MINDANAO STATE UNIVERSITY

General Santos City

COLLEGE OF BUSINESS ADMINISTRATION AND ACCOUNTANCY

Department of Accountancy

FINAL DEPARTMENTAL EXAMINATION

Acctg. 133 – Advanced Financial Accounting & Reporting III

INSTRUCTION: Read each questions very carefully. Choose the best answer from the selection provided.
Shade the box which corresponds to the letter of your choice. Use pencil only. When you are
done, submit the answer sheet to the proctor and you may bring with you the test questionnaire.
Leave the classroom silently.

-start here-

1. On the statement of activities for a private not-for-profit performing arts center, expenses should be
deducted from: C

I. Unrestricted revenues.
II. Temporarily restricted revenues.
III. Permanently restricted revenues.

a. I, II, and III.

b. Both I and II.
c. I only.
d. II only.

2. Bella Pool Company sells prefabricated pools that cost $100,000 to customers for $180,000. The sales
price includes an installation fee, which is valued at $25,000. The fair value of the pool is $160,000. The
installation is considered a separate performance obligation and is expected to take 3 months to
complete. The transaction price allocated to the pool and the installation is: A
a. $155,676 and $24,324 respectively
b. $160,000 and $25,000 respectively
c. $180,000 and $25,000 respectively
d. $138,378 and $21,622 respectively

3. The existence of significant influence by an entity is usually evidenced in what ways: D

a. The entity is a wholly-owned subsidiary, or is a partially-owned subsidiary of another entity and
its other owners, including those not otherwise entitled to vote, have been informed about, and
do not object to, the entity not applying the equity method.
b. The entity's debt or equity instruments are not traded in a public market (a domestic or foreign
stock exchange or an over-the-counter market, including local and regional markets).
c. The entity did not file, nor is it in the process of filing, its financial statements with a securities
commission or other regulatory organization, for the purpose of issuing any class of instruments
in a public market.
d. Participation in policy-making processes, including participation in decisions about dividends or
other distributions.

4. I. Under PFRS 11, a joint arrangement is an arrangement of which two or more parties have joint
control. T
II. The parties in the joint arrangement are bound by a contractual arrangement which gives one or
more parties joint control of the arrangement. F (two or more)
III. A joint arrangement is either a joint operation or joint venture. Only parties to joint operation have
joint control. F should be both
IV. Joint control is the agreed sharing of control of an arrangement, which exists only when decisions
about the relevant activities require the unanimous consent of the parties sharing control. C
a. Only 1 statement is true. c. Only 2 statements are correct.
b. Three statements are correct. d. All of them are correct.

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 5. I. The budget preparation starts when the Department of Finance issues budget call to all
government agencies. F
II. UACS mean Unified Accounts Coding Structure. F Unified Accounts Code Structure
III. Notice of Cash Allocation is the authority issued by the DBM to central, regional and provincial
offices and operating units to cover cash requirements. T C

a. Only 1 statement is true. c. Only 2 statements are correct.

b. All statements are correct. d. All statements are incorrect.

6. I. Funds which are restricted at the sole-discretion of the NPO’s governing board is called
permanently restricted funds. F Quasi-endowment/ Board-designated funds
II. Donation refers to resources received in non-reciprocal transactions. F Contributions
III. Appropriation is the authorization made by a legislative body to allocate funds for purposes
specified by the legislative or similar authority. T A
a. Only 1 statement is true. c. Only 2 statements are correct.
b. All statements are correct. d. All statements are incorrect.

7. I. The new revenue recognition standard adopted a liability approach as the basis for revenue
recognition. F
II. Revenue is recognized in the accounting period when the performance obligation is satisfied. T
III. The first step in the revenue recognition process is to identify the separate performance
obligations in the contract. F Identify the contract with customers
IV. Revenue from a contract with a customer cannot be recognized until a contract exists. T
C
b. Only 1 statement is true. c. Only 2 statements are correct.
c. All statements are correct. d. 3 statements are correct.

8. I. When a company sells a bundle of goods at a discount, the discount should be allocated to the
product that caused the discount and not to the entire bundle. T
II. A company can only satisfy its performance obligations at a point in time. F point in time or over
time
III. The most popular input measure used to determine the progress toward completion in long-term
contracts is the cost-to-cost basis. T
IV. A contract liability is a company’s obligation to transfer goods or services to a customer for
which the company has received consideration from the customer. T D
a. Only 1 statement is true. c. Only 2 statements are correct.
b. All statements are correct. d. 3 statements are correct.

9. I. Whether a contract modification is treated as a separate performance obligation or

prospectively, the same amount of revenue is recognized before and after the modification. T
II. If the performance obligation is not highly dependent on, or interrelated with, other promises in
the contract, then each performance obligation should be accounted for separately. T
III. When a sales transaction involves a significant financing component, the fair value is
determined either by measuring the consideration received or by discounting the payment using an imputed
interest rate. T
IV. Companies rarely have to allocate the transaction price to more than one performance
obligation in a contract. F D
a. Only 1 statement is true. c. Only 2 statements are correct.
b. All statements are correct. d. 3 statements are correct.

10. I. If the difference between the Construction in Process and the Billings on Construction in
Process account balances is a debit, the difference is reported as a current asset. T
II. The Construction in Process account includes only construction costs under the percentage-of-
completion method. F both construction costs and realized profit

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 III. The principal advantage of the cost-recovery method is that reported revenue reflects final
results rather than estimates. T
IV. A loss in the current period on a profitable contract must be recognized under both the
percentage-of-completion and cost-recovery method. F C only in PoC method
a. Only 1 statement is true. c. Only 2 statements are correct.
b. All statements are correct. d. 3 statements are correct.

