporation acquired 90% of the outstanding ordinary shares of Minnie
Corporation.
Minnie
Mickey Book Value Fair Value
Assets
Cash ₱ 50,000 ₱ 25,000 ₱ 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 Minnie 190,000
TOTAL ₱815,000 ₱295,000 ₱305,000
Liabilities and Stockholders' Equity
Accounts payable ₱100,000 ₱ 90,000 ₱ 90,000
Other liabilities 30,000 60,000 50,000
Ordinary shares, ₱10 par 600,000 130,000
Retained earnings 85,000 15,000
TOTAL ₱815,000 ₱295,000

How much is the total assets on January 1, 2020?; How much is the total liabilities and stockholders’
equity on January 1, 2020?
a. ₱955,000; ₱955,000 c. ₱971,500; ₱971,500
b. ₱969,500; ₱969,500 d. ₱953,500; ₱953,500
25. The Hazel Company acquired equipment on January 1, 2014 at a cost of ₱800,000, depreciating it over 8
years with a nil residual value. On January 1, 2019 The Mulberry Company acquired 100% of Hazel and
estimated the fair value of the equipment at ₱460,000, with a remaining life of 5 years. This fair value
was not incorporated into Hazel's books and the depreciation expense continued to be calculated by
reference to original cost. Under PFRS 10 Consolidated financial statements, what adjustments should be
made to the depreciation expense for the year and the statement of financial position carrying amount in
preparing the consolidated financial statements for the year ended December 31, 2020?
Depreciation expense Carrying amount
a. Increase by ₱8,000 Increase by ₱24,000
b. Increase by ₱8,000 Decrease by ₱24,000
c. Decrease by ₱8,000 Increase by ₱24,000
d. Decrease by ₱8,000 Decrease by ₱24,000
Use the following data to answer the next four questions:
Income statement information for the year 2020 for P Corporation and its 60% owned subsidiary, S
Corporation, is as follows:
P Corp S Corp
Sales ₱ 900,000 ₱ 350,000
Cost of sales 400,000 250,000
Gross profit ₱ 500,000 ₱ 100,000
Operating expenses 250,000 50,000
Separate net income ₱ 250,000 ₱ 50,000
Intercompany sales for 2020 are upstream and totaled ₱100,000. P Corp’ December 31, 2019 and
December 31, 2020 inventories contain unrealized profits of ₱5,000 and ₱10,000, respectively.
26. The noncontrolling interest in net income for 2020:
a. ₱ 16,000 b. ₱18,000 c. ₱ 20,000 d. ₱22,000
27. The consolidated sales for 2020:
a. ₱ 900,000 b. ₱1,150,000 c. ₱ 1,190,000 d. ₱1,250,000
28. The consolidated cost of sales for 2020:
a. ₱ 545,000 b. ₱550,000 c. ₱ 555,000 d. ₱655,000
29. The profit attributable to equity holders of P Corp for 2020:
a. ₱ 277,000 b. ₱280,000 c. ₱ 282,000 d. ₱305,000
Use the following data to answer the next four questions:
Sea Liner Corp. is an 80 percent owned subsidiary by Pan-Asian Liner, Inc. On January 1, 2012, Sea
Liner paid ₱100,000 for a truck with an expected economic life of 10 years and no anticipated residual
value. Sea Liner sold the truck to Pan-Asian Liner Inc., on January 1, 2020. During preparation of the
consolidation workpaper for 2020, the following workpaper entry was made to eliminate the effects of
the intercompany truck sale:
Truck 48,000
Gain on Sale of Truck 12,000
Depreciation Expense 3,000
Accumulated Depreciation 57,000
30. What amount did Pan-Asian Liner, Inc. pay Sea Liner for the truck?
a. ₱43,000 b. ₱60,000 c. ₱28,000 d. ₱52,000
31. What amount will be reported for trucks and accumulated depreciation in the December 31, 2020,
consolidated statement of financial position, respectively?
a. ₱ 40,000; ₱ 10,000 c. ₱ 52,000; ₱ 13,000
b. ₱ 100,000; ₱ 70,000 d. ₱ 100,000; ₱ 73,000

