ReSA

The Review School of Accountancy

ADVANCED FINANCIAL ACCOUNTING & REPORTING 27 September 2021

Final Pre-Board Examination 1:00 P.M.– 4:00 P.M.

MULTIPLE CHOICE
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 sheet provided. STRICTLY
NO ERASURES ARE ALLOWED. Use pencil no. 2 only.

Use the following information for question 1 and 2:

CC admits DD as a partner in business. Accounts in the ledger for CC on November
30, 20x4, just before the admission of DD, show the following balances:
Cash …………………………………………………………………………………………………………………… P 6,800
Accounts receivable …………………………………………………………………………… 14,200
Merchandise inventory ……………………………………………………………………… 20,000
Accounts payable …………………………………………………………………………………… 8,000
CC, capital ………………………………………………………………………………………………… 33,000

It is agreed that for purposes of establishing CC’s interest the following

adjustments shall be made:
a. An allowance for doubtful accounts of 3% of accounts receivable is to be
established.
b. The merchandise inventory is to be valued at P23,000.
c. Prepaid salary expenses of P600 and accrued rent expense of P800 are to
be recognized.

1. DD is to invest sufficient cash to obtain a 1/3 interest in the

partnership. CC’s adjusted capital before the admission of CC:
a. P28,174 c. P35,374
b. P35,347 d. P36,374

2. The amount of cash investment by DD:

a. P11,971 c. P17,687
b. P14,087 d. P18,487

3. A vertical combination occurs when one entity acquires another entity which
has the following characteristic(s)?
a. The acquiree purchases the acquirer’s outputs
b. The acquiree is a competitor of the acquirer
c. The acquiree supplies raw materials to the acquirer
d. Either a. or c.

4. Which of the following is not a business combination?

a. Statutory amalgamation
b. Joint venture
c. A company's purchase of 100% of another company's net assets
d. A company's purchase of 80% of another company's voting shares

5. A parent buys 32 percent of a subsidiary in one year and then buys an

additional 40 percent in the next year. In a step acquisition of this type,
the original 32 percent acquisition should be
a. maintained at its initial value.
b. adjusted to its equity method balance at the date of the second
acquisition.
c. adjusted to fair value at the date of the second acquisition with a
resulting gain or loss recorded.
d. adjusted to fair value at the date of the second acquisition with a
resulting adjustment to additional paid-in capital.

6. CC, PP, and AA, accountants agree to form a partnership and to share profits
in the ratio of 5:3:2. They also agreed that AA is to be allowed a salary of
P28,000, and that PP is to be guaranteed P21,000 as his share of the profits.
During the first year of operation, income from fees are P180,000, while
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expenses total, P96,000. What amount of net income should be credited to

each partner’s capital account?
a. CC, P28,000; PP, P16,800; AA, P11,200
b. CC, P25,000; PP, P21,000; AA, P38,000
c. CC, P24,000; PP, P22,000; AA, P38,000
d. CC, P25,000; PP, P21,000; AA, P39,000

7. The capital accounts for the partnership of LL and MM at October 31, 20x5
are as follows:
LL, capital ………………………………………………………………………………………………………………… P 80,000
MM, capital ………………………………………………………………………………………………………………… 40,000
P 120,000
The partners share profits and losses in the ratio of 3:2 respectively.

The partnership is in desperate need of cash, and the partners agree to admit
NN as a partner with one-third in the capital and profits and losses upon
his investment of P30,000. Immediately after NN’s admission, what should be
the capital balances of LL, MM and NN respectively, assuming bonus is to be
recognized?
a. P50,000; P50,000; P50,000. c. P66,667; P33,333; P50,000.
b. P60,000; P60,000; P60,000. d. P68,000; P32,000; P50,000.

8. On June 30, 20x5, the condensed balance sheet for the partnership of DD, FF,
and GG, together with their respective profit and loss sharing percentages
was as follows:
Assets, net of liabilities ……………………………………………………………………… P320,000
DD, capital (50%) ……………………………………………………………………………………………… P160,000
FF, capital (30%) ……………………………………………………………………………………………… 96,000
GG, capital (20%) ……………………………………………………………………………………………… __64,000
P320,000

DD decided to retire from the partnership and by mutual agreement is to be

paid P180,000 out of partnership funds for his interest. Total goodwill or
adjustment in assets implicit in the agreement is to be recorded. After DD’s
retirement, what are the capital balances of the other partners?
FF GG FF GG
a. P 84,000 P56,000 c. P108,000 P72,000
b. 102,000 68,000 d. 120,000 80,000

9. A balance sheet for the partnership of KK, LL, and MM, who share profits
2:1:1 respectively, shows the following balances just before liquidation:
Cash Other Assets Liabilities KK, Capital LL, Capital MM, Capital
P48,000 P238,000 P80,000 P88,000 P62,000 P56,000

In the first month of liquidation, P128,000 was received on the sale of

certain assets. Liquidation expenses of P4,000 were paid, and additional
liquidation expenses of P3,200 are anticipated before liquidation is
completed. Creditors were paid P22,400. Available cash is distributed to the
partners. The cash to be received by each partner based on the above data:
(Q1-20)
a. KK, P56,600; LL, P28,300; MM, P28,300
b. KK, P86,000; LL, P61,000; MM, P55,000
c. KK, P29,400; LL, P32,700; MM, P26,700
d. KK, P88,000; LL, P62,000; MM, P56,000

10. Second City Bank holds a P50,000 note secured by a building owned by Desk
Drawer Software, which has filed for bankruptcy under the Insolvency Law.
If the property has a book value of P60,000 and a fair market value of
P45,000, what is the best way to describe the note held by Second City Bank?
The bank has: (Q1-17)
a. A secured claim of P50,000
b. An unsecured claim of P50,000
c. A secured claim of P45,000 and an unsecured claim of P5,000
d. A secured claim of P5,000 and an unsecured claim of P45,000

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11.Which of the following describes the impact on consolidated financial

statements of upstream and downstream transfers?
a. No difference exists in consolidated financial statements between
upstream and downstream transfers.
b. Downstream transfers affect the computation of the non-controlling
interest’s share of the subsidiary’s income but upstream transfers do
not.
c. Upstream transfers affect the computation of the non-controlling
interest’s share of the subsidiary’s income but downstream transfers
do not.
d. Downstream transfers can be ignored because the parent company makes
them.

12. Any intercompany gain or loss on a downstream sale of land should be

recognized in consolidated net income:
I. In the year of the downstream sale.
II. Over the period of time the subsidiary uses the land.
III. In the year the subsidiary sells the land to an unrelated party.
a. I c. III
b. II d. I or II

13. A joint arrangement is established by three parties in which A owns 50%

voting rights while B and C each own 25% voting rights of that arrangement.
The terms of the contract among A, B and C state that a minimum of 75% voting
rights are needed to exercise the control over the arrangement. This joint
arrangement is:
a. Joint Control c. Business Combination
b. No Joint Control d. Statutory Consolidation

14. Trial balances for the home office and the branch of the Helen Company show
the following accounts on December 31, 20x7. The home office policy of
billing the branch for merchandise is 20% above cost.
Home Office Branch
Allowance for overvaluation of branch merchandise P 10,800
Shipments to branch 24,000
Purchases (outsiders) P 7,500
Shipments from home office 28,800
Merchandise inventory, January 1, 2012 45,000

What part of the branch inventory as of January 1, 20x7 represents purchases

from outsiders and what part represents goods acquired from the home office?
Outsiders Home Office
a. P12,000 P33,000
b. P16,500 P28,500
c. P15,000 P30,000
d. P 9,000 P36,000

15. Charito Corporation retails merchandise through its home office store and
through a branch store in a distant city. Separate ledgers are maintained by
the home office and the branch. The branch store purchases merchandise from
the home office (at 120% of home office cost), as well as from outside
suppliers. Selected information from the December 31, 20x9 trial balances of
the home office and branch is as follows:

Home Office Branch

Sales P 120,000 P 60,000
Shipments to branch 16,000 -
Purchases 70,000 11,000
Inventory, January 1, 20x9 40,000 30,000
Shipments from home office - 19,200
Expenses 28,000 12,000
Branch inventory allowance 7,200 -

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Additional information:
• The entire difference between the shipment account is due to the
practice of billing the branch at cost plus 20%.
• The December 31, 20x9 inventories are P40,000 and P20,000 for the home
office and the branch, respectively. (The branch purchased 16% of its
ending inventory from outside suppliers.)
• Branch beginning and ending inventories include merchandise acquired
from the home office as well as from outside suppliers. Merchandise
acquired from home office is inventoried at 120% of home office cost.
Compute the:
Overvaluation of Adjusted
Cost of Goods Sold Branch Net Income
a. P 4,400 P 50,200
b. 2,800 10,600
c. 7,200 15,000
d. 4,400 12,200

16. The Boy George Company acquired the net assets of the Girl Conrad Company
on January 1, 20x9, and made the following entry to record the purchase:
Current Asset……………………………………………………………………………… 100,000
Equipment ……………………………………………………………………………………… 150,000
Land …………………………………………………………………………………………………… 50,000
Buildings ……………………………………………………………………………………… 300,000
Goodwill ………………………………………………………………………………………… 100,000
Liabilities ……………………………………………………………… 80,000
Common stock, P 1 par …………………………………… 100,000
Paid-in capital in excess of par ………… 520,000
Assuming, that additional shares would be issued on January 1, 20x9 to
compensate for any fall in the value of Boy George common stock below P16
per share. The settlement would be to cure the deficiency by issuing added
shares based on their fair value on January 1, 20x9. The fair price of the
shares on January 1, 20x9 was P10.

What is the additional number of shares issued on January 1, 20x9 to

compensate for any fall in the value of the stock?
a. 160,000 c. 60,000
b. 100,000 d. 10,000
17. Using the same information in No. 16, what is the amount of paid-in capital
in excess of par on January 1, 20x9 immediately after the additional shares
were issued?
a. P520,000 c. P420,000
b. P460,000 d. No effect.

18. Corin, a private limited company, has acquired 100% of Coal, a private
limited company, on January 1, 20x8. The fair value of the purchases
consideration was 10 million ordinary shares of P1 of Corin, and the fair
value of the net assets acquired was P7 million. At the time of the
acquisition, the value of the ordinary shares of Corin and the net assets of
Coal were only provisionally determined. The value of the shares of Corin
(P11 million) and the net assets of Coal (P7.5 million) on January 1, 20x8,
were finally determined on November 30, 20x8. However, the directors of Corin
have seen the value of the company decline since January 1, 20x8, and as of
February 1, 20x9, wish to change the value of the purchase consideration to
P9 million. What value should be placed on the purchase consideration and
assets of Coal as at the date of acquisition?
a. Purchase consideration P10 million, net asset value P7 million.
b. Purchase consideration P11 million, net asset value P7.5 million.
c. Purchase consideration P9 million, net asset value P7.5 million.
d. Purchase consideration P11 million, net asset value P7 million.
19. The entry to amortize the amount of difference between implied and book
value allocated to an unspecified intangible is recorded
1. on the subsidiary's books.
2. on the parent's books.
3. on the consolidated statements workpaper.
a. 1 c. 3
b. 2 d. Both 2 and 3

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20. Other not-for-profit entity" (ONPO) provide three financial statements.

Which of the following is NOT one among them?
a. A statement of functional expenses c. A statement of activities
b. A statement of financial position d. A statement of cash flows
21.Voluntary health and welfare organizations must present
a. A separate statement showing expenses by both function and natural
classification.
b. A separate statement showing expenses by function.
c. A separate statement showing expenses by natural classification.
d. Expenses by natural classification in the statement of activities.
e. None of the above.
22. Partial satisfaction of a multiple performance obligation is reported on
the statement of financial position as
a. contract liability. c. contract asset.
b. receivable. d. unearned service revenue.
23.Philippine based Corporation X has a number of importing transactions with
companies based in UK. Importing activities result in payables. If the
settlement currency is the British Pound, which of the following will happen
by changes in the direct or indirect exchange rates?
Direct Exchange Rate Indirect Exchange Rate
Increases Decreases Increases Decreases
a. NA NA NA NA
b. Loss Gain Gain Loss
c. Loss Gain NA NA
d. Gain Loss Loss Gain
Items 24 and 25 are based on the following items:
24. Bell Corporation purchases all of the outstanding stock of Stockdon
Corporation for P220,000 in cash on January 1, 2020. On the purchase date,
Stockdon Corporation has the following condensed balanced sheet:
Assets Liabilities and Equity
Cash P 60,000 Liabilities P 150,000
Inventory 40,000 Common stock, P10 par 100,000
Land 120,000 Paid-in capital in
Building (net) 180,000 excess of par 50,000
_________ Retained earnings 100,000
Total Assets P 400,000 Total Liab. & Equity P 400,000
An excess of book value over cost is attributable to the building, which is
currently overstated on Stockdon’s books. All other assets and liabilities
have book values equal to fair values. The building has an estimated 10-year
life with no salvage value.
The trial balances of the two companies on December 31, 2020, appear as
follows:
Bell Stockdon
Cash P 180,000 P 143,000
Inventory 60,000 30,000
Land 120,000 120,000
Building (net) 600,000 162,000
Investment in Stockdon Corp. 220,000)
Accounts payable ( 405,000) ( 210,000)
Common stock, P3 par ( 300,000)
Common stock, P10 par ( 100,000)
Paid-in capital in excess of par ( 180,000) ( 50,000)
Retained earnings, January 1, 2020 ( 255,000) ( 100,000)
Sales ( 210,000) ( 40,000)
Cost of goods sold 120,000 35,000
Other expenses 45,000 10,000
Dividends declared ____5,000 ___________
Total P -0- P -0-
Compute the consolidated net income on December 31, 2020:
a. P 43,000 c. P 95,000
b. P 45,000 d. P293,000
25. The consolidated retained earnings on December 31, 2020:
a. P293,000 c. P355,000
b. P295,000 d. P395,000

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Items 26 and 27 are based on the following information:

Income statement information for the year 20x6 for Perfect Corporation and its
60% owned subsidiary, Seven Corporation, is as follows:
Perfect Seven
Sales …………………………………………………… P900,000 P350,000
Cost of Sales………………………………… 400,000 250,000
Gross profit ……………………………… P500,000 P100,000
Operating expenses ………………… 250,000 50,000
Seven’s net incomes ……………… P50,000
Perfect’s separate income…… P250,000

Intercompany sales for 20x6 are upstream (from Seven to perfect) and total
P100,000. Perfect’s December 31, 20x5 and December 31, 20x6 inventories contain
unrealized profits of P5,000 and P10,000, respectively.

26. The Consolidated cost of sales for 20x6:

a. P 545,000 c. P 555,000
b. 550,000 d. 560,000

27. The profit attributable to Equity Holders of parent or CNI Contributable to

Controlling Interests for 20x6:
a. P 277,000 c. P 282,000
b. 280,000 d. 305,000

Items 28 and 29 are based on the following information:

Silver Corporation is a 90% owned subsidiary to Proto Corporation acquired
several years ago at book value equal to fair value. For the years 20x5 and
20x6, Proto and Silver report the following:
20x5 20x6
Proto’s separate income……… P300,000 P400,000
Silver’s net income………………… 80,000 60,000

The only intercompany transaction between Proto and Silver during 20x5 and 20x6
was the January 1, 20x5 of land. The land had a book value of P20,000 and was
sold intercompany for P30,000, its appraised value at the time of sale.

