CPA REVIEW SCHOOL OF THE PHILIPPINES

MANILA

ADVANCED FINANCIAL ACCOUNTING AND REPORTING

FINAL PREBOARD EXAMINATION Sunday, September 11, 2016, 4:00 pm to 7:00 pm

Numbers 1, 2, 3, and 4

On January 2, 2016, Domus Corporation purchased 80% of the outstanding shares of Caritate Company
for a consideration of P19,000,000. Including in the price paid is control premium in the amount of
P500,000. The acquisition-related cost amount to P45,000. At that date, Caritate had P16,000,000 of
ordinary shares outstanding and retained earnings of P6,400,000.

Caritate's equipment with a remaining life of 5 years had a book value of P9,000,000 and a fair value of
P10,520,000. Caritate's remaining assets had book values equal to their fair values. All intangibles
except goodwill are expected to have remaining lives of 8 years. The income and dividend figures for
both
Domus and Caritate are as follows: Net income of Domus in 2016 is P3,600,000 ; 2017 is P4,400,000.
Net income of Caritate in 2016 is P1,360,000 ; 2017 is P2,040,000. Dividends declared by Domus in
2016 is P880,000 ; 2017 is P1,560,000. Dividends declared by Caritate in 2016 is P280,000 ; 2017 is
P520,000. Domus' retained earnings balance at the date of acquisition was P13,800,000.

1. What is the consolidated retained earnings attributable to controlling interest in 2017?

A. 20,953,600
B. 20,929,600
C. 21,089,600
D. 21,332,800

2. What is the consolidated profit in 2017?

A. 5,720,000
B. 5,856,000
C. 5,372,800
D. 5,752,000

3. What is the non-controlling interest in net assets in 2017?

A. 5.000,000
B. 5,209,600
C. 5,158,000
D. 5,182,400

4. What is the non-controlling interest in net income in 2016?

A. 211,200
B. 238,400
C. 272,000
D. 347,200
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Numbers 5 and 6
Parco Corporation acquired an 80% interest in Slack Company on January 2, 2016 for P10,800,000. On
this date, the share capital and retained earnings of the two companies follows:
Parco Corp. Slack Co.
Share Capital P24,000,000 P9,000,000
Retained Earnings 12,000,000 P1,800,000
On January 2, 2016 the asset and liabilities of Slack Co. were stated at their fair values except for
machinery which is undervalued by P900,000 (remaining life is 3 years). On September 30, 2016, Slack
sold merchandise to Parco as an inter-company profit of P600,000; 1/4 was still unsold at year end.
Likewise, on October 1, 2017, Slack purchased merchandise from Parco for P14,400,000. The selling
affiliate included a 20% mark-up on cost on this sale. Only 3/4 of these purchases had been sold to
unrelated parties as of December 31, 2017. As of December 31. 2017, goodwill was determined to be
impaired by P240,000.
The following is the summary of the 2017 transactions of the affiliated companies
Parco Corp. Slack Co.
Net Income P6,000,000 P2,400,000
Dividends declared and paid 2,400,000 720,000
5. What is the net income attributable to parent shareholders' equity in the 2017 consolidated
financial statements?
A. 6,432.000
B. 6,744,000
C. 6,552,000
D. 6,834,000
6. What is the non-controlling interest in net income in the 2017 consolidated financial
statements?
A. 330,000
B. 342,000
C. 282,000
D. 402,000
Numbers 7, 8, and 9
On January l, 2016, Rapids Company purchased 80% of the outstanding shares of Mock Corporation at
book value. The stockholders' equity of Mock Corporation on this date showed: Ordinary shares –
P4,560,000 and Retained earnings – P3,920,000. On April 30, 2016, Rapids Company acquired a used
machinery for P672,000 from Mock Corp. that was being carried in the latter's books at P840, 000. The
asset still has a remaining useful life of 5 years. On the other hand, on August 31, 2016, Mock Corp.
purchased an equipment that was already 20% depreciated from Rapids Co. for P2,760,000. The original
cost of this equipment was P3,000,000 and had a remaining life of 8 years. Net Income of Rapids Co.
and Mock Corp. for 2016 amounted to P2,880,000 and P 1,240,000. Dividends paid totaled to P920,000
and P420,000 for Rapids Co. and Mock Corp., respectively.
7. What is the net income in the consolidated financial statements in 2016?
A. 3,920,600
B. 3,775,000
C. 3,584,600
D. 3,307,480
8. What is the net income attributable to parent’s shareholders' equity in the consolidated
financial statements in 2016?
A. 3,336,600
B. 3,307,480
C. 3,643 480
D. 3,584,600
9. What is the non-controlling interest in net assets in the consolidated financial statements in
2016?
A. 1,696,000
B. 1,860,000
C. 1.820,120
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D. 1,889,120
Condensed Statements of Financial Position of Love Corp. and You Corp. as of December 31,2016 are
as follows:

Love You
Current Assets P 175,000 P 65,000
Noncurrent Assets 725,000 425,000
Total Assets 900,000 490,000
Liabilities 65,000 35,000
Ordinary Shares, P20 par 550,000 300,000
Share Premium 35,000 25,000
Retained Earnings 250,000 130,000
On January 1, 2017, Love Corp. issued 35,000 shares with a market value of P25/share for the assets and
liabilities of You Corp. The book value reflects the fair value of the assets and liabilities, except that the
noncurrent assets of You have fair value of P630,000 and the noncurrent assets of Love are overstated
by P30,000. Contingent consideration, which is determinable, is equal to P15,000. Love also paid for the
stock issuance costs worth P34,000 and other acquisition costs amounting to P19,000.
10. What is the combined total assets after the acquisition?
A. 1,742,000
B. 1,825,000
C. 1,772,000
D. 1,567,000
11. Which of the following consolidation items will affect only the Consolidated Net Income
Attributable to the Parent's Shareholders but not the Non controlling Interest in Net Income?
A. Amortization of difference between fair value over book value of the assets or liabilities of the
subsidiary.
B. Impairment loss of the total goodwill arising from business combination
C. Gain on bargain purchase arising from business combination
D. Unrealized or realized gain/loss on upstream transactions
12. Which of the following business combination transactions will affect the goodwill or gain on
bargain purchase arising from business combinations?
A. Payment for legal, audit and broker's fees directly connected with the business combination
B. Incurring costs related to the issuance of ordinary shares given as consideration for the
acquisition of the 51-100% of ordinary shares of subsidiary corporation.
C. Measurement adjustments during measurement period which shall not exceed 12 months from
the date of acquisition date.
D. Payment of costs directly related to the issuance of bonds payable given as consideration for the
acquisition of the net assets of the acquired corporation.
13. Which of the following statements concerning preparation of consolidated financial statements
of a group or separate financial statements of a parent corporation is incorrect?
A. IAS 27 does not mandate which entities are required to present separate financial statements.
B. IFRS 10 requires an entity (parent) that controls one or more other entities (subsidiaries) to
present consolidated financial statements including all its subsidiaries regardless of industries
except when the parent is an (1) investment entity or (2) a non-public entity which is partially or
wholly owned by another entity which prepares consolidated financial statements.
C. In preparing consolidated financial statements, IFRS 10 provides that the parent corporation shall
recognize and measure at fair value all the identifiable assets and liabilities of subsidiaries
including contingent liability provided it is a present obligation and can be estimated reliably.
D. In preparing consolidated financial statements, IFRS 10 requires the parent to present non-
controlling interest (NCI) as part of consolidated shareholder’s equity separately from the equity
of the owners of the parent and IFRS 3 requires non-controlling interest to be measured initially
 Page 4
as the higher between NCI's Fair Value or NCI's Proportionate Share of the fair value of the net
assets of the subsidiary.