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32. What amount of depreciation was recorded by Pan-Asian Liner during 2020?
a. ₱ 13,000 b. ₱10,000 c. ₱3,000 d. ₱16,000
33. If Sea Liner reports net income of ₱50,000 in 2020, what amount of income will be assigned to the non-
controlling interest in the 2020 consolidated income statement?
a. ₱ 8,200 b. ₱11,800 c. ₱10,000 d. ₱10,600
34. If Sea Liner reports net income of ₱60,000 in 2021, what amount of income will be assigned to the non-
controlling interest in the 2021 consolidated income statement?
a. ₱ 12,000 b. ₱10,200 c. ₱12,600 d. ₱11,400
Intercompany sale of land with indirect ownership
35. Pare Corporation owns an 80% interest in Sare Corporation and Sare owns a 60% interest in Kare
Corporation. Both interests were acquired at book value which is equal to fair value. During 2020, Sare
sells land costing ₱700,000 to Kare at a profit of ₱120,000. Kare still holds the land at December 31,
2020. Profits (losses) and land account of the three companies for 2020 are:
Profit (Loss) Land
Pare Corporation ₱1,800,000 1,400,000
Sare Corporation 720,000 1,350,000
Kare Corporation (300,000) 1,820,000
Required: Compute for the following to be presented in the consolidated financial statements
1. Consolidated land: ₱4,450,000
2. Consolidated gain on sale of land: ₱0
3. Consolidated net income: ₱2,100,000
4. Consolidated net income – NCI (₱36,000)
5. Consolidated net income – R/E ₱2,136,000
36. Dalisay, a private limited company, has arranged for Wagas, a public limited company, to acquire it as a
means of obtaining a stock exchange listing. Wagas issues 15 million shares to acquire the whole of the
share capital of Dalisay (6 million shares). The fair value of the net assets of Dalisay and Wagas are ₱30
million and ₱18 million respectively. The fair value of each of the shares of Dalisay is ₱6 and the quoted
market price of Wagas’ shares is ₱2. The share capital of Wagas is 25 million shares after the acquisition.
Calculate the value of goodwill in the above acquisition.
a. ₱16 million. b. ₱12 million. c. ₱10 million. d. ₱6 million.
Change in Ownership – No loss of control
On January 1, 2020, Rage acquired 70% of the equity interests of Pin, a public limited company. The
purchase consideration comprised cash of ₱490M. The fair value of the identifiable net assets was ₱480M.
The fair value of the NCI in Pin was ₱210M on January 1, 2020. Rage wishes to use the full goodwill method
for all acquisitions. The carrying value of the net assets of Pin was ₱535M at December 31, 2020. Of the
increase in net assets, ₱37M had been reported in profit or loss, and ₱18M had been reported in
comprehensive income.
Required: Compute for the following
37. If Rage disposed of 60% of the equity of Machine (no other investor obtained control as a result of the
disposal) for ₱480M, how is the gain or loss on deconsolidation to be recognized in profit or loss?
38. If Rage acquired a further 10% interest from the NCIs in Pin on December 31, 2020 for a cash
consideration of ₱85M.
a. Goodwill on the additional acquisition
b. Gain or loss on the additional acquisition
39. If Rage disposes of a 10% interest to the NCIs in Pin on December 31, 2020 for a cash consideration of
₱80M.
a. Goodwill on the disposition
b. Gain or loss on the disposition
“Success is not final, failure is not fatal: it is the courage to continue that counts.”
– Winston Churchill
“The secret of a man’s success resides in his insight into the moods of people, and his tact in dealing with
them. Once you master these two, there is no stopping the heights you can soar to.”
“Success means having the peace of mind that is a direct result of knowing you did your best to become the
best you are capable of becoming.”
"In the game of life, it's a good idea to have a few early losses, which relieves you of the pressure of trying
to maintain an undefeated season."

☺ -- END OF HANDOUT -- ☺

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