Prelim Bring Home Exam

1.) Answer: 1 050 000

December 31, 2018 C’s Capital Balance 320,000

Add: C’s drawings at the end of 2018 400,000

Less: C’s additional investment during 2018 (300,000)

Less: C’s capital balance on January 1, 2018 (200,000)
C’s share in partnership profit for the year ended December 31, 2018 220,000

C’s share in profit for the year 2018 220,000

Less: Interest on original capital contribution of C (200,000 x 10%) ( 20,000)
C’s share in the remaining profit after interest, salary and bonus 200,000

Multiply by number of partners x 3

Remaining profit after interest, salary and bonus 600,000

Divided by 80% / 80%

Net profit after salary and interest but before bonus to managing partner 750,000

Add: Total interest and salary (100,000 + 200,000) 300,000

Partnership profit for the year ended December 31, 2018 1,050,000

2.) Answer: 540 000

Interest on capital (10% x 300,000) 30,000

Salary (40,000 x 4) 160,000
Bonus to A 150,000
Equal share in remaining profit (600,000 / 3) 200,000
Total share of A in partnership profit 540,000

Partnership profit for the year ended December 31, 2018 1,050,000
Less: Total interest and salary (100,000 + 200,000) (300,000)
Net profit after salary and interest but before bonus to managing partner 750,000
Multiply by Bonus percentage x 20%
Bonus to A as managing partner 150,000
3.) Answer: 290 000
Interest on capital (10% x 500,000) 50,000
Salary (10,000 x 4) 40,000
Equal share in remaining profit 200,000
Total share of B in partnership profit 290,000

4.) Answer: 1 951 500

7.) Answer: 2 900 000

K J
Cash 300,000 700,000
Machinery & Equipment 250,000 750,000
Building - 2,250,000
Furnitures & Fixtures 100,000 -
Total 650,000 3,700,000
Mortgage payable - 800,000
Capital balance 650,000 2,900,000

8.) Answer: LL

JJ KK LL

Investment 75,000 120,000 82,500

Mortgage payable - (52,500) -

Capital Balance 75,000 67,500 82,500

11. Answer: 130 000

J K L

Investment 160, 000 140,000 300,000

Payment (200,000) - -

Capital balance (40,000) 140,000 300,000

40,000 x 1/4 (10,000)

40,000 x 3/4 (30,000)

Capital balance after 130,000 270,000

retirement
12.) Answer: 270 000

J K L

Investment 160, 000 140,000 300,000

Payment (200,000) - -

Capital balance (40,000) 140,000 300,000

40,000 x 1/4 (10,000)

40,000 x 3/4 (30,000)

Capital balance after 130,000 270,000

retirement

13-15

J K L

Personal Assets 25,000 45,000 30,000

Personal Liabilities 10,000 30,000 20,000

15,000 15,000 10,000

13.) Answer: 0

J K L

Capital balance 40,000 (20,000) (10,000)

Additional investment - 15,000 10,000

Balance after additional 40,000 (5,000) 0

balance

Additional loss to (5,000) 5,000

insolvency of L

Payment to partners 35,000 0

14.) Answer: 35,000

 J K L

Capital balance 40,000 (20,000) (10,000)

Additional investment - 15,000 10,000

Balance after additional 40,000 (5,000) 0

balance

Additional loss to (5,000) 5,000

insolvency of L

Payment to partners 35,000 0

15.) Answer: 0

J K L

Capital balance 40,000 (20,000) (10,000)

Additional investment - 15,000 10,000

Balance after additional 40,000 (5,000) 0

balance

Additional loss to (5,000) 5,000

insolvency of L

Payment to partners 35,000 0

16.) Answer: 5 600

40% 25% 35%

Assets Liabilities Omar Paolo Quek

Balance Nov. 1 210,000 96,000 24,000 26,000 64,000

Inventory sold 10,000 4,000 2,500 3,500

Sale of plant (26,000) (10,400) (6,500) (9,100)

Balances before 194,000 96,000 17,600 22,000 58,400

distribution

Offset loans (22,000) (8,000) (14,000)

Pay creditors (96,000) (96,000)

Partner's equity 76,000 9,600 22,000 44,400

Possible loss (10,000) (4,000) (2,500) (3,500)

plant asset

Cash 66,000 5,600 19,500 40,900

distribution

17.) Answer: 19 500

40% 25% 35%

Assets Liabilities Omar Paolo Quek

Balance Nov. 1 210,000 96,000 24,000 26,000 64,000

Inventory sold 10,000 4,000 2,500 3,500

Sale of plant (26,000) (10,400) (6,500) (9,100)

Balances before 194,000 96,000 17,600 22,000 58,400

distribution

Offset loans (22,000) (8,000) (14,000)

Pay creditors (96,000) (96,000)

Partner's equity 76,000 9,600 22,000 44,400

Possible loss (10,000) (4,000) (2,500) (3,500)

plant asset

Cash 66,000 5,600 19,500 40,900

distribution

18.) Answer: 40 900

40% 25% 35%

Assets Liabilities Omar Paolo Quek

Balance Nov. 1 210,000 96,000 24,000 26,000 64,000

Inventory sold 10,000 4,000 2,500 3,500

 40% 25% 35%

Sale of plant (26,000) (10,400) (6,500) (9,100)