11. Agency Makabayan received Notice of Cash Allocation (NCA) – P45,000,000 for the year 2008, the entry
would be: D
a. No entry
b. Memorandum entry in Registry of Allotments
c. National Clearing Account 45,000,000
Appropriation Alloted 45,000,000
d. Cash-National Treasury, MDS 45,000,000
Subsidy Income from National government 45,000,000
12. Save the Planet, a private nonprofit research organization, received a $500,000 contribution from Ms.
Susan Clark. Ms. Clark stipulated that her donation be used to purchase new computer equipment for
Save the Planet’s research staff. The contribution was received in August of 2001, and the computers
were acquired in January of 2002. For the year ended December 31, 2001, the $500,000 contribution
should be reported by Save the Planet on its: C (with conditions attached- temporary restricted)
a. Statement of activities as unrestricted revenue.
b. Statement of activities as deferred revenue.
c. Statement of activities as temporarily restricted revenue.
d. Statement of financial position as deferred revenue.

13. Shore Co. records its transactions in US Dollar. A sale of goods resulted in a receivable denominated in
Japanese yen, and a purchase of goods resulted in a payable denominated in French francs. Shore
recorded a foreign exchange gain on collection of the receivable and an exchange loss on settlement of
the payable. The exchange rates are expressed as so many units of foreign currency to one dollar. Did
the number of foreign currency units exchangeable for a dollar increase or decrease between the contract
and settlement dates? B
Yen Exchangeable for US$1 Francs exchangeable for US$1
a. Increase Increase
b. Decrease Decrease
c. Decrease Increase
d. Increase Decrease
14. A Philippine importer that purchases merchandises from a foreign firm’s foreign current unit (FCU)
would be exposed to a net exchange gain on the unpaid balance if the: A
a. Peso weakened relative to the FCU and the FCU was the denominated currency
b. Peso weakened relative to the FCU and the peso was the denominated currency
c. Peso strengthened relative to the FCU and the FCU was the denominated currency
d. Peso strengthened relative to the FCU and the peso was the denominated currency

15. A hospital has the following account balances:

Revenue from newsstand P 50,000
Amount charged to patients 800,000
Interest income 30,000
Salary expense – nurses 100,000
Bad debts 10,000
Undesignated gifts 80,000
Contractual adjustments 110,000

What is the hospital’s net patient service revenue? C

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 A. P880,000 C. P690,000
B. P800,000 D. P680,000

16. Mediocre Inc. has entered into a very profitable fixed price contact for construction of a high building
over a period of three years. It incurs the following costs relating to the contract during the first year:
 Cost of material= 2.5 million
 Site labor cost= 2.0 million
 Agreed administrative costs as per contract to be reimbursed by the customer= 1 million
 Depreciation of the plant used for the construction= 0.5 million
 Marketing costs for selling apartments, when they are ready= 1.0 million
 Depreciation of idle plant and equipment=0.5 million
Total estimated cost of the project= 18 million
The percentage of completion of this contract at the year-end is: A
a. 33 1/3%
b. 27%
c. 25%
d. 39%
(THE FOLLOWING INFORMATION APPLIES TO THE NEXT TWO PROBLEMS.)
On January 20x4 entities MM, NN, OO, PP and QQ (the joint operators) jointly buy a jet aircraft for 14,000,000
cash. The operators are the registered as equal joint owners of the aircraft. They enter into an agreement
whereby the aircraft is at the disposal of each operator for 70 days each year. The aircraft is in maintenance for
the remaining days each year. The operators may decide to use the aircraft, or, for example, lease it to a third
party. Decisions regarding maintenance and disposal of the aircraft require the unanimous consent of the
operators. The contractual arrangement is for the expected life (20 years) of the aircraft and can be changed
only if all the operators agree. The residual value of the aircraft is zero.
In 20x4 the operators each paid 140,000 to meet the joint costs of maintaining the aircraft (ex. Hangar rental
and aviation license fees).
In 20x4 each operator also incurred costs of running the aircraft when they made use of the aircraft (e.g. entity
MM costs of 70,000 on pilot fees, aviation fuel and landing costs)
In 20x4 entity MM also earned rental income of 532,000 by renting the aircraft to others.
17. Determine the net income generated by Joint Operator- Entity MM: A
a. P182,000 c. 392,000
b. 322,000 d. None of the above
18. The net book value of property, plant and equipment: A
a. P2,660,000 c. 2,268,000
b. 2,590,000 d. None of the above
(THE FOLLOWING INFORMATION APPLIES TO THE NEXT TWO PROBLEMS.)
The following information for the operations of joint venture is as follows:

INVESTMENT IN JOINT VENTURE (ANTON COMPANY)

Cash Sales-
Merchandise-Jose 8500 Ampon 20,400
Cash Sales-
Merchandise-Deyro 7000 Ampon 4200
Merchandise-
Freight paid- Ampon 200 Deyro 1210
Advertising- Ampon 150
Purchase- Ampon 3500
Selling Expense-
Ampon 400

The operation agreement provided for the division of gains and losses among Jose, Deyro and Ampon in the
ratio of 2:3:5. The operation was to close as of December 31, 20x4.