28. If the land was sold by proto to Silver (downstream sales) and that Silver
still owns the land at December 31, 20x6, compute the Profit Attributable
to Equity Holders of Parent or CNI Attributable to Controlling Interests
for 20x5 and 20x6:
20x5 20x6 20x5 20x6
a. P363,000 P454,000 c. P372,000 P460,000
b. 362,000 454,000 d. 362,000 460,000

29. Except that the land was sold by Silver to Proto (upstream sales) and proto
still owns the land at December 31, 20x6, compute the Profit Attributable
to Equity Holders of Parent or CNI Attributable to Controlling Interests
for 20x5 and 20x6:
20x5 20x6 20x5 20x6
a. P363,000 P454,000 c. P370,000 P460,000
b. 362,000 454,000 d. 363,000 460,000

30. LL Corporation owns a foreign subsidiary with 2,600,000 local currency units
(LCU) of property, plant, and equipment before accumulated depreciation on
December 31, 20x4 of this amount. 1,700,000 LCU were acquired in 20x2 when
the rate of exchange was 1.5 LCU = P1, and 900,000 LCU were acquired in
20x3 when the rate of exchange was 1.6 LCU = P1. The rate of exchange in
effect on December 31, 20x4, was 1.9 LCU = P1. The weighted average of
exchange rates that were in effect during 20x4 was 1.8 LCU = P1. Assuming
that the property, plant, and equipment are depreciated using the straight-
line method over a 10-year period with no salvage value. How much
depreciation expense relating to the foreign subsidiary’s property, plant,
and equipment should be charged in LL’s statement of income for 20x4?

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Functional Currency – LCU Functional Currency is Peso

a. P144,444 P169,583
b. P144,444 P144,444
c. P169,583 P144,444
d. P169,583 P169,583

31. On January 1, 20x4, PP Company formed a foreign subsidiary. On February 15,

20x4, PP’s subsidiary purchased 100,000 local currency units (LCU) of
inventory. Of the original inventory purchased on February 15, 20x4, 25,000
LCU made up the entire inventory on December 31, 20x4. The exchange rates
were 2.2 LCU= P1 from January 1, 20x4, to June 30, 20x4, and 2 LCU = P1
from July 1, 20x4, to December 31, 20x4. The December 31, 20x4, inventory
balance for PP’s foreign subsidiary should be restated in pesos in the
amount of:
Functional Currency – LCU Functional Currency is Peso
a. P12,500 P11,364
b. P12,500 P12,500
c. P11,364 P12,500
d. P11,364 P11,364

32. Which of the following is true of the financial statement presentation of

gains/losses from cash flow hedges and fair value hedges?
Cash flow hedge Fair value hedge
gains/losses are reported in: gains/losses are reported in:
a. current earnings Other Comprehensive Income
b. current earnings current earnings
c. Other Comprehensive Income current earnings
d. Other Comprehensive Income Other Comprehensive Income
33. A foreign subsidiary’s functional currency is its local currency, which has
not experienced significant inflation. The weighted average exchange rate
for the current year is the appropriate exchange rate for translating
Wages Expense Wages Payable
a. Yes Yes
b. Yes No
c. No Yes
d. No No
34. In preparing the financial statements of the home office and its various
branches:
a. Nonreciprocal accounts are eliminated but reciprocal accounts are
combined
b. Both reciprocal and nonreciprocal accounts are eliminated
c. Both reciprocal and nonreciprocal accounts are combined
d. Reciprocal accounts are eliminated and nonreciprocal accounts are
combined
35. Which of the following are recognized each period under the cost-recovery
(point-in-time) method?
a. Costs only. c. Both costs and revenues.
b. Revenues only. d. None of these.
Items 36 to 39 are based on the following data:
Assume that Tele Performance starts Teletech selling franchises. Tele
Performance charges franchisees an initial fee in exchange for:
a. the exclusive right to operate the only Teletech in a particular area for
a five-year period,
b. the equipment necessary to distribute and repair Tele Performance
products, and
c. training services to be provided over a two-year period.
Similar equipment and training can be purchased elsewhere.
36. How many performance obligations exist in this contract?
a. 0 c. 2
b. 1 d. 3
37. The right to operate a Teletech is recognized as revenue:
a. Over time c. No revenue recognized
b. Point in time d. No performance obligation
38. The equipment is recognized as revenue:
a. Over time c. No revenue recognized
b. Point in time d. No performance obligation

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39. The training is recognized as revenue:

a. Over time c. No revenue recognized
b. Point in time d. No performance obligation
40. Reynolds (Philippine company) acquires 70 percent ownership of Pishot’s
(Indonesian company) on January 1. At the acquisition date, Pishot’s plant
assets have an historical cost, accumulated depreciation, and remaining life
of 675,000,000 rupiah, 135,000,000 rupiah, and eight years, respectively.
On May 1, Pishot acquired plant assets for 60,000,000 rupiah. All assets
are depreciated straight-line with a ten year life and no salvage value.
Below are relevant exchange rates for the year.
January 1 P.0086
May 1 P.0088
December 31 P.0085
Average January 1 - May 1 P.0089
Average May 1 - December 31 P.0083
Average January 1 - December 31 P.0084
What is the peso amount of (i) depreciation expense and (ii) accumulated
depreciation on the Philippine peso trial balance if the temporal method is
applied?
a. (i) P615,700; (ii) P1,776,700 c. (i) P615,700; (ii) P1,772,250
b. (i) P616,800; (ii) P1,766,700 d. (i) P616,800; (ii) P1,772,250

41. A not-for-profit organization receives two gifts. One is P80,000 and is

restricted for paying salaries of teachers who help children learn to read.
The other is P110,000, which is restricted for purchasing playground
equipment. The organization spends both amounts properly at the end of this
year. The organization records no depreciation this period, and it has
elected to view the equipment as having a time restriction.

On the statement of activities, what is reported for unrestricted net

assets?
a. An increase of P80,000 and a decrease of P80,000.
b. An increase of P190,000 and a decrease of P190,000.
c. An increase of P190,000 and a decrease of P80,000.
d. An increase of P80,000 and no decrease.

42.Simpson Company manufactures electric drills to the exacting specifications

of various customers. During April 20x8, Job 403 for the production of 1,100
drills was completed at the following costs per unit:
Direct materials………………………………………… P 10
Direct labor…………………………………………………… 8
Applied factory overhead…………………… 12
P 30
Final inspection of Job 403 disclosed 50 defective units and 100 spoiled
units. The defective drills were reworked at a total cost of P500 and the
spoiled drills were sold for P1,500. What would be the unit cost of the good
units produced on Job 403?
a. P33 c. P30
b. P32 d. P29

43. Bagley Company has two service departments and two producing departments.
Square footage of space occupied by each department follows:
Custodial Services 1,000 ft.
General Administration 3,000 ft.
Producing Department A 8,000 ft.
Producing Department B 8,000 ft.
Total 20,000 ft.

The department costs of Custodial Services are allocated on a basis of square

footage of space. If these costs are budgeted at P38,000 during a given
period, the amount of cost allocated to General Administration under the
direct method would be
a. P15,200. c. P6,000
b. P 7,125. d. P 0

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44. Lucille Inc. manufactures a product that gives rise to a by-product called
"Robon." The only costs associated with Robon are additional processing
costs of P1.00 for each unit. Lucille accounts for "Robon" sales first by
deducting its separable costs from such sales and then by deducting this
net amount from the cost of sales of the major product. For the past year
2,000 units of Robon were produced which were sold for P3.00 each.