Numbers 14, 15 and 16

On December 1, 2016, KLM Corporation acquired 4,600 shares of QRS Company at a cost of P28 per
share. KLM classifies them as available-for-sale securities. On this same date, KLM decides to hedge
against a possible decline in the value of the securities by purchasing, at a cost of P11,900, an at-the-
money put option to sell the 4,600 shares. The option expires on April l, 2017. The fair values of the
investment and the options follow:
12/01/16 12/31/16 04/01/17
QRS Co. Cost per share 28.00 26.50 23.50
Put Option (Fair Value) ? 15,400 ?
14. What is the net foreign exchange gain/(loss) in the hedging activity in 2016?
A. (6.900)
B. 3.500
C. 5,300
D. (3,400)
15. What is the foreign exchange gain/(loss) on the option contract due to change in intrinsic value
in 2017 if split accounting is used in the assessment of hedge effectiveness?
A. (5,300)
B. 5,300
C. 13,800
D. (13,800)
16. What is the net foreign exchange gain/(loss) in the hedging activity in 2017?
A. (8,500)
B. (13,800)
C. 5,300
D. 13,800

Numbers 17 and 18
On December l, S company entered into a firm commitment to acquire a machinery from United Arab
Emirates Company. Delivery and passage of title would be on January 31, 2017 at the price of 37,800
dirhams, accounted for as fair value hedge. On the same date, to hedge against unfavorable changes in
the exchange rate, S entered into a 60-day forward contract with a bank for 37,800 dirhams. Exchange
rate were as follows:
Spot Rate Forward Rate
Dec. 01, 2016 P96.50 P94.30
Dec. 31, 2016 97.25 96.50
Jan. 31, 2017 99.70 99.70
17. What is the foreign exchange gain/(loss) on the hedging instrument on December 31, 2016?
A. 83,160
B. (83,160
C. (28,350)
D. 28,350
18. Which of the following statements is correct?
A. The total amount of accounts payable to be recorded on December l, 2016 is P3,564,540.
B. The firm commitment account will be debited for P83,160 on December 31, 2016
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C. The firm commitment account will be debited for P204,120 upon purchase of machinery on
January 31, 2017
D. On January 31, 2017, the company will recognize P120,960 forex loss on the forward contract.

Numbers 19, 20 and 21

R company acquired machine for 169,200 lira from a vendor in Turkey on December 1, 2016. Payment
in Turkey lira was due on March 31, 2017. On the same date, to hedge this foreign currency exposure R
entered into a futures contract to purchase 169,2000 lira from a bank for delivery on March 31, 2017.
Exchange rates for pounds on different dates are as e follows:
12/01 12/31 03/31
Strike Price 41.50 41.50 41.50
Buying spot rate 41.60 42.50 43.40
Selling spot rate 41.40 42.30 43.70
30-day futures 42.30 41.80 43.20
60-day futures 41.80 42.20 42.60
90-day futures 40.60 42.50 43.40
120-day futures 42.20 42.80 42.90
19. What is the reported value of the receivable to the vendor at December 31, 2016?
A. 7,004,800
B. 7,021,800
C. 7,157,160
D. 0
20. What is the foreign exchange gain/(loss) due to the hedging instrument on December 31, 2016?
A. 50,760
B. (50,760)
C. 16,920
D. (16,920)
21. What is the net impact in R Co.'s income in 2016 as a result of this hedging activity?
A. 33,840
B. (33,840)
C. 101,520
D. (101,520)