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 19. The total gain from the joint operation amounted to: A
a. P6,060 c. P 18,180
b. 12,120 d. Some other answer
20. As final settlement, Jose received in cash: D
a. P6,060 c. 8,080
b. 7,608 d. 9,712
(THE FOLLOWING INFORMATION APPLIES TO THE NEXT TWO PROBLEMS.)
Al Benin and Rey Sucat formed a joint operation on January 1, 20x4 to operate two stores to be managed by
each operator. They agreed to contribute cash as follows: Benin, 30,000; Sucat, 20,000.
Profits and losses are to be divided in the capital ratio. All the operators’ transactions are for cash, and the
cash receipts and disbursements of the venture during the four-month period, handled through the operators’
bank accounts, are as follows:
Benin Sucat
Receipts 78,920 65,425
Disbursements 62,275 70,695
On April 30, 20x4, the remaining joint operations’ non-cash assets in the hands of the operators were sold for
60,000 cash. The operation was terminated and settlement was made between Benin and Sucat.
21. The operation profit (loss) for the four-month period, after selling the remaining non-cash assets, was: B
a. P11,375 c. (31,375) e. None of these.
b. 21, 375 d. (38,625)
22. The 60,000 cash was divided between the two operators in the following manner: C
a. Benin, P16,180; Sucat, P43,820 c. Benin, P26,189; Sucat, P33,820
b. Benin, P21,905; Sucat, P38,095 d. Benin, P48,095; Sucat, P11, 905
e. None of these.
23. On January 2, Ken Company purchased a 30 percent interest in Pod Company for 250,000 such
interest gives Ken Company the joint control over Pod Company. On this date, the book value of Pod’s
stockholders’ equity was 500,000. The carrying amount of Pod’s identifiable net assets approximated
fair values, except for land, whose fair value exceeded its carrying amount by 200,000. Pod reported
net income of 100,000 for this investment using the equity method. In its December 31 balance sheet,
what amount should Ken report for this investment? D
a. P 210,000 c. P 270,000
b. 220,000 d. 280,000
(THE FOLLOWING INFORMATION APPLIES TO THE NEXT THREE PROBLEMS.)
Flapper Jack’s Inc. sells franchises for an initial fee of 36,000 plus operating fees of 500 per month. The initial
fee covers site selection, training, computer and accounting software and on-site consulting and
troubleshooting, as needed, over the first five years. On March 15, 20x4, Anton signed a franchise contract,
paying the standard 6,000 down with the balance due over 5 years with interest.
24. Assuming that the initial services to be performed by Flapper Jack’s subsequent to the signing are
substantial and that collection of the receivable is reasonably assured, the journal entry required at
signing would include a credit to: A
a. Unearned franchise fee revenue for 36,000
b. Unearned franchise fee revenue for 30,000
c. Franchise fee revenue for 36,000
d. Franchise fee revenue for 6,000

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 25. Assuming that at the time of signing the contract, collection of the receivable was assured and that
service obligations were substantial. However, by October 20, 20x4, substantially all continuing
obligations had been met. The journal entry required at October 20, 20x4 would include a: B
a. Credit to franchise fee receivable for 27,000
b. Debit to unearned franchise fee revenue for 36,000
c. Credit to franchise fee revenue for 9,000
d. Debit to unearned franchise fee revenue for 27,000
26. Assume at March 15, 20x4, the time of signing the contract, collectability of the receivable was
reasonably assured and there were no significant continuing obligations. The journal entry at signing
would include a: A
a. Credit to franchise fee revenue for 36,000
b. Credit to franchise fee revenue for 9,000
c. Credit to unearned franchise fee revenue for 36,000
d. Credit to unearned franchise fee revenue for 27,000
27. Shake Inc. granted a franchise to Drake for the greenbelt area. Drake was to pay a franchise fee of
100,000 payable in five equal annual installments starting with the payment upon signing of the
agreement. The franchise was to pay monthly 1% of gross sales of the preceding month. Should the
operation of the outlet prove to be unprofitable in the first year of operations, the franchise fee may be
cancelled with whatever obligation owing Shake Inc. in connection with the 100,000 franchise fee,
waived. On the same year of granting the initial franchise fee, the first year operation generated gross
sales of 500,000 which is considered to be a profitable operation. For the first year, Shake Inc. earned
franchise fee of: D
a. P 5,000 c. P 25,000
b. 20,000 d. 105,000
28. SSR Restaurant Inc. sold a fast food restaurant franchise to Shar. The sale agreement , signed on
January 2, 20x4, called for a 30,000 down payment plus two 10,000 annual payment representing the
value of initial franchise services rendered by SSR Restaurant. In addition, the agreement required the
franchise to pay 5% of its gross revenues to the franchisor; this was deemed sufficient to cover the cost
and provide a reasonable profit margin on continuing franchise services to be performed by SSR
Restaurant. The restaurant opened early in 2011 and its sales for the year amounted to 500,000.
Assuming a 10% interest rate is appropriate, SSR Restaurant’s 20x4 total revenue will be: (The present
value of an annuity of 1 at 10% for 2 periods is 1.7355): D
a. P30,000 c. P72,355
b. 47,355 d. 74,090
29. DJ Builders’ Enterprises, a franchisor, charges franchisees a “franchise fee” of 500,000. Of this amount,
a nonrefundable 200,000 is paid upon the signing of the contract with the balance payable in three
equal annual installments after each year thereafter. DJ Builder’s will assist in locating a suitable
business site, conduct a market study, oversee the construction of facilities, and provide initial training
for employees. On December 1, 20x4, DJ Builder’s signed a franchising agreement for the U-Belt area.
By the end of 30x4, it was determined that the substantial performance of the initial services had cost
DJ Builder’s a total of 150,000 and that collection of the balance of the franchise fee has been
reasonably assured. In its 20x4 income statement, DJ Builder’s should report franchise revenue and
net income: A
Franchise Revenue Net Income
a. P500,000 350,000
b. 500,000 500,000
c. 0 0
d. 350,000 350,000
(THE FOLLOWING INFORMATION APPLIES TO THE NEXT TWO PROBLEMS.)

