AFAR SOLUTION

1. D
2. B
3. A
4. D
5. B
6. D
7. A
8. A
9. A
10. D
11. D
12. C
13. B
14. B
15. D
16. D

Merchandise inventory, 1/ 1, at cost (P200,000 - P24,000) P 176,000

Shipments from HO, at cost (Shipment to Branch) 480,000
Purchases from other suppliers 150,000 P 806,000
Of the AFOVOBI balance, P24,000 is for the beginning invty.;
and P120,000 for current shipments, i.e. P480,000 x 25%.

17. D

Branch ending invty from HO (P100,000 + P60,000 – P20,000) P 140,000

Multiply by .25/1.25 P 28,000
The balance of AFOVOBI after adjustment is the allowance
on the branch ending invty from the Home Office.

18. D

Cost at fair value (P390,000 x P12) P4,680,000

Less Net Assets at fair value (P6,400,000 – P1,600,000) 4,800,000
Income from acquisition P (120,000)
Retained Earnings (P4,000,000 + P120,000 - P80,000) P4,040,000
It is assumed the book value of the net assets is its fair value.

19. C

Loss absorption capabilities

Partner Claudia (P48,000 / 40%) P 120,000
Partner Petra ( 21,600 / 30%) 72,000
Partner Mona ( 34,400 / 20%) 172,000
Partner Hilda ( 16,000 / 10%) 160,000

First Allocation is to Mona (P172,000 – P160,000) = P12,000 x 20% P 2,400

Only C is correct, the others are all incorrect as would be reflected in
a full cash distribution schedule prepared just before the start of
liquidation.

20. A
Total estimated cash (P28,000 + P72,000 + P61,600 + P26,400) P 188,000
Less priority claims: Income taxes P 6,400
Note payable (secured portion) 72,000
Salaries payable 4,800
Administrative/liquidation expenses 16,000 99,200
Estimated net amount available for non-priority claims P 88,800

21. C
Net free assets (please see Item 20) P 88,800
Less non-priority claims
Notes payable (unsecured portion) P 24,000
 Accounts payable 68,000
Bonds payable 56,000 148,000
Estimated deficiency P(59,200)
Estimated recovery rate (ERR): P88,800 / P148,000 60%

Notes payable : Total Book Value P96,000

Secured portion 72,000 x 100% P 72,000
Unsecured portion P 24,000 x 60% 14,400
P 86,400
22. D
Allowance for overvaluation P 84,600
Less required allowance on BEI (P91,200 / 125%) x 25% 18,240
Overstatement of branch cost of sales P 66,360

23. A
Sales (P1,440,000 + P864,000) P2,304,000
Less Cost of Sales
Merchandise Inventory, 1/1 (P 36,000 + P 50,400) P 86,400
Purchases (P1,080,000 + P360,000) 1,440,000
Merchandise Inventory, 12/31 (P 180,000 + P 92,160) ( 272,160) 1,254,240
Gross profit P1,049,760
Less Operating expenses (P348,000 + P132,000) 480,000
Combined net income P 569,760

24. C

Investment in JV account, 12/31/14 (P4,000,000 + P184,000) x 50% P2,092,000

Under the equity method the balance of the Investment account of
the venturer in its balance sheet is accounted for by its share of the
net assets shown in the joint venture balance sheet as at the same date.

25. B
Operators’ equal share over the depreciated value of the fixed asset
at 12/31/14 (P200,000 x 90%) x 1/3 P 60,000
Less unamortized deferred gain (CC only) (P15,000/3) x 90% 4,500
Amount of machinery in CC’s balance sheet, 12/31/14 P 55,500
The same amount is derived by using the cost to CC (P185,000 x
90%) x 1/3 = P55,500.

26. C
Under the fair value model for an SME, the fair value is the balance sheet amount, regardless of the carrying
value.