Sales revenue and cost of goods sold from the main product were P500,000 and
P400,000 respectively. Compute the gross margin after considering the by-
product sales and costs.
a. P 96,000 c. P104,000
b. P100,000 d. P106,000

45. Using the same information in No. 44, if Lucille changes its method of
accounting for Robon sales by showing the net amount as "Other Income," the
effect on the gross margin would be:
a. P 0 c. P4,000
b. P2,000 d. P6,000

46. Using the same information in No. 44, if the accounting method were changed
by showing the net amount as "Other Income," the effect on net income for
the period would be
a. P6,000 increase c. P6,000 decrease
b. P4,000 decrease d. None

47. The following pertains to Nell Company’s production of one unit of its
manufactured product during the month of June:
Standard quantity of materials……………………………………………………………… 5lbs.
Standard cost per lb………………………………………………………………………………………… P.20
Standard direct labor hours……………………………………………………………………… 4
Standard wage rate per hour……………………………………………………………………… P7.00
Materials purchased…………………………………………………………………………………………… 100,000 lbs.
Cost of materials purchased……………………………………………………………………… P.17 per lb.
Materials consumed for manufacture of 10,000 unit…………… 60,000 lbs.
Actual direct labor hours required for 10,000 units………… 3,900
Actual direct labor cost per hour………………………………………………………… P7.20
The materials price variance is recognized when materials are purchased.

Nell’s materials price variance for June was:

a.P3,000 favorable c. P2,000 favorable
b.P3,000 unfavorable d. P2,000 unfavorable

48. The following is a standard cot variance analysis report on direct labor
cost for a division of a manufacturing company:
Actual Hours at Actual Hours at Standard Hours at
Job Actual Wages Standard Wages Standard Wages
213 P 3,243 P 3,700 P 3,100
215 15,345 15,675 15,000
217 6,754 7,000 6,600
219 19,788 18,755 19,250
221 3,370 3,470 2,650
Totals P 48,500 P 48,600 P 46,600

What is the total flexible budget direct labor variance for the division?
a. P 100 Fav c. P1,900 Fav
b. P1,900 Unf d. P2,000 Unf
49. Before prorating the manufacturing overhead costs at the end of 2019, the
Cost of Goods Sold and Finished Goods Inventory had applied overhead costs
of P57,500 and P20,000 in them, respectively. There was no work in process
at the beginning or end of 2019. During the year, manufacturing overhead
costs of P74,000 were actually incurred. The balance in the Applied
Manufacturing Overhead was P77,500 at the end of 2008. If the under-or
overapplied overhead is prorated between Cost of Goods Sold and the
inventory accounts, how much will be the Cost of Goods Sold after the
proration?
a. P54,903 c. P58,403
b. P56,597 d. P60,197

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Items 50 and 51 are based on the following:

Zeta Company is preparing its annual profit plan. As part of its analysis of
the profitability of individual products, the controller estimates the amount
of overhead that should be allocated to the individual product lines from the
information given as follows:
Wall Mirrors Specialty Windows
Units produced…………………………………………………………………… 25 25
Materials move per product line……………………… 5 15
Direct labor hours per unit………………………………… 200 200
Budgeted materials handling costs……… P 50,000
50. Under a costing system that allocates overhead on the basis of direct labor
hours, the materials handling costs allocated to one unit of wall mirrors
would be:
a. P1,000 c. P2,000
b. P 500 d. P5,000
51. The materials handling costs allocated to one unit of wall mirrors under
Activity-Based Costing (ABC) would be:
a. P1,000 c. P1,500
b. P 500 d. P2,500
52.Meyer & Smith is a full-service technology company. They provide equipment,
and installation services as well as training. Customers can purchase any
product or service separately or as a bundled package. Container Corporation
purchased computer equipment, installation and training for a total cost of
P120,000 on March 15, 20x9. Estimated standalone fair values of the
equipment, installation, and training are P75,000, P50,000, and P25,000
respectively. The transaction price allocated to equipment, installation
and training is
a. P75,000, P50,000, P25,000 respectively
b. P40,000, P40,000, P40,000 respectively
c. P120,000 for the entire bundle.
d. P60,000, P40,000 and P20,000 respectively.
Use the following information for questions 53 and 54:
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.
53. The consignment profit is:
a. P46,400 c. P55,400
b. P48,400 d. None of the above 67,280
54. The cost of inventory on consignment is:
a. P70,800 c. P66,800
b. P68,800 d. None of the above 64,480

55.The Pampanga Manufacturing Company uses and in process (RIP) inventory

account and expenses all conversion costs to the cost of goods sold account.
At the end of each month, all inventories are counted, their conversion cost
components are estimated, and inventory account balances are adjusted
accordingly. Raw material cost is backflushed from RIP to Finished Goods.
The following information is for the month of April:

Beginning balance of RIP account, including P1,400

of conversion cost…………………………………………………………………………………………… P 31,000
Raw materials received on credit …………………………………………………………… 367,000
Ending RIP inventory per physical count, including
P1,800 conversion cost estimate ……………………………………………………… 33,000

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Compute the amount to be backflushed from RIP to Finished goods:

a. P365,000 c. P367,000
b. 368,600 d. 365,400

56.Wuson Company operates three producing departments – Cutting, Sewing and

Finishing. In February, Sewing Department transferred 6,200 units to
Finishing Department, and had 400 units in process at the end of the month.
Sewing Department work-in-process inventories as of January 31, were 1,200
units. These units were still (1/4) one- fourth incomplete as of that date,
with a cost of P 13,312. The units started in Sewing Department in February
were received from the preceeding department at a cost of P47,595.60.
During February, Sewing Department incurred the following costs:
Materials………………………………………………………………………………… P11,772.00
Labor ………………………………………………………………………………………… 15,660.00
Factory overhead …………………………………………………………… 2,268.00
As of February 28, Sewing Department has done one quarter of the work required
to complete the process inventories.
Compute the cost of the:
Units Work-in-process Units Work-in-process
transferred February 28 transferred February 28
a. P86,532.00 P3,525.60 c. P71,750.00 P3,525.60
b. 84,882.00 4,075.60 d. 86,532.00 4,075.60
57.In preparing the financial statements of the home office and its various
branches:
a. Nonreciprocal accounts are eliminated but reciprocal accounts are
combined
b. Both reciprocal and nonreciprocal accounts are eliminated
c. Both reciprocal and nonreciprocal accounts are combined
d. Reciprocal accounts are eliminated and nonreciprocal accounts are
combined
58. How are anticipated administrative expenses reported on a statement of
financial affairs?
a. As a footnote until actually incurred.
b. As a liability with priority
c. As a partially secured liability.
d. As an unsecured liability

59. What is the basis of accounting used in accounting for not-for-profit

universities?
a. fund accounting c. modified accrual basis
b. accrual basis d. cash basis

60.The governing board of Samaritan Hospital, which is operated by a religious

organization, designated P500,000 of cash for future expansion of the
hospital. On the hospital's balance sheet, the cash designated for future
plant expansion would be disclosed in which of the following classes of net
assets?
a. Temporarily restricted net assets. c. Plant replacement and expansion
b. Unrestricted net assets. d. Board designated net assets

61.On December 30, 2019, Leigh Museum, a not-for-profit organization received

a P7,000,000 donation of Day Company shares with donor-stipulated
requirements as follows:
• Shares valued at P5,000,000 are to be sold, with the proceeds used to
erect a public viewing building.
• Shares valued at P2,000,000 are to be retained (invested indefinitely),
with the dividends used to support current operations.
As a consequence of the receipt of the Day shares, how much should Leigh
report as temporarily restricted net assets on its 2019 statement of
financial position (balance sheet)?
a. P 0 c. P5,000,000
b. P2,000,000 d. P7,000,000

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Use the following information for questions 62 and 63:

On 8/3/x6, Buyox entered into a noncancellable purchase agreement with a foreign
vendor involving a custom-made machine. Buyox took delivery of the machine on
12/1/x6 (120 days later). The purchase price was 100,000 foreign currency units
(FCUs), which Buyox remitted to the vendor on l/30/x7 (60 days after delivery).
Direct exchange rates on the respective dates are as follows:
8/3/x6 12/1/x6 12/31/x6 1/30/x7
Spot rate………………………………………………………… P1.60 P1.64 P1.67 P1.70
Forward rate………………………………………………… P1.60 P1.64 P1.67 P1.70
Also on 8/3/x6, Buyox entered into a 180-day FX forward to buy 100,000 FCUs.
62. What should be the capitalized cost of the equipment?
a. P160,000 c. P167,000
b. P164,000 d. P170,000
63. What is the FX gain or loss recognized in earnings for 20x6 on the foreign
currency commitment?
a. P0 c. P4,000 loss
b. P4,000 gain. d. P7,000 gain
e. P7,000 loss

