You are on page 1of 9

NCR CUP Series 7 - Practical Accounting 2

1. Under the installment method, realized gross profit is computed at the end of each year by:

a. Multiplying the total collections by gross profit rate based on cost.

b. Multiplying the total collections by gross profit rate based on sales.
c. Multiplying the selling price by gross profit rate.
d. Multiplying the cost of sales by the gross profit rate.

2. The management of an entity is unsure how to treat a restructuring provision that they wish to
set up on the acquisition of another entity. Under IFRS 3 Business Combinations, the treatment
of this provision will be

a. A charge in the statement of comprehensive income in the post-acquisition period

b. To include in the provision in the allocated cost of the acquisition.
c. To provide for the amount and if the provision is overstated, to release the excess to the
statement of comprehensive income for the post-acquisition period
d. To include in the provision in the allocated cost of acquisition if the acquired entity commits
itself to a restructured within a year of acquisition

3. James Smith Appliance Co. sold an equipment costing P10,000 for P16,000 on September 30,
2011. The down payment was P1,600 and the same was to be paid at the end of each
succeeding month. Interest was charged on the unpaid balance of the contract at of 1% a
month, payments being considered as applying first to accrued interest and the balance to

After paying a total of P6,400, the customer defaulted. The equipment was repossessed in
January 5, 2012. It was estimated that the equipment had a value of P5,600.

Compute the total realized gross profit on installment sales.

a. P2,382
b. P2,400
c. P2,400
d. P2,328

4. DJ Builders, Inc. has consistently used the percentage-of-completion method of accounting for
construction-type contracts. During 2011, DJ started work on a P400,000 fixed-price construction
contracts that was completed in 2012. DJs accounting records disclosed the following:
12/31/2011 12/31/2012
Cumulative contract costs incurred P200,000 P310,000
Estimated total costs of completion 100,000 ---

How much revenue would DJ have recognized on this contract for the year ended December 31,

a. P266,666
b. P 90,000
c. P400,000
d. P133,333

5. Ronald Buildings Company, a parent company of a group of companies, acquired machinery for
$50,000 on October 31, 2014 when the Peso/Dollar rate was P26. The liability is to be paid six
months after. By the end of the year, the Peso/Dollar rate drastically increased to P32 and this is
considered as a devaluation or severe fluctuation. On its year-end balance sheet, Roland should
report the machinery at:

a. P1,040,000
b. P1,280,000
c. P1,300,000
d. P1,600,000

6. ANGELA Corporation, a Philippine Company, expects to order goods from a foreign supplier at a
price of 250,000 foreign currency, with delivery and payment to be made on March 17. On
January 17, ANGELA purchased a three-month call option for 250,000 foreign currency and
designated this option as a cash flow hedge. The following exchange rates shall apply:
Option strike price PHP 2.17
Option Cost PHP 4,000
January 17 spot rate PHP 2.17
March 17 spot rate PHP 2.13

What amount will ANGELA Corp include as an option expense in net income during the period
January 17 to March 17?

a. P10,000
b. P4,000
c. P5,000
d. P12,000

7. A home office ships inventory to its branch at a mark-up of 125% above cost. The required
balance of the allowance for overvaluation account is P1,425,000. During the year, the home
office sent merchandise to the branch costing P9,000,000. At the start of the year, the branchs
Statement of Financial Position shows P1,800,000 of inventory on hand that was acquired from
the home office. By what amount will the Allowance for Unrealized Gross Margin in Branch
Inventory account be debited at the end of the year?

a. P2,610,000
b. P1,185,000
c. P10,825,000
d. P12,250,000

8. On January 2, 2014, Inaasar, Inc. signed an agreement to operate as franchisee of Jollyjeep foods
for an initial franchise fee of P1,171,875 for 10 year. Of this amount, P234,375 was paid when
the agreement was signed and the balance payable in three annual payments beginning on
December 31, 2014. Inasar signed a non-interest bearing note for the balance. The implicit
interest rate is 18%. Assume that substantial services amounting to P365,000 had already been
rendered by the franchisor and indirect cost of P26,875 have also been incurred.