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On May 15, 20x4, AA Sales Company received a shipment of merchandise with a selling price of 15,000 from
PC Company. The consigned goods cost PC Company 10,000 and freight charges of 120 had been paid to
ship the goods to AA Sales Company.
The consignment arrangement provided for a sale of merchandise on credit with terms of 2/10, n/30. The 15%
commission is to be based on the accounts receivable collected by the consignee. Cash discounts taken by
customers, expenses applicable to goods on consignment and any cash advanced to the consignor are
deductible from the remittance by the consignee.
AA Sales Company advanced 6,000 to PC Company upon receipt of the shipment. An expense of 800 was
paid by AA. 20X4, 70% of the shipment had been sold, and 80% of the resulting accounts receivable had been
collected, all within the discount period. Remittance of the amount due was made on June 30, 20x4.
30. The profit on consignment is: B
a. P 750 c. 1,188
b. 873 d. 1,428
31. The cost of unsold units in the hands of AA is: B
a. P3,186 c. P1,500
b. 3,036 d. None of the above
32. Adler Construction Company uses the percentage of completion method. In 20x4, Adler began work on
a contract for 3,300,000 and it was completed in 20x5. Data on the costs are:

Year Ended December 31

20x4 20x5
Costs incurred 1,170,000 840,000
Estimated costs to complete 780,000 ----------
For the year 20x4 and 20x5, Adler should recognize gross profit of: C
20x4 20x5 20x4 20x5
a. -0- 1,290,000 c. 810,000 480,000
b. 774,000 516,000 d. 810,000 1,290,000

33. AJD Company recognizes construction revenue and expenses using the percentage of completion
method. During 20x4, a single long term project was begun which continued through 20x5. Information
on the project were as follows:
20x4 20x5
Accounts receivable from construction contract 200,000 600,000
Construction expenses 210,000 384,000
Construction in progress 244,000 728,000
Partial billings on contract 200,000 840,000
The profit recognized from the long-term construction contract should amount to: D
20x4 20x5 20x4 20x5
a. 44,000 456,000 c. 34,000 256,000
b. 44,000 200,000 d. 34,000 100,000

34. Candido Co. entered into a contract to build a small bridge for Guagua. The contract price for the bridge
was P7,500,000 and Candido estimated a total costs of P6,900,000 in 2006. The company incurred
P2,300,000 of cost during 2006. By the end of 2007 it was apparent that Candido had underestimated
the real costs. The estimated total cost of project skyrocketed to P7,800,000. Construction cost incurred
in 2007 totaled P4,000,000. The project was completed in 2008 at a final cost of P7,800,000. No progress
billing were made under the contract and no cash was selected by the end of 2008.
The amount of gross profit (loss) that must be recognized in 2007 must be: C

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 a. P300,000 loss b. P200,000 profit c. P500,000 loss d. P100,000 loss

35. I. Insurance contract is contract under which one party (the insurer) accepts significant insurance risk
from another party (the policyholder) by agreeing to compensate the policyholder if a specified
uncertain future event adversely affects the policyholder. T
II. PFRS 4 permits an insurer to change its accounting policies for insurance contracts of if, as a result,
its financial statement present information that is more relevant and no less reliable, or more
reliable and no less relevant. T
III. An insurer need not change its accounting policies for insurer contracts to eliminate excessive
prudence. However, if an insurance already measures its insurance contracts with sufficient prudence,
it should not introduce additional prudence. T B
a. Only 1 statement is true. c. Only 2 statements are correct.
b. All statements are correct. d. All statements are incorrect.

36. I. Contributions (cash and other non-cash assets) are recognized at the period received and measured
at fair value at the date of contribution. T
II. Services when received are recognized if they create or enhance nonfinancial assets or require
specialized skills which would typically be purchased if not provided by donation. T
III. Works of art and similar items are not recognized when they are held for public exhibition, education
or research, protected and preserved. However, they are recognized if they meet the PFRS asset
recognition “probable economic benefits”. T B

a. Only 1 statement is true. c. Only 2 statements are correct.

b. All statements are correct. d. All statements are incorrect.

37. Which of the following are the financial statements prepared by a non-profit organization? D
I. Statement of Financial Position
II. Income Statement (excluded)
III. Statement of Changes in Equity (excluded)
IV. Statement of Cash Flows
V. Statement of Activities
VI. Notes
a. All of them.
b. I, II, IV, V, and VI
c. I, III, IV, V, VI
d. I, IV, V, and VI

38. I. In health care organizations, statement of operations is prepared in lieu of income statement. F
statement of activities
II. Net patient revenue is gross patient service less contractual adjustments and employees discount
only. F
III. Scholarships and fellowships granted freely is treated as a direct reduction of revenues from tuition
and fees. However, if granted as a compensation for services rendered it is treated as an expense item.
T A
a. Only 1 statement is true. c. Only 2 statements are correct.
b. All statements are correct. d. All statements are incorrect.

39. Cost estimates on a long-term contract may indicate that a loss will result on completion of the entire
contract. In this case, the entire expected loss should be: A
a. Recognized in the current period, regardless of whether the percentage-of-completion or cost-
recovery method is employed.
b. Recognized in the current period under the percentage-of-completion method, but the cost-recovery
method defers recognition of the loss to the time when the contract is completed.
c. Recognized in the current period under the cost-recovery method, but the percentage-of-completion
method defers the loss until the contract is completed.
d. Deferred and recognized when the contract is completed, regardless of whether the percentage-of-
completion or cost-recovery method is employed.
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(THE FOLLOWING INFORMATION APPLIES TO THE NEXT TWO PROBLEMS.)
A contractor enters into a construction contract on January 1, 2015. The contractor agrees to a fixed
price of P9,000 to build a bridge. The contractor’s initial estimate of contract costs is P8,000. The
contract expects that it will take three years to build the bridge. The contractor has a December 31
year-end.

