Problem 1.

The following information are taken from the books and records of Pacific Company and its branch.
The balances are at December 31, 2020, the second year of company’s operations.
Home Office Books Branch Books
Sales P 480,000
Expenses 120,000
Shipments to branch P 240,000
Allowance for overvaluation of branch inventory 69,000
The branch obtains all of its merchandise from the home office. The home office ships the merchandise at
125% of its cost. The ending inventory of the branch is P 48,000 at the billed price.
1. The beginning inventory of the branch at billed price is:
2. The net income as reflected on the books of the branch is:
3. The true income of the branch is:

Problem 2. The unadjusted trial balance for the home office and the branch of Malakas Company show the
following items on December 31:
Home Office Books Branch Books
Allowance for overvaluation of branch inventory P 43,200
Shipments to branch 96,000
Purchases (from outsiders) P 30,000
Shipments from home office 115,200
Merchandise inventory, January 1 180,000
Branch inventory on December 31 is P 120,000, including P 19,200 acquired from outsiders. The home office
bills the branch at 120% cost.
1. How much of the branch inventory as of January 1 represented purchases from outsiders?
2. The realized branch profit to be adjusted is?

Problem 3. The following data are provided by Worldwide Corporation which is undergoing liquidation
process:
 Total liabilities amounts to P 692,000. 35% is fully secured by assets amounting to P 270,000 with fair
market value of P 250,000; 40% is partially secured by assets amounting to P 300,000 with realizable
value of P 225,000; and the remaining balance is unsecured.
 Total assets amounts to P 890,000 and has a total fair market value P 695,000.
 Unpaid income taxes amounts to P 35,000. Additional salaries payable and administrative expenses
totaled P 28,000.
 Deficit amounts to P 79,000.
True or False? Support your answer with a solution.
1. Assets available to all unsecured creditors with and without priority is P 227,800.
2. The amount paid to partially secured creditors is P 225,000.
3. The estate deficit amount to P 60,000.
4. The amount paid to all secured creditors is P 695,000.

Problem 4. A review of the assets and liabilities of Atlantis Corporation in bankruptcy on Nov. 30, 2020,
discloses the following:
 A mortgage payable of P 77,000, is secured by building valued at P 14,000 more than its book value of P
68,000.
 Notes payable of P 39,000 is secured by furniture and equipment with book value of P 46,000 that is
estimated to be 4/5 realizable.
 Assets other than those referred to have estimated value of P 25,000, an amount that is P 6,000 above
its book value.
 Liabilities other than those referred to total P 31,000, which excluded claims with priority of P 8,000.
True or False? Support your answer with a solution.
1. Actual recovery percentage is 66.27%
2. Total free assets is P 22,000
3. Estimated deficiency to unsecured creditors is P 11,200
4. Payment to partially secured creditors amount to P 36,800.

Joint Arrangement
1. IFRS 11, Joint Arrangement, provides that a joint operator shall recognize the following, in relation to its
interest in a joint operation, except
a. Its expenses, including its share of any expenses incurred jointly.
b. Its liabilities, including its share of any liabilities incurred jointly.
c. Its interest as an investment using the equity method.
d. Its assets, including its share of any asset held jointly.

2. IFRS 11, Joint Arrangement, provides that the classification of the arrangements will require entities to apply
judgment when assessing their rights and obligations arising from the arrangement by considering the
following except
a. The terms agreed by the parties in the contractual arrangements.
b. The structure and legal form of the arrangement.
c. When structured in a legal entity, the choice between proportionate consolidation and the equity method.
d. When relevant, other facts and circumstances.

3. According to IFRS 11, Joint Arrangement, what is the method of accounting for investment in joint venture?
a. Proportionate consolidation method c. Equity method
b. Cost method d. Fair Value method

4. Which of the following is a characteristics of a joint arrangement?

a. The parties are bound by a contractual arrangement only.
b. The contractual arrangement gives two or more parties joint control over the arrangement only.
c. The parties are bound by a contractual arrangement and the contractual arrangement gives two or more
parties joint control over the arrangement.
d. A joint arrangement is neither a joint operation not joint venture.

5. It is a separately identifiable financial structure, including separate legal entities or entities recognized by
statute, regardless of whether those entities have legal personality.
a. Separate vehicle c. Joint operator
b. Party to a joint arrangement d. Joint venture

6. A joint arrangement whereby the parties that have joint control of the arrangement have rights to the net
assets of the arrangement.
a. joint operation b. joint venture c. joint arrangement d. elbow joint

7. A joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets,
and obligations for the liabilities, relating to the arrangement.
a. joint operation b. joint venture c. joint arrangement d. elbow joint

8. A party to a joint operation that has joint control of that joint operation.
a. joint operationist b. joint venturer c. joint arranger d. joint operator

9. A party to a joint venture that has joint control of that joint venture.
a. joint venturist b. joint operationer c. joint arrangementor d. joint venturer

10. According to PFRS 11, it is an entity that participates in a joint arrangement, regardless of whether that
entity has joint control of the arrangement.
a. joint arranger c. minority interest
b. party to a joint arrangement d. participating cat