Balances before 194,000 96,000 17,600 22,000 58,400

distribution

Offset loans (22,000) (8,000) (14,000)

Pay creditors (96,000) (96,000)

Partner's equity 76,000 9,600 22,000 44,400

Possible loss (10,000) (4,000) (2,500) (3,500)

plant asset

Cash 66,000 5,600 19,500 40,900

distribution

19.) Answer: 300 000

Roger Sergio Tito

Capital balance 108,000 120,000 129,000

Offset of loan - 30,000 -

÷ by P/l ratio 30% 50% 20%

Maximum loss 360,000 300,000 645,000

absorption capacity

20.) Answer: 57 000

20%

Tito

Capital balance 129,000

Possible loss on asset (72,000)

Cash distribution 57,000

21.) Answer: 9 000

 30% 50% 20%

Cash Other assets Roger Sergio Tito

120,000 360,000 108,000 150,000 129,000

Realize on assets 45,000 (360,000)

Total 165,000

Loss on sale (94,500) (157,500) (63,000)

315,000*30%/50%/20%

Balance after loss 13,500 (7,500) 66,000

allocation

Additional loss due to (4,500) 7,500 (3,000)

insolvency of Sergio

Cash received 9,000 0 63,000

22.) Answer: 425,000

Debits Credits

To be realized 1,375, 000 Realized 1,200,000

Acquired 750,000 Not realized 1,375,000

Liquidated 1,875,000 To be Liquidated 2,250,000

Not Liquidated 1,700,000 Assumed 1,625,000

Total 5,700,000 Total 6,450,000

Supplementary: 3,125,000 Supplementary: 2,800,000

8,825,000 9,250,000

Net income 450,000

23.) Unsecured liabilities with priority - 7 000

24.) Fully secured liabilities - 30 000

25.) Answer: 57,200

[52,000 + (8,000 * 65%)]

26.) Answer: 72,800

(112,000 * 65%)

27.) Answer: 100 000

Revenue to be recognized upon sale is the cash price of which is P100,000

28.) Answer: 9 625

154,000 / 4 years = 38,500

38,500 x 3/12 = 9,625

29.) Answer: 710,000

30.) Answer:

31.) Answer: TRUE

Scope of PFRS 15

PFRS 15 applies to all contracts with customers EXCEPT for:

 PFRS 16 Leases;
 PFRS 9 Financial Instruments,
 PFRS 10 Consolidated Financial Statements,
 PFRS 11 Joint Arangements,
 PAS 27 Separate Financial Statements and
 PAS 28 Investments in Associates and Joint Ventures;
 PFRS 4 Insurance Contracts;
32.) Answer: TRANSACTION PRICE

Per PFRS 15 Step 3: Determine the transaction price

The transaction price is the amount to which an entity expects to be entitled in exchange for the transfer
of goods and services.

33.) Answer: FALSE

The seller recognize revenue when it satisfies a performance obligation by transferring the promised
good or service. Considering that "transfer" have occurred, so that the customer has CONTROL of the
good or service.

CONTROL means that the customer has direct-influence over the use of the good or service and obtains
the benefits.
 34.) Answer: FALSE

Sometimes a transaction price is uncertain because some of the price depends on the outcome of future
events.

Estimating Variable Consideration

When an amount to be received depends on some uncertain future event, tth seller still should include
the uncertain amount in the transaction price bb estimating the variable consideration using either:
price by

1. Expected Value: the sum of possible amounts multiplied by its pprobability weighted amount in a
range of possible consideration amounts:

a. May be appropriate if a company has a large number of contracts with similar characteristics.

b. Can be based on a limited number of discrete outcomes and probabilities,

2 Most Likely Amount: The single most likely amount in a range of posible

consideration outcomes.

35.) D - The event takes place

36.) D - None of these
37.) D - Allocate any gains or losses to the partners.
38.) RIGHT OF Offset - Offsetting a partner's loan balance against his debit capital balance.

39.) B - Partnership creditors have first claim on partnership assets.

40.) B - in a 2 to 1 ratio

41.) C - Meet the claims of the unsecured creditors

42.) D - Goodwill

43.) FREE Assets - In corporate liquidation, these are the assets that have not been pledged and
hence are not related to individual liability items

44.) STATEMENT OF AFFAIRS - It is a statement of position from a quitting concern point of view

45.) B - ll only After assuming all noncash assets were potentially worthless and that
assumed capital deficits created in X's and Y's capital balances were losses to be
allocated to Z; Z's capital balance was the only capital balance left with a credit.