By the end of the first year of the contract (December 31, 2015), the contractor’s estimate of
total costs has increased to P8,050 (cost incurred in 2015 amounted to P2,093).
In 2016, the customer and contractor agree to a variation resulting in an increase in contract
revenue of P200 and estimated additional contract costs of P150. At the end of 2016, costs incurred of
P4,075 include P100 paid for standard materials stored at the site to be used in 2017 to complete the
project.
The contractor determines the stage of completion of the contract by calculating the proportion
that contract costs incurred for work performed to date bear to the latest estimated total contract costs.

40. Determine the revenue, expenses, and profit for the year 2016: A
Revenue Expenses Profit Revenue Expenses Profit
a. P4,468 P3,975 P493 c. P5,071 P4,075 P503
b. P2,340 P2,093 P247 d. P4,568 P4,075 P493

41. Determine the revenue, expenses, and profit for the year 2017: D
Revenue Expenses Profit Revenue Expenses Profit
a. P4,468 P3,975 P493 c. P2,592 P2,032 P497
b. P2,340 P2,093 P247 d. P 2,392 P2,132 P260

(THE FOLLOWING INFORMATION APPLIES TO THE NEXT THREE PROBLEMS.)

A construction contractor has a fixed price contract for P100,000 to construct a building (the project).
The contractor’s estimate of total contract costs is P60,000. It will take two years to construct the
building.
At the end of the first year of the project (31 December 2016):
 The contractor has incurred costs of P20,000 on the contract, including P2,000 on
cement that is held offsite.
 An independent surveyor certified that 28 percent of the contract work is completed.
 The site was cleared (stipulated in the contract to constitute 10 percent of the total
project), the foundation laid (stipulated as 5 percent of the total project) and the walls of
the building erected (stipulated as 14 percent of the total project).
The contractor determines that the stage of completion of the construction contract is measured most
reliably by reference to the proportion that costs incurred for work performed to date bear to the
estimated total costs.
42. On December 31, 2016 the stage of completion of the contract is: A
a. 30% c. 28%
b. 33 1/3 % d. 29%
43. If the contractor determines that the stage of completion of the construction contract is measured most
reliably by reference to independent surveys of worked performed, the 31 December 2016 stage of
completion of the contract is: C
a. 30% c. 28%
b. 33 1/3 % d. 29%
44. If the contractor determines that the stage of completion of the construction contract is measured most
reliably by reference to completion of physical proportion of the contract work , the 31 December 2016
stage of completion of the contract is: D
a. 30% c. 28%
b. 33 1/3 % d. 29%

45. If 1 Canadian dollar can be exchanged for 90 cents of Philippine peso, what fractions should be used to
compute the indirect quotation of the exchange rate expressed in Canadian dollars? C
a. 1.10/1 c. 1/0.9
b. 1/1.10 d. 0.9/1.

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 46. An entity has a subsidiary that operates in a foreign country. The subsidiary issued a legal notice of a
dividend to the parent of 2.4 million baht, and this was recorded in the parent entity’s financial
statements. The exchange rate at that date was 2 baht=1. The functional currency of the entity is the
peso. At the date of receipt of the dividend the exchange rate has moved to 3 baht=1. The exchange
difference arising on the dividend would be treated in which way in the financial statements? D
a. No exchange difference will arise as it will be eliminated on consolidation.
b. An exchange difference of P400,000 will be taken to equity.
c. An exchange difference of P400,000 will be taken to the parent entity’s income statement only.
d. An exchange difference of P400,000 will be taken to the parent entity’s income statement and
the group income statement.
47. An entity started trading in country A, whose currency was the dollar. After several years the entity
expanded and exported its product to country B, whose currency was the euro, and conducted
business through a branch. The functional currency of the group was deemed to be the dollar but by
the end of the current year, 80% of the business was conducted in country B using the euro. At the end
of prior year, 30% of the business was conducted in the euro. The functional currency should: D
A. Remain the dollar
B. Change to the euro at the beginning of the current year
C. Change to the euro at the end of the current year
D. Change to the euro at the end of the current year if it is considered that the underlying transactions,
events and conditions of business have changed.

48. On May 1, 2013, PERFECT Co. anticipated the purchase of 85,000 units of merchandise from a foreign
vendor. The purchase would probably occur on October 28, 2013 and require the payment of 1,250,000
foreign currencies (FC). On May 1, 2013, the company purchased a call option to buy 1,250,000FC at a
strike price of 1FC = P0.27. An option premium of P14000 was paid. Changes in the value of the option
will be excluded from the assessment of hedge effectiveness. For the year 2013, the following rates are
as follows:

May 1 May 31 June 30 October 28

Spot Rate P 0.25 P 0.28 P 0.30 P 0.32
Strike Price 0.27 0.27 0.27 0.27
FV of call P14,000 P17,500 P39,000 ?
option

The foreign exchange gain (loss) on option contract to be recognized in (1) equity and (2) earnings on
June 30: D

a. P(25,000) ; P 3,500 c. P 25,000 ; P(21,500)

b. P(37,500) ; P21,500 d. P 37,500 ; P(3,500)