If collection of the note is not reasonably assured, calculate the net income. For the year ended
December 31, 2014. Use PV factor 2.17.

a. 376,950
b. 354,950
c. 350,075
d. 338,000

9. The following data are provided by Sweepstakes Corporation which is undergoing liquidation.
Total liabilities amount to P865,000, 35% is fully secured by assets amounting to P337,500 with a
FMV of P312,500; 40% is partially secured by assets amounting to P375,000 with a FMV of
P281,250; and the remaining balances is unsecured.
Total assets amounts to P1,225,000 with a total market value of P918,750.
Unpaid Income taxes amounts to P53,750. Additional salaries payable and administrative
expenses in liquidation totalled P37,500.
Deficit amounts to P106,250.
Compute for the estimated recovery percentage of unsecured creditors.

a. 86.65%
b. 94.53%
c. 83.19%
d. 78.64%

10. Venice Co. is insolvent and its statement of affairs show: Estimated gain on realization of assets:
Php 2,000,000; Estimated loss on realization of assets, Php 2,560,000; Additional assets, Php
1,280,000; Additional liabilities, Php 960,000, Capital Stock, Php 12,000,000; Deficit, Php
11,200,000. The pro-rate payment to the stockholders on the peso is:

a. Php 0.98
b. Php 0.70
c. Php 0.57
d. Php 0.30

1. Post Inc, had a (credit) cumulative translation adjustment of P30,000 for the year ended
December 31, 2012. The functional currency of Posts subsidiary is the currency of the country in
which it is located. Additionally, Post had a receivable from a foreign customer payable in the
local currency of the customer. On December 31, 2011, this receivable for P200,000 local
currency units (LCU) was correctly included in Posts balance sheet at P110,000. When the
receivable was collected on February 15, 2012, the Philippine Peso equivalent was P120,000. In
Posts 2012 consolidated income statement, how much should be reported as foreign exchange

a. P0
b. P10,000
c. P30,000
d. P40,000

2. Which of the following accounting methods must be applied to all business combinationsunder
PFRS 3, Business Combinations?

a. Pooling of interests method

b. Equity method
c. Proportionate consolidation
d. Acquisition method

3. RMC Builders, Inc. recognized a gross loss of P78,000 on its long term project which has an
accumulated cost of P595,000 at December 31,2014. To finish the project, the company
estimates that it has to incur additional costs of P820,000. The company uses percentage of
completion method and thus noted that the project was about 42% completed at this point.
Calculate the contract price that was agreed upon by both parties.

a. P 1,183,000
b. P 1,383,000
c. P 1,337,000
d. P 1,415,000

4. Easy Company transferred 5,500 units to Finished Goods Inventory during September. On
September 1, the company had 300 units on hand (40% complete as to both material and
conversion costs). On September 30, the company had 800 units (10% complete as to material
and 20% complete as to conversion costs). The number of units started in process during
September was:

a. 5,200
b. 6,000
c. 5,500
d. 6,300

5. In partnership bookkeeping, prior to closing, which of the following transactions are directly
entered in the partnership capital accounts?

a. Withdrawals by the partners

b. Loss by the partnership
c. Admission of a new partner
d. Income tax expense of the partnership

6. The records of Holy Ground Hospital, a nonprofit organization, had the following book balances
on June 30, 2014:

Charity care P80,000

Contractual adjustments 160,000
Patient service rendered (gross) 1,240,000
Provision for doubtful accounts 140,000

Holy Grounds net patient service revenues for the year ended June 30, 2014 amounts to:

a. P 1,100,000
b. P 1,640,000
c. P 1,080,000
d. P 1,000,000

7. The document used to estimate amounts available to each class of claims is called a(an)

a. Statement of Assets and Liabilities

b. Legal Statement of Affairs
c. Accounting Statement of Affairs
d. Statement of Realization and Liquidation

8. Jamie Corporation issues 35,000 shares of previously unissued P15 par value common stock with
a fair market value of P40 per share for net assets of Cerseis Corporation. Jamie pays the
following out of pocket costs related to the business combination.