64.On January 1, 20x8 SME A and B each acquired 30 per cent of the ordinary
shares that carry voting rights at a general meeting of shareholders of
entity Z for P300,000. Entities A and B immediately agreed to share control
over entity Z. For the year ended December 31, 20x8 entity Z recognized a
profit of P400,000.
On January 2, 20x8 entity Z also declared a dividend of P100,000 for the
year 20x7.
On December 30, 20x8 entity Z declared and paid a dividend of P150,000 for
the year 20x8. At December 31, 20x8 the fair value of each venturers’
investment in entity Z is P400,000. However, there is no published price
quotation for entity Z.
SME A and B must each recognize dividend income for the year 20x8 amounted
to:
Cost Model Fair Value Model Cost Model Fair value Model
a. P 45,000 P75,000 c. P 75,000 P75,000
b. P 75,000 P45,000 d. None

65.Hartwell Company distributes the service department overhead costs to

producing departments and the following information for the month of January
is presented as follows:
Maintenance Utilities
Overhead costs incurred P18,700 P 9,000
Services provided to:
Maintenance department - 10%
Utilities department 20% -
Producing department A 40% 30%
Producing department B 40% 60%
Hartwell Company distributes service department overhead costs based on the
reciprocal method, what would be the formula to determine the total
maintenance costs?
A. M = P18,700 + .10U C. M = P18,700 + .30U +.40A + .40B
B. M = P 9,000 + .20U D. M = P27,700 + .40A + .40B
66. Property was purchased on December 31, 2019 for 20 million baht. The general
price index in the country was 60.1 on that date. On December 31, 2021, the
general price index had risen to 240.4. If the entity operates in a
hyperinflationary economy, what would be the carrying amount in the financial
statements of the property after restatement?
A. 20 million baht C. 80 million baht
B. 1,200.2 million baht D. 4.808 million baht

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67.Agency 007 received a request for replenishment of petty cash fund for the
following expenses:
Office supplies P 500
Transportation fares 100
Repair of aircon 200
JRS mail 160
The entry for this transaction would be:
A. No entry
B. Memorandum entry to the RAODMOOE
C. Office supplies expense……………………………………………………… 500
Travelling expense…………………………………………………………………… 100
Repairs and maintenance……………………………………………………… 200
Other maintenance and operating expenses………… 160
Cash – National Treasury, MDS…………………………… 960
D. Office supplies expense……………………………………………………… 500
Travelling expense…………………………………………………………………… 100
Repairs and maintenance……………………………………………………… 200
Other maintenance and operating expenses………… 160
Petty Cash Fund………………………………………………………………… 960
68. Pistahan Corporation is a manufacturing company engaged in the production
of a single special product known as “Marvel”. Production costs are
accumulated with the use of a job-order-cost system.
The following information is available as of June 1, 20x2:
Work-in process.........................................P 10,710
Direct materials inventory.............................. 48,600
In analyzing the job-order cost sheets, the records disclosed that the
compositions of the work-in-process inventory on June 1, 20x2 were as
follows:
Direct materials used………………………………………………………………………………………… P 3,960
Direct labor (900 hours)………………………………………………………………………………… 4,500
Factory overhead applied………………………………………………………………………………… 2,250
P 10,710
The following manufacturing activity occurred during the month of June 20x2:
Purchased direct materials costing P 60,000
Direct labor worked 9,900 hours at P 5 per hour
Factory overhead of P 2.50 per direct labor hour was applied to production.
At the end of June 20x2, the following information was gathered in
connection with the inventories:
Inventory of work-in-process:
Direct materials used………………………………………………………………… P 12,960
Direct labor (1,500 hours)…………………………………………………… 7,500
Factory overhead applied………………………………………………………… 3,750
P 24,210
Inventory of direct materials…………………………………………………………… P 51,000
Compute the cost of goods manufactured:
A. P 142,560 C. P 131,850
B. P 118,350 D. P 108,600

69. For Job Order No. 369, Escalera Company incurred the following costs for
the manufacture of 200 units of a novelty gadget:
Original cost accumulation:
Direct materials…………………………………………………………………………P 13,200
Direct labor…………………………………………………………………………………… 16,000
Factory overhead (150% of direct labor)…………… 24,000
Total………………………………………………………………………………………………………P 53,200
Direct costs of ten reworked units:
Direct materials……………………………………………………………………… P 2,000
Direct labor………………………………………………………………………………… 3,200
Total…………………………………………………………………………………………………… P 5,200
The rework cost was attributable to exacting specifications required by the
job and was charged to the specific order. The units cost of Job Order No.
369 is:
a. P266 c. P292
b. P280 d. P316

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70.The Moon Company acquired a 70% interest in The Swan Company for P1,420,000
when the fair value of Swan's identifiable assets and liabilities was
P1,200,000. Moon acquired a 65% interest in The Homer Company for P300,000
when the fair value of Homer's identifiable assets and liabilities was
P640,000. Moon measures non-controlling interests at the relevant share of
the identifiable net assets at the acquisition date. Neither Swan nor Homer
had any contingent liabilities at the acquisition date and the above fair
values were the same as the carrying amounts in their financial statements.
Annual impairment reviews have not resulted in any impairment losses being
recognized.

Under PFRS 3 Business combinations, what figures in respect of goodwill and

of gains on bargain purchases should be included in Moon's consolidated
statement of financial position?
a. Goodwill: P580,000; Gains on the bargain purchases: P116,000
b. Goodwill: Nil or zero; Gains on the bargain purchases: P116,000
c. Goodwill: Nil or zero; Gains on the bargain purchases: Nil or zero
d. Goodwill: P580,000; Gains on the bargain purchases: Nil or zero

Goodluck and GOD BLESS!!!

*Faith may be defined briefly as an illogical belief in the occurrence of the impossible.*
*Faith is a higher faculty than reason.*
*The secret of life is not just to live, but to have something worthwhile to
*Be not afraid of life. Believe that life is worth living and your belief will help create the
fact.*
*Develop an attitude of gratitude, and give thanks for everything that happens to you,
knowing that every step forward is a step toward achieving something bigger and
better than your current situation.*
*The remarkable thing we have is a choice every day regarding the attitude we will
embrace for that day. We cannot change our past... We cannot change the fact that
people will act in a certain way. We cannot change the inevitable. The only thing we
can do is play on the one string we have, and that is our attitude.*
*Attitude is more important than the past, than education, than money, than
circumstances, than what people do or say. It is more important than appearance,
giftedness, or skill.*
*The only way to find the limits of the possible is by going beyond them to the
impossible.*
*Nothing great will ever be achieved without great mean, and men are great only if
they are determined to be so.*
*The greatest friend of truth is Time, her greatest enemy is Prejudice, and her constant
companion is Humility.*
*Humility is nothing but truth, and pride is nothing but lying.*
*There is no chance, no destiny, no fate, that can hinder or control the firm resolve of a
determined soul.*
*Unless someone can look into the core of your heart, and see the degree of your
passion, or look into the depths of your soul and see the extent of your will, then they
have no business telling you what you can or cannot achieve. Because while they may
know the odds, they do not know you.*
*Faith is the beginning of human salvation. Without faith it is impossible for fallen man in
the course of his life not to fail, not to become arbitrary, or selfish, or unresponsive. For it is
faith that raises the mind toward GOD’s perspective on human life.*
When all else is lost, the future still remains.
Our destiny is in what we do everyday, but not on what other people will have to say.
I will never admit to be lack of anything for “my GOD shall supply all my needs according
to His riches in glory by Jesus Christ.”