49. Connie Corp. had a realized foreign exchange loss of P15,000 for the year ended December 31, 2011
and must also determine whether the following items will require year-end adjustment:
• Connie had an P8,000 loss resulting from the translation of the accounts of its wholly owned
foreign subsidiary for the year ended December 31, 2011.
• Connie had an account payable to an unrelated foreign supplier payable in the supplier’s local
currency. The Philippine peso equivalent of the payable was P64,000 on the October 31, 2011
invoice date, and it was P60,000 on December 31, 2011. The invoice is payable on January 30,
2012.
In Connie’s 2011 consolidated income statement, what amount should be included as foreign exchange
loss? A
A. P 11,000 C. P 19,000
B. P 15,000 D. P 23,000
(THE FOLLOWING INFORMATION APPLIES TO THE NEXT TWO PROBLEMS.)
Use the following information for the next two questions: ABC Co. had the following foreign currency
transactions on April 1, 20x1:

 Purchased goods worth CHF 40,000 (francs) from Swiss Company, a company based in Switzerland.
 Sold goods with sale price of VEB 4,000 (bolivars) to Venezuelan Company, a company based in
Venezuela.
Both the transactions were settled on April 30, 20x1. The following were the spot exchange rates:

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 Buying Selling
Swiss Francs
April 1, 20x1…………………………₱44:CHF1 ₱48: CHF1
April 30, 20x1……………………….₱47:CHF1 ₱50: CHF1
Bolivars
April 1, 20x1…………………………₱10:CHF1 ₱12: CHF1
April 30, 20x1……………………….₱13:CHF1 ₱16: CHF1
50. How much is the foreign exchange gain (loss) on the purchase transaction? D
a. (120,000) b. 120,000 c. 80,000 d. (80,000)
51. How much is the foreign exchange gain (loss) on the sale transaction? B
a. 16,000 b. 12,000 c. (16,000) d. (12,000)
52. On January 1, 2016, Kiner Company formed a foreign branch. The branch purchased merchandise at a
cost of 720,000 local currency units (LCU) on February 15, 2016. The purchase price was equivalent to
P180,000 on this date. The branch’s inventory at December 31, 2016 was consisted solely of
merchandise purchased on February 15, 2016, and amounted to P240,000 LCU. The exchange rate
was 6 LCU to P1 on December 31, 2016, and the average rate of exchange was 5 LCU to P1 for 2016.
In Kiner’s December 31, 2016 balance sheet, the branch inventory balance of 240,000 LCU should be
translated using closing rate method into Philippine pesos at: C
a. P48,000 c. P40,000
b. 60,000 d. 84,000
(THE FOLLOWING INFORMATION APPLIES TO THE NEXT TWO PROBLEMS.)
Certain balance sheet accounts of a foreign subsidiary of Rose Company have been stated in Philippine
pesos as follows:
Stated

Current Rates Historical Rates

Accounts receivable, current P 200,000 P 220,000
Accounts receivable, long-term 100,000 110,000
Prepaid insurance 50,000 55,000
Goodwill 80,000 85,000
P 430,000 P 470,000

53. The subsidiary’s functional currency is peso. What total amount Rose’s balance sheet include for the
preceding items? C
a. P430,000 b. P435,000 c. P440,000 d. P450,000

54. The subsidiary’s functional currency is the local currency unit. What amount should Rose’s balance
sheet include for the preceding items? A
a. P430,000 b. P435,000 c. P440,000 d. P450,000

(THE FOLLOWING INFORMATION APPLIES TO THE NEXT THREE PROBLEMS.)

Pinoy Company operates in a hyperinflationary economy. Its balance sheet at December 31, 2019,
follows:

BAHT (‘000)
Property, Plant and Equipment 900
Inventory 2,700
Cash 350
Share Capital (issued 2015) 400
Retained Earnings 2,350
Noncurrent Liabilities 500
Current Liabilities 700
The general price index had moved in this way:

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 December 31
2015 100
2016 130
2017 150
2018 240
2019 300
The property, plant and equipment was purchased on December 31, 2018, and there is a six months
inventory held. The noncurrent liabilities were a loan raised on March 31, 2019.
55. The total assets after adjusting for hyperinflation should be: (‘000) C
a. P5,850 c. P5,150
b. 1,550 d. 11,850
56. The retained earnings on December 31, 2019: C
a. P2,350 c. P 2,750
b. 2,937 d. 7,050
57. Determine the retained earnings on December 31, 2019 (in ‘000s) assuming the following exchange
rates: B

December 31
2015 1.2
2016 1.24
2017 1.27
2018 1.50
2019 1.75
a. P4,125.00 c. P3,525.00
b. 4,812.50 d. 2,750.00
(THE FOLLOWING INFORMATION APPLIES TO THE NEXT TWO PROBLEMS.)
On November 1, 2017, Creamline Dairy Corp. concluded that the Thailand baht would weaken during
the next six months because of the coup that transpired recently. In hopes of reporting a gain,
Creamline entered into a foreign exchange forward for speculation on November 1, 2017 to sell
1,000,000 baht on April 30, 2018 at the forward rate.