Problem 5. The following are the transactions of a joint operation formed by A, B and C during a year:
 A contributed cash of ₱400 and merchandise costing ₱800.
 B contributed merchandise costing ₱1,600. Freight-in paid by B is ₱80.
 C made purchases amounting to ₱400 using the cash contributed by A.
 C paid expenses of ₱800 using its own cash.
 C made total sales of ₱3,200. All the merchandise was sold except one-half of those contributed by B.
 C is appointed as the manager of the joint operation. As compensation, C is entitled to a ₱120 salary plus
bonus of 25% on profit after salary and bonus.
 Interest of 10% per annum is allowed to A and B’s capital contributions.
 C is charged for the cost of any unsold inventory. Profit or loss after necessary adjustments shall be divided
equally.
1. How much is the profit or loss after salaries but before bonus of the joint operation?
2. Cash settlement between the joint operators.
6. P45,000
Balance of Allowance for overvaluation of branch
inventory account before adjustment . . . . . . . . . P 69,000
Less Overvaluation of shipments from HO:
Billed price (P240,000 x 125%). . . . . . . . . . . . . . . . . P 250,000
Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200,000 60,000
Overvaluation of beginning inventory. . . . . . . . . . . . . 9,000
Add Beginning inventory at cost (P11,640 ÷ 25%) . . . . 36,000
Branch beginning inventory at billed price . . . . . . . . . P 45,000

7. P63,000
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 480,000
Cost of sales: (see no.6) . . . . . . . . . . . . . . . . . . . . . . . . .
Beginning inventory. . . . . . . . . . . . . . . . . . . . . . . . . P 45,000
Shipments from HO (P240,000 x 125%). . . . . . . . . . 300,000
CGAS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 345,000
Less ending inventory. . . . . . . . . . . . . . . . . . . . . . . . 48,000 297,000
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 183,000
Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120,000
Branch net income, per books . . . . . . . . . . . . . . . . . . . P 63,000

8. P122,400
Branch net income, per books (see no. 7) . . . . . . . . P 63,000
.
Add realized profit -
Allowance for overvaluation of branch P 69,000
inventory
Less Overvaluation of branch ending
inventory:
Billed price. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 48,000
Cost (P48,000 ÷ 38,400 9,600 59,400
125%). . . . . . . . . . . . . . . . . . . .
True branch net income. . . . . . . . . . . . . . . . . . . . . . . . P
122,400

Problem 5.
17. P36,000
Balance of Allowance for overvaluation of branch inventory . . . . . P 43,200
..
Less Overvaluation of shipments from HO (P115,200 – P96,000) . . 19,200
.. ...
Overvaluation of beginning inventory from HO . . . . . . . . . . . . . . . . . . . 24,000
.
Add Cost of beginning inventory from HO (P24,000 ÷ 120,000
20%) . . . . . . . . . . .
Beginning inventory from HO, at billed P
price. . . . . . . . . . . . . . . . . . . . . . . 144,000

Merchandise inventory, January 1 per books . . . . . . . . . . . . . . . . . . . . . . P

180,000
 Less beginning inventory from HO (see above) . . . . . . . . . . . . . . . . . . . . 144,000
.
Branch beginning inventory from outsiders . . . . . . . . . . . . . . . . . . . . . . . P 36,000
.

18. P26,400
Balance of allowance for overvaluation of branch P
inventory 43,200
Less Overvaluation of branch ending inventory from HO:
Billed price (P120,000 – P19,200) . . . . . . . . . . . . . . . . . . P100,800
..
Cost (P100,800 ÷ 120%) . . . . . . . . . . . . . . . . . . . . . . . . . . . 84,000 16,800
Realized branch profit to be adjusted . . . . . . . . . . . . . . . . . . . P
26,400

1. B
Solutions:
Profit or loss is computed as follows:
Joint operation
Merchandise – A 800 3200 Sales – C
Purchases - A's cash 400  
Merchandise – B 1600 840 Unsold inventory charged to C*
Freight - in – B 80  
Expenses – C 800  
Profit before salary and bonus - Credit
360
balance
Salaries expense - C 120  
Profit after salary but before bonus - Credit
240
balance
Bonus expense** 48  
192 Profit after salary and bonus

*Unsold inventory: (₱1,600 plus ₱80 freight-in) multiplied by one-half.

2. C
Solution:
Profit is allocated to the joint operators as follows:
Allocation to: A B C Totals
Profit before salary and bonus 360
Salary to C 120 (120)
Bonus to C** 48 (48)
Profit after salary and bonus 192
Interest on capital: -
A - (300 x 10%) 120 (120)
B - (420 x 10%) 168 (168)
Profit after interests on capital (96)
Allocation (24 ÷ 3) (32) (32) (32) 96
Net share - as allocated 88 136 136 -

**Bonus is computed as follows:

P
B = P -
1 + Br
B = 240 – (240 ÷ 1.25%) = 48

Cash settlement is determined as follows:

Joint operation - A
Inventory contributed
400
by A  
Cash contribution 800  
 Net share in profit 88  
Cash settlement –
1,288
receipt  

Joint operation - B
Inventory contributed 1,600  
Freight paid 80  
Net share in profit 136  
Cash settlement –
1,816
receipt  

Joint operation – C
Expenses paid 800 840 Cost of inventory taken
Net share in profit 136
Cash settlement - receipt 96