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ANSWERS AND SOLUTIONS

1. (c) – P35,374 – refer to No. 2

2. (c) – P17,687
Unadjusted capital of CC………………………………………………………………….P 33,000
Add (deduct): adjustments-
Allowance for doubtful accounts (3% x P14,200)………………………………...( 426)
Increase in merchandise inventory (P23,000 – P20,000)………………………… 3,000
Prepaid salary………………………………………………………………………….... 600
Accrued rent expense…………………………………………………………………( 800)
Adjusted capital balance of CC…………………………………………………………P 35,374
Divided by: Capital interest of CC…………………………………………………….... 2/3
Total capital of the partnership……………………………………………………………P 53,061
Less: Adjusted capital balance of CC………………………………………………….. 35,374
Capital balance of DD…………………………………………………………………….. P 17,687

3. (d)

4. (b)

5. (c) - An equity interest previously held and qualified as a financial asset

under PFRS 9 is being remeasured to its-acquisition-date fair value and any
difference is recognize in profit/gain or loss if FVTPL or OCI if the
financial assets is a FVTOCI. Refer to AFAR-09 problem III Requirement No.
5 and 6 for illustration.
6. (b)
CC PP AA Total
Salary……………………………………………………......... P28,000 P28,000
Balance (P84,000 –P28,000), .5:3:2………………… P28,000 P16,800 11,200 56,000
Additional profit to PP (P21,000-P16,800) (3,000) 4,200 (1,200) -
P25,000 P21,000 P38,000 P84,000* (b)
*Net Income would be:
Fees………………………………………………………………………………………… P180,000
Less: Expenses……………………………………………………………………………… 96,000
P 84,000
It should be noted that the additional profit given to PP actually came from CC
and AA based on their respective revised P & L ratio (5:2). The P4,200,
additional profit should not be added to total net income because by doing so,
it would be tantamount to distorting the net income of P84,000.00.

On the other hand, assuming the P4,200 would be added to net income of P84,000,
the total net income will now be P88,200, but an adjustments of P4,200 should
be reflected to make it P84,000, and such adjustments will be shared accordingly
by CC and AA (5:2). Mathematically, the final results remain the same.
7. (d)
Since bonus method is recognized, the total agreed capital of the partnership
should be equal to the total contributed capital. Therefore, the bonus would be
computed as:
Total agreed capital (P120,000 + P30,000)……………………………………………………….. P150,000
Multiplied by: NN’s capital interest…………………………………………………………………. 1/3
Agreed capital to be credited to NN………………………………………………………………. P 50,000
Contributed/Invested capital of NN ……………………………………………………………….. 30,000
Bonus to NN (new partner) P 20,000
The bonus to NN will be deducted to LL and MM:
LL: [P80,000 – (P20,000 x 3/5)] ………………………………………………………………………… P68,000
MM: [P40,000 – (P20,000 x 2/5)] ……………………………………………………………………… 32,000
NN…………………………………………………………………………………………………………. 50,000
Total agreed capital…………………………………………………………………………………… P150,000 (d)
8. (c)
Amount paid …………………………………………………………………………………………… P180,000
Less: BV of interest of DD (50%) …………………………………………………………………… 160,000
Excess/ Partial goodwill……………………………………………………………………………….. P 20,000
Divided by:………………………………………………………………………………………………. 50%
Total goodwill …………………………………………………………………………………………… P40,000
Therefore, the capital of the remaining partners:

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FF: [P96,000 + (P40,000 x 30%)]………………………………………………………………………… P108,,000

GG: [P64,000 + (40,000 x 20%)] ……………………………………………………………………… P72,000 (c)

The interest and profit loss ratio are assumed to be the same.

When a partner withdraws, the partnership agreement should be consulted to

determine if any guidelines have been established that would influence the
procedure. The withdrawal of a partner requires a determination of the fair
market value of the partnership entity and a measurement of partnership income
to the date of withdrawal.

Also in many cases, the equity of the retiring partner may not be equal to the
partner’s capital balance as a result of (1) the existence of accounting errors,
(2) differences between the fair market value and the recorded book value of
assets, and/or (3) unrecorded assets such as goodwill.

If accounting errors are discovered, they should be treated as prior-period

adjustments and corrected by adjusting the capital balances of the partners.
Theoretically, an error should be allocated to partner’s capital balances
according to the profit and loss ratio that existed when the error was
committed.

Therefore, it is necessary to identify the period to which the error is

traceable. This practice can become complicated, and a well – designed
partnership agreement should include procedures for dealing with the correction
of errors.

9. (c)
KK LL MM Total
Capital Interests 88,000 62,000 56,000 206,000
Total Reduction in Interests ( 58,600) ( 29,300) ( 29,300) ( 117,200)**
Payment to Partners 29,400 32,700 26,700 88,800 *
*Payment to partners:
Cash, beginning balance……………………………………………………P 48,000
Add: Proceeds from sale……………………………………………………. 128,000
Less: Payment of liquidation expenses…………………………………… 4,000
Cash withheld for anticipated liquidation expenses………………….. 3,200
Actual payment of liabilities (note)…….………………………………….. 22,400
Assumed payment of unpaid liabilities (P80,000 – P22,400)
- refer also to note…………………………………..………………. 57,600
P 88,800
Note: This may be treated by deducting the liabilities in full amount
regardless of partial or full payment.
10. (c)- partially secured creditor

11. (c)

12. (c)

13. (b) - In this case, although A can obstruct the decision making process but
it cannot control the arrangement because it needs the consent of either B
or C. In such a situation the terms of the contract among the parties
should specify that which combination or group of parties is needed to
independently exercise the control over the arrangement, i.e. either (A &
B) or (A & C). Refer to AFAR-12 Problem IV Requirement No. 3.

14. (d)

Billed Price Cost Allowance

Merchandise Inventory, 1/1/2008 *P 36,000 P 30,000 P 6,000
Shipments 28,800 24,000 4,800
Cost of Goods Sold P 10,800
*P6,000 / 20% = P30,000 + P6,000 = P36,000.
P45,000 – P36,000 = P9,000.

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15. (d)-
Adjusted branch net income:
Sales………………………………………………………………………………………… P60,000
Less: Cost of goods sold:
Inventory, January 1, 20x9………………… P 30,000
Add: Purchases………………………………………………… 11,000
Shipments from home office…… 19,200
Cost of Goods available for sale…P 60,200
Less: Inventory, December 31, 20x9 20,000 40,200
Gross profit…………………………………………………………………………… P 19,200
Less: Expenses……………………………………………………………………… 12,000
Unadjusted branch net income………………………………… P 7,800
Add: Overvaluation of Cost of Goods Sold… 4,400
Adjusted branch net income……………………………………… P 12,200

*Overvaluation of Cost of Goods Sold:

Unrealized Profit in branch inventory/
before adjustment………………………………………………………… P 7,200
Less: Allowance of ending branch
inventory (P20,000 x 84% = P16,800 x 20/120 2,800
Overvaluation of Cost of Goods Sold……………… P 4,400
16. (c)
Deficiency: (P16 – P10) x 100,000 shares issued to acquire…………………….P 600,000
Divided by: Fair value of share………………………………………………………P 10
Added number of shares to issue…………………………………....................... 60,000
An example of contingencies is where the acquirer issues to the acquiree and
the acquiree is concerned that the issue of these shares may make the market
price of the acquirer’s shares decline over time. Therefore, the acquirer
may offer additional cash or shares if the market price falls below a
specified amount over a specific period of time.