Registering and issuing securities P 5,000

CPA and legal fees 40,000
Salaries and Jamies employees assigned to the implementation of the merger 13,000
Cost of closing duplicate facilities 19,000
Printing fees of stock certificates 3,000
Finders fee 24,000

How much is the amount charged to profit and loss for the period, assuming the companies are
SMEs (Small and Medium-sized Entities) and are applying PFRS for SMEs?

a. P 32,000
b. P 45,000
c. P 48,000
d. P 60,000
9. Hedging relationships are of three types. Which of the following is not included as set forth by
PAS 39?

a. Fair Value Hedge

b. Cash Flow Hedge
c. Hedge of a Net Investment in a Foreign Operation
d. Hedge of Foreign Currency Risk of a Firm Commitment

10. ARIA and SANSA, real estate developers, entered into a contract to acquire and operate a

a. ARIA and SANSA set up a joint venture company named Bran to own the condominium
b. The legal form of Bran is such that it has rights to the assets and liabilities for the obligations
(not ARIA and SANSA)
c. Activities include: rent/sale of units, maintaining the building and its equipment and other
ancillary services
d. The parties are not liable for the debts or liabilities of Bran (liability limited to unpaid capital
e. ARIA and SANSA have the right to sell or pledge interest in Bran
f. ARIA and SANSA receive share of the net income

Notwithstanding other facts and circumstances, how should the joint arrangement be classified?

a. Investment in Associate
b. Joint venture
c. Joint Operation
d. Subsidiary

1. An enterprise uses a branch accounting system in which it establishes separate formal

accounting systems for its home office and its branch operations. Which of the following
statements about this arrangement is false?

a. The home office account on the books of a branch office represents the equity interest of
the home office in the net assets.
b. The branch office account on the books of the home office represents the equity interest
of the branch office in the net assets of the home office.
c. The home office and branch office accounts are reciprocal accounts that must be eliminated
in the preparation of the enterprises financial statements that are presented in accordance
with GAAP.
d. Unrealized profit from internal transfers between the home office and a branch must be
eliminated in the preparation of the enterprises financial statements that are presented in
accordance with GAAP.

2. During the year 2015, goods billed at P 840,000 were shipped to the branch at 125% of cost. The
account Allowance in Branch Inventory has a balance of P 242,000 before adjustment. The
beginning inventory of the branch form the home office at cost is P 370,000; the beginning
inventory of the branch from outsider is P 35,000; purchases from outsider is P 220,000.
Determine the Cost of goods available for sale of the branch per branch record.
a. P 1,297,000
b. P 1,465,000
c. P 1,539,000
d. P 1,767,000
3. Which of the following statements is incorrect in determining whether an acquired asset and
activities is a business based on the application guidance to PFRS 3?

a. The application guidance describes the components of a business as inputs and processes
applied to those inputs that have the ability to create outputs.
b. Outputs must be present at the acquisition date for an integrated set of activities and
assets to be defined as a business.
c. An acquired set of activities and assets does not need to include all of the inputs or
processes that the seller used in operating that business.
d. The results of inputs and processes applied to those inputs have the ability to provide a
return in the form of dividends, lower costs or other economic benefits directly o investors
or other owners, members or participants.