11/1/2017 12/31/2017 4/30/2018

Spot rate (baht) P1.190 P1.180 P1.210
Forward rate (baht) 1.199 1.187 1.210
58. The December 31, 2017 profit or loss statement, foreign exchange gain or loss on forward contract
amounted to: A
a. P12,000 gain c. P10,000 gain
b. 12,000 loss d. 10,000 loss
59. On April 30, 2018, foreign exchange gain or loss on forward contract amounted to (ignoring any
discount reversal): B
a. P23,000 gain c. P30,000 gain
b. 23,000 loss d. 30,000 loss
(THE FOLLOWING INFORMATION APPLIES TO THE NEXT FIVE PROBLEMS.)
Stark, Inc. placed an order for inventory costing 500,000 foreign currency (FC) with a foreign vendor on
April 15 when the spot rate was 1FC=0.683. Stark received the goods on May 1 when the spot rate was
1FC=P0.687. Also on May 1, Stark entered into a 90-day forward contract to purchase 500,000 FC at a
forward rate of 1 FC=P0.693. Payment was made to the foreign vendor on August 1 when the spot rate was
1FC=P0.696. Stark has a June 30 year-end. In that date, the spot rate was 1FC=P0.691, and the forward rate
on the contract was 1 FC=P0.695. Changes in the current value of the forward contract are measured as the
present value of the changes in the forward rates over time. The relevant discount rate is 6%.
60. The foreign exchange gain or loss on hedging instrument(forward contract) on June 30 amounted to: B
a. P2,000 c. P1,000
b. 995 d. Zero
61. The nominal value of the forward contract on June 30 amounted to: B
a. P2,000 c. P1,000
b. 995 d. Zero
62. The fair value of the forward contract on June 30 amounted to: B
a. P2,000 c. P1,000
b. 995 d. Zero

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63. The net income effect on June 30 amounted to: B
a. P2,000 c. P995
b. 1,005 d. None of the above.
64. The foreign exchange gain due to hedging instrument on August 1 amounted to: C
a. P2,000 c. P 505
b. 2,500 d. None of the above.

65. Which of the following transactions or events would cause increase in unrestricted net asset for the
year ended December 31, 2018? B
I. A voluntary health and welfare organization spent a restricted donation which was received in
2017. In accordance with the donor’s wishes, the donation was spent on public health education
during 2018.
II. During 2018, a private, not-for-profit college earned dividends and interest on term endowment.
Donors placed no restrictions on the earnings of term endowments. The governing board of
the college intends to use this investment income to fund undergraduate scholarships for 2019.
a. I only c. Neither I nor II.
b. II only d. Both I and II.

66. Princess Hospital, a nonprofit hospital affiliated with a private university, provided P200,000 of charity
care for patients during the year ended December 31, 2017. The hospital should report the charity care:
D
a. As net patient service revenue of P200,000 on the statement of operations.
b. As net patient service revenue of P200,000 and as operating expense of P200,000 on the
statement of operation.
c. As accounts receivable of P200,000 on the balance sheet at December 31, 2017.
d. Only in the notes to the financial statements for 2017 because it does not qualify for recognition
as an asset or revenue.

67. During 2017, Ms. Florendo, a prominent art collector, donated several items in her collection to the
Davao Museum, a private, not-for-profit organization. Ms. Florendo stipulated that her contribution be
shown to public, that it should be preserved, and not be sold. Davao’s accounting policy is to capitalize
all donations of art, historical treasures and similar items. On the date of donation, what was the effect
of Ms. Florendo’s donation on Davao’s financial statement? B
a. Temporarily restricted net assets increased.
b. Permanently restricted net assets increased.
c. Reclassifications caused a simultaneous increase in permanently restricted net assets and a
decrease in temporarily restricted net assets,
d. There was no effect on any class of Davao’s net assets.

68. An entity, whose functional currency is the dollar, purchases machinery from a foreign supplier for 8
million euros on 31 October 2008 when the exchange rate was 1.5 euros = 1 dollar. At the entity’s year-
end of 31 December 2008, the amount has not been paid. The closing exchange rate was 1.25 euros =
1 dollar. Which of the following statements are correct? A
a. Cost of plant $5.33million dollars, exchange loss $1.07 million, trade payable $6.4 million
b. Cost of plant $5.33 million dollars, no exchange loss, trade payable $5.33 million
c. Cost of plant $6.4 million dollars, no exchange gain, trade payable $6.4 million
d. Cost of plant $6.4 million dollars, exchange gain $1.07 million, trade payable $5.33

69. According to PAS 21 The effects of changes in foreign exchange rates, exchange differences
should be recognized either in profit or loss or in other comprehensive income. Are the following
statements about the recognition of exchange differences in respect of foreign currency transactions
reported in an entity's functional currency true or false according to PAS 21? C
I. Any exchange difference on the settlement of a monetary item should be recognized in profit or loss.
II. Any exchange difference on the translation of a monetary item at a rate different to that used at initial
recognition should be recognized in other comprehensive income.
a. False, False b. False, True c. True, False d. True, True

70. I. Presentation currency is currency of the primary economic environment in which the entity
operated. F functional currency
II. In determining the functional currency, the primary indicator is the currency that is mainly
influencing the sales price of the entity’s goods and services. T

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 III. Monetary items are currencies held and assets and liabilities to be received or paid in a variable
amount of money. F A fixed
a. Only 1 statement is true. c. Only 2 statements are correct.
b. All statements are correct. d. All statements are incorrect.

71. Which of the following are identified as types of hedge? D

I. Fair value hedge
II. Cash flow hedge
III. Hedge of a net investment in foreign operation
IV. Forward or futures contract
V. Call or put options
a. I, II, III, IV, and V c. I and II
b. I,II,III, and IV d. I, II, and III

72. I. Call option is an option to buy the underlying while put option is to option granting the right to
sell the underlying. It means that a person is not required to exercise these options. T
II. It is called “in the money” if the option is likely to be exercised. In call option, this is when the
strike price is less than the market price. T
III. The change in the fair value is the total gains/losses on the hedging instrument to be recorded
in the profit or loss if it is fair value hedge and in OCI if it is a cash flow hedge. T B
a. Only 1 statement is true. c. Only 2 statements are correct.
b. All statements are correct. d. All statements are incorrect.