17.(b) – (P520,000 – P60,000 = P460,000), refer to No. 16 for further discussion

if market price falls below a specified amount.
Changes resulting from events after (post-combination changes) the
acquisition date (e.g. meeting an earnings target, reaching a specified chare
or reaching a milestone on research and development project) are not
measurement period adjustments. Such changes are therefore accounted for
separately from the business combination.
The acquirer accounts for changes in the fair value of contingent
consideration that are not measurement period adjustments as follows:
1. contingent consideration classified as equity is not remeasured and
its subsequent settlement is accounted for within equity; and
2. contingent consideration classified as an asset or liability…

The problem on hand falls under No. 1, so no adjustment would be required to

goodwill but accounted for within the equity section. Incidentally, the
entry would be:
Paid-in capital in excess of par………………………… 60,000
Common stock, P1 par…………………………………………………60,000
18. (b)
One of the problems that may arise in measuring the assets and liabilities
of the acquiree is that the initial accounting for the business combination
may be incomplete by the end of the reporting period. For example, the
acquisition date may be August 18 and the end of the reporting period may
be August 31. In this situation, in accordance with PFRS 3 par. 45, the
acquirer must report provisional amounts in its financial statements. The
provisional amounts will be best estimates and will need to be adjusted to
fair values when those amounts can be determined after the end of the
reporting period. The measurement period in which the adjustments can be
made cannot exceed one year after the acquisition date.
19. (c)
20. (a)
21. (a)
22. (c)

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23. (b)

24. (a)
RE-P Co. (DA of Acq.)/Consolidated Retained Earnings, 1/1/2020…P 255,000
Add: CI-CNI……………………………………………………………………………………………………………………………………… 43,000
Less: Dividends – P Co………………………………………………………………………………………………………… 5,000
RE-P Company (Equity)/Cons. Retained Earnings,12/31/2020……………… P 293,000

*CNI:

Parent Subsidiary Consolidated

Net Income from own operations:
P - (P210,000 – P120,000 – P45,000)……P 45,000
S – (P40,000 – P35,000 – P10,000)…………( 5,000) P 0
Amortization of allocated excess**….………… 3,000 0
P 43,000 P 0 P43,000
Controlling NCI-CNI CNI
Interest/
Parent’s NI
(CI-CNI)

Or, alternatively: (Note: Controlling NI and Consolidated NI are not the

same)
Combined revenues (P210,000 + P40,000)………………………P 250,000
Less: Combined CGS (P120,000 + P35,000)…………………… 155,000
Combined expenses (P45,000 + P10,000)………… 55,000
Combined Net Income…………………………………………………………………………P 40,000
Less: Amortization of allocated excess………………………( 3,000)
Consolidated Net Income………………………………………………………………P 43,000
**Fair value of Subsidiary:
Consideration transferred P220,000
Less: Book value of interest
(SHE-S) acquired:
(P100,000 + P50,000 + P100,000)x 100%. 250,000
Allocated excess P( 30,000)
Less: Over/under valuation of assets
and liabilities:
Decrease in buildings (P30,000 x 100%) ( 30,000)

Amortization: P(30,000)/10 years = P3,000 overvalued

25. (a) – refer to No. 24

26. (c): Note – Combined and Consolidated are not the same.
Combined Cost of Sales (P400,000 + P250,000)……………………………. P650,000
Less: Intercompany purchases………………………………………………… 100,000
Add: Unrealized Profit in ending inventory …………………………………. 10,000
Less: Unrealized Profit in beginning inventory ……………………………… 5,000
Consolidated Cost of Sales ……………………………………………………… P555,000
27. (a)
Profit attributable to Equity Holders of Parent – 20x6
Net Income from own operations:
Perfect…………………………………………………………… P250,000
Seven …………………………………………………………… 50,000
P300,000
Add: Realized Profit in beginning inventory of Perfect………. 5,000
Less: Unrealized Profit in ending inventory of Perfect………… 10,000
P295,000
Less: Amortization of allocated excess…………………………. 0
*Non- controlling interests in net income………………… 18,000
Profit attributable to Equity Holders of Parent – 20x6 ……….. P277,000 (a)
*(P50,000 + P5,000 – P10,000) x 40% = P18,000.

28. (b)

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Net income from own operations:

20x5___ 20x6__
Proto Corp……………………………………………………… P300,000 400,000
Silver Corp………………………………………………………. 80,000 60,000
P380,000 P460,000
Less: Unrealized gain on sale of land…………………….... 10,000*
P370,000 P460,000
Add: Realized gain (no realized gain thru depr.
since there was no depreciation that was
overstated)……………………………………………………. ______ 0 0
P370,000 P460,000
Less: Non – controlling Interests in Net Income………… 8,000** 6,000**
Amortization / goodwill impairment …………….... 0 0
Profit Attributable to Equity Holders of Parent…………. P362,000 P454,000 (b)

* Sales Price …………………………………………………. P 30,000

Less: Book Value …………………………………………… 20,000
Unrealized gain on sale of land ………………………… P 10,000
**Non-controlling Interest in Net Income:
20x5__ 20x6_
Silver Corp.’s net income from own operations* P 80,000 P 60,000
Multiplied by: Non-controlling Interests % 10%_ 10%
P 8,000 P 6,000
29. (a)
Net income from own operations:
20x5___ 20x6__
Proto Corp……………………………………………………… P300,000 400,000
Silver Corp………………………………………………………. 80,000 60,000
P380,000 P460,000
Less: Unrealized gain on sale of land…………………….... 10,000* -
P370,000 P460,000
Add: Realized gain (no realized gain thru depr. since
there was no depreciation that was overstated) ______ 0 0
P370,000 P460,000
Less: Non – controlling Interests in Net Income………… 7,000** 6,000**
Amortization / goodwill impairment …………….... 0 0
Profit Attributable to Equity Holders of Parent…………. P363,000 P454,000 (a)

**Non-controlling Interest in Net Income:

20x5__ 20x6_
Silver Corp.’s net income from own operations…… P 80,000 P 60,000
Less: unrealized gain on sale of land ……………….. 10,000 -
P 70,000 P60,000
Add; Realized gain (no realized gain)……………… ______ 0 0
P 70,000 P 60,000
Multiplied by: Non-controlling Interests %.................. 10% 10%
P 7,000 P 6,000
30. (a)
LCU – it is assumed that historical rate is not practicable (despite the
presence of it), then PAS 21 requires the use of average rate [(2,600,000
- 0)/10 years x 1.8LCU per peso = P144,444]
Peso - expense related to nonmonetary asset such as depreciation should be
remeasured using the historical exchange rate (exchange rate when the
equipment was acquired), i.e.,:
20x2: (1,700,000 LCU – 0)/10 years = 170,000 LCU /1.5 LCU per peso..P113,333
20x3: (900,000 LCU – 0)/10 years = 90,000 LCU /1.6 LCU per peso…… 56,250
Total……………………………………………………………………………… P169,583
31. (a)
LCU – is the functional currency, so, the current rate method (translation
functional currency into the presentation currency - FCPC) since the
functional currency is the LCU (local currency unit; it should be noted that
if the term “translated” was used it is simply a current rate method).
Inventory account is translated at current rate (25,000 LCU / 2 LCU per
peso = P12,500)
Peso – is the functional currency, so, the temporal/remeasurement method
(translation into the functional currency) is appropriate. Inventory is a
nonmonetary asset (carried at cost) is remeasured at the historical exchange
rate of 2.2 LCU per peso (25,000 LCU / 2.2 LCU per peso = P11,364)

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32. (c)

33. (b)- Wages expenses is for average rate, while the wages payable is
translated at the current (exchange) rate. Refer to AFAR-12 page 4 (Hedge
Accounting: Summary)

34. (d)

35. (c)

36. (d) - Tele Performance would allocate the initial franchise fee to three
separate performance obligations based on their relative stand-alone
prices:
1. the right to operate a Teletech,
2. equipment, and
3. training.

37. (a) - Tele Performance would recognize revenue for the right to operate a
Teletech over the five-year license period; because Tele Performance’s
ongoing activities over the license period affect the value of the right
to run a Teletech.

38. (b) - Tele Performance would recognize revenue for the equipment at the
time the equipment is delivered to the franchisee

39. (a) Would recognize revenue for the training over the two-year period that
the training is provided.