ESSAY
1. Explain briefly the distinction between PAS 18 and PFRS 15.
 PAS 18 states that the recognition criteria depends on each type of revenue while PFRS 15
implements a uniform method which is the 5-step method in recognizing all types of revenue.
 Per PAS 18, revenue is recognized once risk and rewards are transferred to the buyer or
Purchaser while In PFRS 15 The seller recognize revenue when it satisfies a performance
obligation by transferring the promised good or service. Considering that "transfer" have occurred,
so that the customer has CONTROL of the good or service.
 PAS 18 Reporting criteria is decided on whether revenue is received from goods, services, interest,
royalties or dividends while PFRS 15 Reporting criteria will be recognized based on the contract and
performance obligation.

2. Discuss the 5-step method introduced by PFRS 15.

 Step 1 - Identifying the ccontract
A contract can be agreed in writing, orally, or through other customary business practices.
Recognize revenue if contracts meets All of the following criteria:
a) APPROVED. The parties to the contract have approved the contract and are committed to
perform their respective obligations.
b) RIGHTS. The entity can identify each party's rights regarding the goods or services to be
transferred.
c) PAYMENT TERMS. The entity can identify the payment terms for the goods or services to be
transferred.
d) COMMERCIAL SUBSTANCE. The contract has commercial substance.
e) PROBABLE Consideration. It is probable that the entity will collect the consideration to which it
will be entitled in exchange for the goods or services that will be transferred to the customer
 Step 2 - Identifying the separate performance obligations within a contract.
A Performance obligation is a promise in a contract to provide a product or service to a customer.
It can be;
a. Implicit
b. Explicit
c. Usual business prprpractice
Performance obligation exexists:
a. Provide DISTINCT products/services (Bundle, Separable)
b. Series of goods/services, transferred in the same way (Same)
 Step 3 - Determining the transaction price
Amounts collected on Behalf of THIRD PARTIES
-Sales Tax /VAT
-Exluded
Consideration
a. FIXED
b. VARIABLE
c. Both.
Effects must be considered when determining TRANSACTON PRICE:
1.TIME VALUE OF MONEY
 2 NON-CASH CONSIOERATION
3 CONSIDERATION PAYABLE TO THE CUSTOMER
4 VARIABLE CONSIDERATION
 Step 4 - Allocating the transaction price
PFRS 15 requires the transaction price to be allocated to each performance obligation identified in
the contract on a relative stand-alone selling price basis. The stand-alone selling price of the distinct
good or service underlying each performance obligation in the contract is determined at contract
inception and the transaction price is allocated in proportion to those stand-alone selling prices.
The stand-alone selling price is the price at which an entity would sell a promised good or service
separately to a customer. The best evidence of the stand-alone selling price is the observable price of
a good or service when it is sold separately in similar circumstances and to similar customers.
If a stand-alone selling price is not directly observable, it is estimated at an amount that would result
in the allocation of the transaction price meeting the objective.
If the stand-alone selling price of a good or service is not directly observable, suitable methods for
estimating the price include, but are not limited to:
a. An adjusted market assessment approach
b. An expected cost plus a margin approach
c. A residual approach
 Step 5 - Revenue recognised when (or as) performance obligations are satisfied
Revenue is recognised when the entity satisfies a performance obligation by transferring a promised
good or service to the customer. An asset is transferred when (or as) the customer obtains control of
that asset.
PFRS 15 requires entities to determine whether a performance obligation is satisfied (and revenue is
recognised) over time, or whether a performance obligation is satisfied (and revenue is recognised)
at a point in time for all contracts. No practical expedients are available that would permit, for
example for contracts with a short duration (e.g. less than a year), simply defaulting to point-in-time
recognition.
3. How does liquidation differ from rehabilitation of financially troubled corporation.
Rehabilitation pertains to the process of recovery and reorganization, and is especially applicable to a
juridical entity, such as a corporation, where the debtor retains ownership of its assets and continues
business operations while renegotiating debt repayments with creditors. In a liquidation, the creditors
seize control of the debtors assets and sell them to pay off the debt.

4. Explain the purpose or purposes of a cash priority program or cash safe payment schedule in
partnership liquidation. Why is it beneficial?
THIS CASH PRIORITY SCHEDULE OR PROGRAM IS CALLED REFERRED TO A PREDISTRIBUTION PLAN, OR
ADVANCE PLAN FOR THE DISTRIBUTION OF CASH . THIS PROGRAM OR SCHEDULES SPECIFIES THE ORDER
OR SEQUENCE OF PRIORITY IN WHICH EACH PARTNER WILL PARTICIPATE IN THE CASH DISTRIBUTION
AND THE AMOUNT OF EACH PARTNER WILL RECEIVE AS CASH BECOMES AVAILABLE.
THE OBJECTIVE OF THIS PLAN IS TO DETERMINE THE SEQUENCE OF THE PARTNER AND THE AMOUNT
OF CASH HE WILL RECEIVE WHEN A DISTRIBUTION OF CASH ISMADE .
5. Why should assets and liabilities be updated to current values prior to accounting for
dissolution?
Revaluation of assets and liabilities are supported on the basis that, in dissolution, the old partnership is
legally dissolved and a new partnership entity is formed. Therefore, the basis of valuation for new
entities is the fair value of the asset acquired and liabilities assumed by the newly fomed entity.