73. I. Futures contract is the same thing with forward contracts except that instead of being negotiated
between two parties, the contract is a standard one that is sponsored by an organized exchange. T
II. The underlying is the number of currency units, number of shares, number of bushels of
commodity, pounds or other units specified in the financial instrument, it may also refer to the principal
amount of debt. F notional amount
III. There are two methods of translation that is (1) Closing/ Current Rate Method which is used
when the foreign operations operates independently in economic and financial matters; (2)
Temporal method/Remeasurement Method which is used when the foreign operation is
integrated with the parent’s operation. T C
a. Only 1 statement is true. c. Only 2 statements are correct.
b. All statements are correct. d. All statements are incorrect.

74. Which of the following are the registries maintained to control allotment and obligations for each of the
classes of allotments? I,II, III,IV C
I. Registry of Allotments and Obligation – Capital Outlay
II. Registry of Allotments and Obligation- Maintenance and Other Operating Expenses
III. Registry of Allotments and Obligation- Personal Services
IV. Registry of Allotments and Obligation- Financial Expenses
V. Registry of Allotments and Obligation- Personal Fund
a. I, II, and IV c. I, II, III, and IV
b. I, II,III, IV, and V d. I, II, IV, and V

75. GAM means: B

a. Government Accounting Manuscript c. Government Accounts Manual
b. Government Accounting Manual d. Grrr Ayoko Mabagsak

-end-

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 ADVANCED ACCOUNTING AND FINANCIAL REPORTING III
Departmental Final Examination – ANSWER SHEET
1st Semester - Academic Year 2019-2020

NAME: _____________________________________________ Year Level: _____ Instructor: _____________

Instruction: Shade the box which corresponds to the letter of your choice. For items without selection (if any),
write your answer legibly. Use permanent-ink pen. Erasure is prohibited. When you’re done, detach
this answer sheet, submit it to the proctor, and leave the testing room silently.

1. [A] [B] [C] [D] 36. [A] [B] [C] [D] 71. [A] [B] [C] [D]
2. [A] [B] [C] [D] 37. [A] [B] [C] [D] 72. [A] [B] [C] [D]
3. [A] [B] [C] [D] 38. [A] [B] [C] [D] 73. [A] [B] [C] [D]
4. [A] [B] [C] [D] 39. [A] [B] [C] [D] 74. [A] [B] [C] [D]
5. [A] [B] [C] [D] 40. [A] [B] [C] [D] 75. [A] [B] [C] [D]
6. [A] [B] [C] [D] 41. [A] [B] [C] [D] 76. [A] [B] [C] [D]
7. [A] [B] [C] [D] 42. [A] [B] [C] [D] 77. [A] [B] [C] [D]
8. [A] [B] [C] [D] 43. [A] [B] [C] [D] 78. [A] [B] [C] [D]
9. [A] [B] [C] [D] 44. [A] [B] [C] [D] 79. [A] [B] [C] [D]
10. [A] [B] [C] [D] 45. [A] [B] [C] [D] 80. [A] [B] [C] [D]
11. [A] [B] [C] [D] 46. [A] [B] [C] [D] 81. [A] [B] [C] [D]
12. [A] [B] [C] [D] 47. [A] [B] [C] [D] 82. [A] [B] [C] [D]
13. [A] [B] [C] [D] 48. [A] [B] [C] [D] 83. [A] [B] [C] [D]
14. [A] [B] [C] [D] 49. [A] [B] [C] [D] 84. [A] [B] [C] [D]
15. [A] [B] [C] [D] 50. [A] [B] [C] [D] 85. [A] [B] [C] [D]
16. [A] [B] [C] [D] 51. [A] [B] [C] [D] 86. [A] [B] [C] [D]
17. [A] [B] [C] [D] 52. [A] [B] [C] [D] 87. [A] [B] [C] [D]
18. [A] [B] [C] [D] 53. [A] [B] [C] [D] 88. [A] [B] [C] [D]
19. [A] [B] [C] [D] 54. [A] [B] [C] [D] 89. [A] [B] [C] [D]
20. [A] [B] [C] [D] 55. [A] [B] [C] [D] 90. [A] [B] [C] [D]
21. [A] [B] [C] [D] 56. [A] [B] [C] [D] 91. [A] [B] [C] [D]
22. [A] [B] [C] [D] 57. [A] [B] [C] [D] 92. [A] [B] [C] [D]
23. [A] [B] [C] [D] 58. [A] [B] [C] [D] 93. [A] [B] [C] [D]
24. [A] [B] [C] [D] 59. [A] [B] [C] [D] 94. [A] [B] [C] [D]
25. [A] [B] [C] [D] 60. [A] [B] [C] [D] 95. [A] [B] [C] [D]
26. [A] [B] [C] [D] 61. [A] [B] [C] [D] 96. [A] [B] [C] [D]
27. [A] [B] [C] [D] 62. [A] [B] [C] [D] 97. [A] [B] [C] [D]
28. [A] [B] [C] [D] 63. [A] [B] [C] [D] 98. [A] [B] [C] [D]
29. [A] [B] [C] [D] 64. [A] [B] [C] [D] 99. [A] [B] [C] [D]
30. [A] [B] [C] [D] 65. [A] [B] [C] [D] 100. [A] [B] [C] [D]
31. [A] [B] [C] [D] 66. [A] [B] [C] [D]
32. [A] [B] [C] [D] 67. [A] [B] [C] [D]
33. [A] [B] [C] [D] 68. [A] [B] [C] [D]
34. [A] [B] [C] [D] 69. [A] [B] [C] [D]
35. [A] [B] [C] [D] 70. [A] [B] [C] [D]

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