4. On January 4. 2014, Farhampton signed an agreement authorizing Ms. Inn to operate as

franchisee for an initial franchise fee of P 600,000 received when the agreement was signed. Ms.
Inn commenced operations on July 1, 2014 at which date all of the initial services required of
Farhampton had been performed at a cost of P 35,000. The franchise agreement further
provides that Ms. Inn must pay monthly to Farhampton, a continuing franchise fee equal to 8%
of its monthly gross sales. Ms. Inn reported from July 1 to December 31, 2014 gross sales of
P520,000. On December 31, 2014, what is the net income from franchise fees to be reported by

a. P 641,600
b. P 565,000
c. P 600,000
d. P 606,000

5. On January 2, 2014, Pipa Company acquired 80% of Sellers outstanding common stock for
P500,000. Sellers book value on that date was P 500,000; there were no significant differences
between the market value and book value of Sellers net assets. Goodwill, if any, is not impaired.
During 2014, Pipa reported net income from its own operations of P 1,000,000 and declared and
paid dividends of P 300,000. Seller reported net income from its own operations of P 200,000
and declared and paid dividends of P 120,000.

What is the consolidated net income attributable to the parent for 2014 is:

a. P 1,143,750
b. P 1,146,875
c. P 1,150,000
d. P 1,160,000

6. Clark Co. had the following transactions with affiliated parties during 2014:

Sales of P 60,000 to Dean Inc., with P 20,000 gross profit. Dean had P 15,000 of this on hand
at year-end. Clark owns a 15% interest in Dean and does not exert significant influence.
Purchases of raw materials totalling P 240,000 from Kent Corp., a wholly-owned subsidiary.
Kents gross profit on the sale was P 48,000. Clark had P 60,000 of this inventor remaining on
December 31, 2014.

Before eliminating entries, Clark had consolidated current assets of P 320,000. What amount
should Clark report in its December 31, 2014, consolidated balance sheet for current assets?

a. P 320,000
b. P 317,000
c. P 308,000
d. P 303,000

7. The home office bills its Asian branch at 125% of cost. During the year 2014, goods costing P
300,000 were shipped to the branch. The account allowance for overvaluation of branch
inventory, after adjustments, shows a balance of P14,000 at the end of the year. Compute the
amount of ending inventory at:

Cost Billed Price

a. P 56,000 P 56,000
b. P300,000 P 375,000
c. P56,000 P70,000
d. P70,000 P 56,000

8. Antonio Construction Company has consistently used the percentage-of-completion method. On

January 10, 2013, Antonio Construction Company began work on a P 6,000,000 construction
contract. At the inception date, the estimated cost of construction was P 4,500,000. The
following data relate to the progress of the contract:

Income recognize at 12/31/2013 P 600,000

Cost incurred 1/10/13 12/31/14 3,600,000
Estimated cost to complete at 12/31/14 1,200,000

How much income should Antonio recognized for the year ended December 31, 2014?

a. 300,000
b. 525,000
c. 600,000
d. 900,000

9. The home office of Paolo Company, which uses the perpetual inventory system, bills system of
merchandise to Nueva Ecija Branch at a mark-up of 25% on the billed price. On August 29, 2014,
the credit balance of the home offices Allowance for Overvaluation of Inventories-Nueva Ecija
Branch ledger account was P 60,000. On December 13, 2014, the home office shipped
merchandize to the branch at a billed price of P 400,000. The branch reported and ending
inventory at a billed price of P 160,000 on December 31, 2014. What is the realized gross profit
of Paolo Company?

a. P 108,000
b. P 160,000
c. P 120,000
d. P 60,000

10. ABS partnership was dissolved last month with assets worth P900,000 and liabilities of P200,000.
The partnership is being wound up by installments and all the partners received their full share
in the priority payments during the first installment payment last month. During the current
month, after selling half of the remaining assets of the partnership, cash amounting to P100,000
is available for distribution to partners A, B and S sharing profits and losses at 4:3:3.

Based on the available details above, how much is the share of partners A, B and S, respectively,
in the distribution of the available cash?

a. P 50,000 P 20,000 P 30,000
b. P 20,000 P 50,000 P 30,000
c. P40,000 P 30,000 P 30,000
d. P30,000 P 40,000 P 30,000