Numbers 22 and 23
On January l, 2016 an entity purchased a tract of vacant land that is situated overseas for Baht 90,000.
The entity classified the land as an investment property. The fair value of the land at December 31, 2016
is Baht 100,000
The entity's functional currency is the Php (Peso)
Spot currency exchange rates:
January l, 2016: 1 Baht = P2
Weighted average exchange rate in 20X0: 1 Baht = P2.04
December 31, 2016: 1 Baht = P2.1.
22. What is the carrying amount of the investment property at December 31, 2016 and what
amount/s would be presented in profit or loss for the year ended December 31, 2016?
A. Carrying amount of investment property = P210 000. Profit for the year includes P30,000
increase in the fair value of investment property.
B. Carrying amount of investment property = P210,000. Profit for the year includes P20,400
increase in the fair value of investment property and P9,600 foreign exchange gain.
 Page 6
C. Carrying amount of investment property = P180, 000. Profit for the year includes no amount in
respect of the investment property.
D. Carrying amount of investment property = P189,000. Profit for the year includes P9,000 foreign
exchange gain.

23. Assuming the entity cannot, without undue cost or effort, determine the fair value of its
investment property reliably on an ongoing basis. What is the carrying amount of the
investment property at December 31, 2016 and what amount/s would be presented in profit or
loss for the year ended December 31, 2016?
A. Carrying amount of investment property = P210,000. Profit for the year includes P30,000
increase in the fair value of investment property.
B. Carrying amount of investment property = P210,000. Profit for the year includes P20,400
increase in the fair value of investment property and P9,600 foreign exchange gain.
C. Carrying amount of investment property = P180,000. Profit for the year includes no amount in
respect of the investment property.
D. Carrying amount of investment property = P189,000. Profit for the year includes P9,000 foreign
exchange gain.
24. Which of the following comprehensive income items are classified as part of "Other
Comprehensive Income" with reclassification adjustment in the Statement of Comprehensive
Income?
I. Unrealized gain or loss on changes of fair value of derivates designated as fair value hedge.
II. Unrealized gain or loss on changes of fair value of derivates considered as undesignated hedge.
III. Gain or loss arising from foreign currency transaction.
IV. Unrealized gain or loss on changes of fair value of derivates designated as cash flow hedge
when it refers to effective portion or the change in intrinsic value.
V. Translation adjustment gain or loss arising from translation of financial statements of
subsidiary in foreign operation.
VI. Unrealized gain or loss on changes in fair value of derivatives designated as cash flow hedge
when it refers to the ineffective portion or the change in time value.
A. III and VI
B. IV and V
C. I and VI
D. II and V
25. Which of the following statements concerning measurement of items of financial statements
denominated in foreign currency is incorrect?
A. In foreign currency denominated transaction, non-monetary items shall be subsequently
measured at foreign currency exchange rate at the date of transaction.
B. In translation of financial statements of a subsidiary foreign corporation, income and expense
accounts shall be translated at foreign currency exchange rate at the end of reporting period.
C. In translation of financial statements of a subsidiary foreign corporation, equity accounts shall be
translated at foreign currency exchange rate at the date of the transaction.
D. In foreign currency denominated transaction, monetary items shall be subsequently measured at
foreign currency exchange rate at the end of reporting period.

On January 1, 2016. Gawad Kalinga Inc., a non-stock non-profit charitable organization, received
P1,000.000 cash donation from Mr. Pilantropo who imposed a condition that the fund shall be used for
the acquisition of several service vehicles for the use of the organization. On December 31, 2016,
Gawad Kalinga purchased a motor vehicle using the donated fund at an amount of P200,000.
26. Which of the following statements concerning the presentation of the transactions that
transpired for in 2016 in Gawad Kalinga's financial statements is correct?
 Page 7
A. Only the P200,000 spent for the acquisition of motor vehicle shall be presented as revenue in the
Statement of Activities.
B. The transactions will increase the total of assets of the organization for the year ended December
31, 2016 by P1,200,000 in the Statement of Financial Position.
C. The 1,000,000 cash donation shall be presented as cash receipts from financing activities while
the P200,000 shall be prepared as cash disbursement for investing activities in the Statement of
Cash flows.
D. The statement of activities of the organization will show net because in the net assets of the
organization by P1 200,000.
27. Under the Government Accounting Manual issued by Commission on Audit, which of the
following transactions will require journal entry in the accounting book of a national
government agency or unit?
A. Receipts of national budget allotment from Department of Budget and Management.
B. Entering into a contract with a supplier for incurrence of obligation to acquire government
supplies or equipment.
C. Receipt or notice of a cash allocation from Department of Budget and Management.
D. Receipts of appropriation from Department of Budget and Management bases on the General
Appropriation Act.