27. B
AA (P50,000 + P40,000) x 60% P 54,000 P&L AA 50%
BB (P50,000 + P40,000) x 40% 36,000 BB 50%
Total P 90,000 TOTAL 100%

28. B
AA BB CC TOTAL
Capital, 01/01/15 P 54,000 P 36,000 P --- P 90,000 P&L AA 40%
ST
1 QTR LOSS ( 7,500) (7,500) --- (15,000) BB 40%
Capital, 03/31/15 P 46,500 P 28,500 --- P 75,000 CC 20%
Purchase of interest ( 9,300) (5,700) 15,000 --- TOTAL 100%
Capital, 04/01/15 P 37,200 P22,800 P15,000 P 75,000

29. C

AA [ ( P46,500 x 20%) - (P 3,000 x 50%) ] P 7,800

BB [ ( P28,500 x 20%) - (P 3,000 x 50%) 4,200

TOTAL p 12,000

30. A
Please refer to suggested solution given for Item 28
31. A

Sales (P456,250 + P218,125) P 674,375

Cost of Sales: MI, 1/1 (P106,250 + P 53,875) P 160,125
Purchases (P375,000 + P43,750) 418,750
MI, 12/31 (P81,250 + P38,125) ( 119,375) 459,500
Gross Profit P 214,875
Expenses (P75,020 + P19,140) 94,160
Combined net income P 120,715

32. D

APIC of Baliwag just before the acquisition of Bustos P 40,000

Plus: APIC recognized for currently issued shares:
Fair value of net assets/issued shares P1,430,000
Less Par value of issued shares (100,000 x P10) 1,000,000 430,000
APIC of Baliwag just after the acquisition of Bustos P 470,000

Goodwill/(IFA): (Cost, P1,430,000; less FV of net assets, P1,430,000) = P0

33. B

Cost P1,400,000
Less: FV of net assets (P36,000 + P457,000 + P133,000 +
P900,000 – P350,800) 1,175,200
Goodwill P 224,800

34. B
Father’s SHE just before the combination P28,000,000
Newly issued shares at FV (500,000 shs. X P20) 10,000,000
Father’s SHE just after the business combination P38,000,000

35. A

Gross loss (P1,695,000 + P225,000) P1,920,000

Less: (Estimated gain, P945,000 + Contingent assets, P750,000) 1,695,000
Net Loss P 225,000
Less Book Value of SHE (P1,500,000 – P600,000) 900,000
Amount due to stockholders upon liquidation P 675,000
Pro-rata payments to stockholders (P675,000/P900,000) P0.75 to P1.00

36. D
Estimated total cash to be available P2,218,125
Less Prioritized claims (P113,750 + P739,375 + P341,250) 1,194,375
Estimated amount available to unsecured without priority P 1,023,750
Less unsecured amounts (P227,500 + P1,478,750) 1,706,250
Estimated deficiency to unsecured creditors without priority P (582,500)
ERR: (P1,023,750/P1,706,250) 60%
Est. Payment: P341,250 + (P227,500 x 60%) P 477,750

37. C

Cost P2,850,000
Less FV of net assets (P90,000 + P1,142,500 + P290,000 +
P1,841,000 – P877,000 – P30,000) 2,456,500
Goodwill P 393,500

38. A
Allowance before adjustment P 264,000
Less Realized allowance 65,600
Allowance on BEI from HO P 198,400
Divide by 40%
BEI at cost P 496,000
X by 140%
BEI at billed price P 694,400
39. C
Allowance before adjustment P 46,000

Less Allowance on the BBI (36,000 x .2/1.2 6,000

Allowance on the current shipments P 40,000

Multiply by 1.2/.2

Billed Price of total shipments recorded in the branch P240,000

40. . B

BP(100%) Cost(60%) BIA(40%)

Inventory, 1/1 80,000 48,000 32,000
Shipments 60,000 36,000 24,000
TGAS 140,000 84,000 56,000
Inventory, 12/31 ( 25,000) (15,000) (10,000)
COGS 115,000 69,000 46,000
Less RBNL 11,500
TBNI 34,500