Additional Notes for Nos. 37-40: What if Tele Performance also charges
franchisees an additional fee for ongoing services provided by Tele
Performance. In that case, Tele Performance would recognize revenue
associated with that fee over time as it provides the ongoing services.

40. (a)
(i) [(675,000,000 - 135,000,000)/8] x P.0086 + (60,000,000/10) (8/12) x P.0088 = P 615,700
(ii) Beginning balance 135,000,000 x P.0086 P1,161,000
Current period depreciation expense
[(675,000,000 - 135,000,000)/8]x P.0086 + (60,000,000/10) (8/12) x P.0088 __615,700
Ending balance P1,776,700

41.(a) - Because of the time restriction, the amount spent for playground
equipment remains in temporarily restricted net assets until depreciated.
The equipment was bought at the end of the year so that no depreciation was
recorded and no reclassification was made. While, the P80,000 since it was
already spend (meaning released), then it is a deduction to temporary
restricted net assets, increase in unrestricted net assets and decreased in
unrestricted net assets since it was already spend.

42. (b)
The original production of 1,100 drills cost P33,000 (1,100 drills x P30 per
drill). The reworking of the defective drills (i.e. P500) increased the cost
total to P33,500. The P1,500 received from the sale of the 100 defective
units should be subtracted from the total cost incurred in producing the
1,100 drills. Therefore, the total cost for producing 1,000 good drills equals
P32,000 (P33,000 + P500 – P1,500). Yielding unit cost of good drills of P32.

43. (d) - P0. There are no allocations between service departments when using
the direct method.
44. (c) - P500,000 (P400,000 - P4,000) = P104,000
45. (c) - 2,000 x (P3.00 P1.00) = P4,000

46. (d) – refer to AFAR-17 page 2

47. (a) – (P.17 – P.20 = -P.03 favorable x 100,000, AQPurchased – P3,000

favorable). Note: if silent the price variance is presumed to be based on
purchased because control happens the earliest point in time and that is
time of purchased.

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48. (b) – (P48,500 – P46,600 = P1,900 unfavorable)

49. (a)
P77,500 74,000 = P3,500 over-applied overhead
[P57,500/(57,500 + 20,000)] x P3,500 = P2,597
P57,500 - 2,597…………………………………………………………………………………………………………………P 54,903
50. (a) – traditional / conventional method:
P50,000 / (200 DLH + 200 DLH) = P125 per DLH x 200 DLH
= P25,000/25 units of Wall Mirror = P1,000 per unit

51. (b) – ABC costing: P50,000 / (5 + 15 materials move) = P2,500 per materials
move x 5 materials move of wall mirrors = P12,500 / units produced = P500
per unit

52. (d)- P75,000 + P50,000 + P 25,000 = P150,000

P75,000/ P150,000  P120,000 = P60,000
P50,000/ P150,000  P120,000 = P40,000
P25,000/ P150,000  P120,000 = P20,000.

53. (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) 298,000
+ (P13,000 per unit x 10
units)]
Consignment profit P 67,280

54. (d) – P64,480; refer to No. 53 for computation

55. (d)
Beginning balance of RIP account (31,000 –P1,400) …………………. P 29,600
Add: Raw materials received on credit………………………………….. 367,000
Total………………………………………………………………………………. P396,600
Less: Ending balance of RIP inventory per physical count
(P33,000 – P1,800)………………………………………………………. 31,200
Amount to be backflushed from RIP to Finished goods………………. P365,400 (d)
56. (d)
Work Equivalent
Quantity Schedule: Actual Done Production
In process, beginning……………………………. 1,200
Received from Prec. Dept……………………… 5,400
6,600
Accounted for as follows:
In process, beg., F&T ……………………… 1,200 1/4 300
Started, F&T (6,200 – 1,200)……………….. 5,000 100% 5,000
In process, ending…………………………. 400 1/4 100
6,600 5,400
Since, an itemized amount of work –in-process, beginning is not available. It would be best to apply FIFO
method in this kind of situation.
Cost per Equivalent Unit: Total
Added costs during February:
(P11,772 + P15,660 +P2,268) ……………………………………… P29,700
Divided by: No. of Equivalent Units ……………………………….. 5,400
P 5.50

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Total Cost transferred:

In-process, beg., F&T:
Cost last month……………………………………… P 13,312
Cost this month :(P5.50 x 300)…………………… 1,650 P14,962
Received, Finished and Transferred:
[(P47,595.60 ÷ 5,400) + P5.50)] x 5,000…………. 71,570
P 86,532 (d)
Cost of In-process, February 28:
Cost from preceding dept.: P8.814 x 400………………………… P3,525.60
Cost this department: P5.50 x 100…………………………………. 550.00
P4,075.60 (d)
57. (d)
58. (b)
59. (b)
60. (b)
61. (c)
The shares valued at P5,000,000 should be classified as temporary restricted
net assets since it is intended for a particular purpose (purpose
restrictions) which were not yet released. While, the P2,000,000 should be
considered as permanently restricted for reason that they are to be retained
indefinitely (perpetually).
62. (a)
December 1, 20x6: Spot rate – P1.64 x 100,000....…………............. P164,000
Less: Firm Commitment – liability (credit balance)
8/3/20x6: Original (120-day) forward rate…………………….P 1.60
12/1/20x6: Remaining (60-day) forward rate………………… 1.64
Loss on Firm Commitment………………………………………....P 0.04
Multiplied by: No. of FCs…………………………………………… 100,000 4,000
Value of machine...........................……………………………………… P160,000

63. (c) - refer to No. 62 (Note: There is no more commitment after the date of
transaction which is 12/1/20x6)
64. (c)
Dividends declared in 20x8 (P100,000 + P150,000)……………………………………. P 250,000
x: ownership percentage…………………………………………………………………… 30%
Dividend income……………………………………………………………………………...P 75,000
65. (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”).
66. (c) – 20 million x 240.4/60.4 = 80 million
67. (b)
68. (b)
Direct materials inventory, June 1, 20x2..................... P 48,600
Add: Purchases............................................... 60,000
Direct materials available for use........................... P 108,600
Less: Direct materials inventory, June 30, 20x2.............. 51,000
Direct materials used........................................ P 57,600
Direct labor (9,900 hours x P5/hour)......................... 49,500
Applied factory overhead (9,900 hours x P2.5/hour)........... 24,750
Manufacturing cost........................................... P 131,850
Add: Work-in-process, June 1,20x2............................ 10,710
Total work placed in process................................. P 142,560
Less: Work-in-process, June 30, 20x2......................... 24,210
Cost of goods manufactured................................... P 118,350
69. (d)
Original costs charged to Work-in-Process P 53,200
Add: Rework Costs
Direct Materials P 2,000
Direct Labor 3,200
Applied Overhead (150% of P3,200) 4,800 10,000
Total Costs of Job No. 369 P 63,200
Divided by: Good Units _____200
P 316

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70. (d)
Fair value of Subsidiary - Swan
Consideration transferred…………………………………………………………………P1,420,000
Less: Fair value of identifiable assets and liabilities of Swan (70% x P1.2 million).. 840,000
Goodwill (partial)..……………………………………………………………………………P 580,000
Goodwill is carried as an asset in the consolidated statement of financial
position.
Fair value of Subsidiary - Homer
Consideration transferred………………………………………………………………….P 300,000
Less: Fair value of identifiable assets and liabilities of Homer (65% x P640,000)….. 416,000
Gain on bargain purchases…………………………………………………………………P(116,000)
Gain on a bargain purchase is recognized in profit or loss not on the statement of financial
position.

Notes:
1. Moon measures non-controlling interests at the relevant share of the identifiable net
assets at the acquisition date; therefore partial goodwill is in effect.
2. Fair value is assumed to be the same with the carrying/book value.

AFAR – FINAL PRE-BOARD EXAMINATION (BATCH 42)