SM Inc. and Rob Inc entered into an arrangement which provides that parties will have joint control
over a separate vehicle to be established called MOB Inc. for the operation of Universal Mall in
Mindanao. The contractual arrangement provides that MOB Inc. will have title over the assets and
liabilities of the Universal Mall and that the parties that have joint control the arrangement shall have
rights to the net assets of the arrangement.
28. How shall SM Inc. and Rob Inc. classify and accounts their investments in joint arrangement
in their consolidated financial statements?
A. The investment in joint arrangement shall be classified joint venture to be accounted for using
the equity method
B. The investment in joint arrangement shall be classified as joint venture to be accounted for using
proportionate consolidation.
C. The investment in joint arrangement shall be classified joint operation to be accounted for using
line by line method by recognizing their share in assets revenue expenses from the
joint operation.
D. The investment in joint. arrangement shall be classified as joint operation to be accounted for
using fair value model under IFRS 9.

Numbers 29, 30, 31, and 32

The following data were extracted in the second department of a three step process to complete the
company's product and opted to use the FIFO method in accounting the process: Beginning inventory
units were 8,000 (65% to complete as to direct materials and 60% complete as to conversion). Ending
inventory units 12,500 (55% complete as to direct materials and 55% to complete as to conversion).
Transferred-out units from the prior department were 79,000. Total normal and abnormal lost units were
1,500. Started and completed cost was P2,112,500. The current period cost for direct material was
P855,525. The transferred-out cost from the prior department was P977,500. Total cost to account for
was P2,723,750. Total cost per eup as to direct materials and conversion was P 20.
29. What is the equivalent units of production as to conversion?
A. 73,825
B. 75,325
C. 74,525
D. 77,375
30. What is the ending inventory cost?
A. 812,500
B. 282,500
C. 406,250
D. 293,750
31. What is the cost transferred-out goods to the next department?
A. 2.418,500
 Page 8
B. 2,723,750
C. 2,441,250
D. 2,198,500
32. What is the current period cost to conversion?
A. 677,925
B. 670,725
C. 677,925
D. 696,375
Numbers 33, 34, 35, and 36
The following data were ascertained during the year:
January 1 December 31
Work-in-process 130,000 352.000
Finished goods 89,000 231,250
Raw materials used was P 504,950 and the direct labor rate was P15. Actual overhead was P156,500 of
which P76,550 was indirect labor and the rest were indirect materials. Budgeted overhead cost and
direct labor hours was P250,000 and 31,250 respectively. At the end of the year the overhead control
account has a credit balance of P18,500. It was the company's policy to consider any difference from the
actual and applied overhead less than P50,000 immaterial.
33. What is the prime cost during the year?
A. 833,075
B. 973,700
C. 753,125
D. 893,750

34. What is the cost of goods manufactured at the end of the year?
A. 786,075
B. 687,625
C. 871,700
D. 706,125

35. What is the total goods available for sale?

A. 795,125
B. 875,075
C. 776,625
D. 960,700

36. What is the adjusted cost of sales at the end of the year?
A. 625,325
B. 526,875
C. 545,375
D. 710,950

Numbers 37 and 38
The company has two main products, Alpha and Beta. Charlie on the other hand was a by-product of
Beta. Alpha and Beta came from the same raw material. Charlie was manufactured from the residue of
the process from creating product Beta. The cost before separation was P375,000. The company opted to
use the NRV (approximated) in accounting its joint costs and the NRV of product Charlie was a
reduction from the cost where it came from. The following data were ascertained during the year:
 Page 9
Alpha Beta Charlie
Units produced 25,000 20,000 1,200
Units sold 23,000 16,000 1,200
Cost after separation P16,200 P49,300 P3,500
Selling price per unit P15 P12 P5