41. C

Legal fees for the business combination P 14,000

Finder’s fees 20,000
Total expenses P 34,000

42. B
CPA audit fees for SEC registration statement P 10,000
Legal fees for SEC registration statement 15,000
Printer’s charges for printing securities and SEC registration 2,500
SEC registration fees 5,000
Debited to APIC (assumed did not exceed APIC currently
recognized upon issuance of new shares) P 32,500

43. D
2019 FCT (1.31-1.33) * 900,000 18,000 gain
FEC (1.29-1.31)* 900,000 18,000 Loss
Net cost -0-
2020 FCT (1.33- 1.30) * 900,000 27,000 loss
FEC (1.31-1.30) * 900,000 9,000 gain
Net cost 18,000

44. A
Sales Revenue (1.31* 900,000) 1,179,000

45. C
FEC (1.29-1.31)* 900,000 18,000 Loss
Presented in the Balance Sheet as Liability

46. D
(1.34—1.31) * 900,000 = 27,000* 2/3= 18,000

47. A
Equipment (1.31 * 900,000) 1,179,000

48. D
Receivable (1.34-1.30) * 900,000 (36,000)

49. A
Receivable (1.31-1.33) * 900,000 18,000

50. A
Intrinsic Value Out of the Money
Time Value (6,000 * 1/3) 2,000
51. C
Net Cash Settlement (1.31-1.30) * 900,000 9,000

52. D
Cost (604,800/80%) 756,000
Less: FV of NA
BV of NA (240,000 + 320,000) 560,000
BCVR ( 24,000 + 16,000) 40,000 600,000
GOODWILL 156,000

53. D
112,000 + 156,000 + 24,000 = 292,000

54. C
Parent’s Equity (480,000 + 624,000) 1,104,000
NCI (604,800/ 80% * 20%) 151,200
Total SHE 1,255,200

55. A
COS 24,000
Dep Exp (16,000/10) 1,600
Total Decrease in SNI 25,600

56. C
Reported SNI 158,400
BCVR Adjustment (25,600)
Adjusted SNI 132,800
Multiply by x 80%
Investment Income 106,240

57. A
Adjusted SNI 132,800
Multiply by x 20%
CNI attr to the NCI 26,560

58. B
PNI from its own operation (278,400- 38,400) 240,000
Investment Income 106,240
CNI attr to the Parent 346,240

59. B
PPE 279,200 + 324,000+ (16,000 * 9/10) 617,600

60. D
Inv in Subsidiary 604,800 + 106,240 – 38,400 672,640

61. C
Equipment 1,000,000
Less: Accum Dep ( 1,000,000/ 5) * 10/12) 166,667
Equipment 12/31 833,333
Divide by 2
Equipment, Lunox’s Books 416,667

62. B
Equipment 800,000
Less: Accum Dep ( 1,000,000/ 5) * 10/12) 133,333
Equipment 12/31 666,667
Divide by 2
Equipment, Lunox’s Books 333,333

63. D
Initial Inv Cost 97,200
Transaction Cost 4,860
 Dividend Share (14,400)
Share in the NI (60,000 * 30%) 18,000
Inv balance , 12/31 105,660
Note: The Investment is not impaired; FV-CTS ( 114,000) is higher then the carrying amount of the investment

64. A
Share in the NI 18,000

65. C
CI % 64,000/ ( 320,000/4) 80%
Cost (384,000/ 80%) 480,000
Less: FV of NA 320,000 + (728,000 – 608,000) 440,000
Goodwill 40,000

66. A
720,000 + 608,000 + 7,000+ -1,000 1,334,000

67. C
RSNI 608,000
Deferred Loss 7,000
Realized Deferred Loss (1,000)
Adjusted SNI 614,000
Multiply by 80%
Investment Income 491,200
PNI from own operation 720,000
CNI attr to the Parent 1,211,200

Adjusted SNI 614,000

Multiply by 20%
CNI attr to NCI 122,800

68. A
69. B
70. C