37. What is the cost of goods manufactured of Beta?

A. 179,441
B. 162,794
C. 178,050
D. 161,673
38. What is the gross profit of product Beta?
A. 48,447
B. 62,662
C. 61,765
D. 49,560
39. When will the average process costing method produce same cost of goods manufactured as
the first in first out process costing method?
A. When materials are added 100% at the end of the process.
B. When materials are added 100% at the beginning of the process.
C. When the beginning work in process inventory and ending work in process inventory are equal.
D. When there is not beginning work in process inventory.
40. Which of the following costs shall he considered as both prime costs and conversion costs?
A. Supervisory salaries for a manufacturing plant
B. Property taxes on a manufacturing plant
C. Costs of direct materials used in the production.
D. Employee benefits earned by machine in producing the firm's product

Numbers 41, 42, and 43

Reality, Inc., works on a contract in March 2016 to construct a commercial building. During 2016,
Reality uses the cost to cost method. At December 31, 2016, the balances of certain accounts were:
Excess of Construction in Progress over billings — P140,000 due from customer; and Progress Billings
P560,000 which is 1/5 of the contract price. At December 31, 2016, the estimated future costs to
complete the
project total P1,350,000. Of the amount billed 70% were paid in 2016 subject to retention provision of
15%, payable with the final bill after the acceptance of entire completed project. A mobilization fee of
5% of the contract price (deductible from the final bill) is payable in 10 days after the contract signing.
41. What is the cost incurred to date in 2016?
A. 1,800,000
B. 1,350,000
C. 450,000
D. 700,000
42. What portion of the contract price is recognized as income in 2016?
A. 700,000
B. 250,000
C. 191,200
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D. 526,800
43. What is the total collections in 2016?
A. 333,200
B. 392,000
C. 532,000
D. 473,200

On July l, 2016, PM Motors, which maintains a perpetual inventory records sold new automobile to
ANX for P1,700,000. The car costs the seller P1,301,250.
The following were the payment scheme in order:
1) 30% down payment
2) P160,000 allowance on an old car traded
3) the balance being payable in equal monthly installments
The monthly amortization amounts to P60,000 inclusive of 12% interest on the unpaid amount of the
obligation. The car traded in has a wholesale value of P 240,000 after expending reconditioning cost of
P45,000. After paying three installments, the buyer suffered major financial setback incapacitating him
to continue paying so the car was subsequently repossessed. When reacquired, the car was appraised to
have a fair value of P600,000.
44. What is the realized gross profit on installment sales during the year?
A. 212,500
B. 213,899
C. 221,250
D. 205,149

Cellphone, Inc. sells cellphones on an installment basis. For the year ended December 31, 2016, the
following were reported:

Cost of installment sales P1,050,000

Loss on repossessions 27,000
Fair value of repossessed merchandise 225,000
Account defaulted 360,000
Deferred gross profit, December 31 Adjusted 216,000

45. What is the collections during the year?

A. 780,000
B. 420,000
C. 720,000
D. 1,429,091

Nikita, Inc. sells automatic weapons costing P700,000 at a price of P 1,200,000. Division Corp. buys a
dozen of automatic weapons on installment and trade in six of its old weapons at a trade-in value of
P300,000 each. Nikita spends P25,000 to recondition the old guns and sells them for P315,000. Nikita
expects a 10 percent gross profit from the sale of used guns.
 Page 11
46. What is the over-allowance granted by Nikita on the trade-in transaction?
A. 99,000
B. 234,000
C. 41,500
D. 249,000
 Page 12
Numbers 47 and 48
Mariano operates a branch in Laoag City. At close of the business on December 31, 2016, Laoag Branch
account in the home office books showed a debit balance of P234,900. The interoffice accounts were in
agreement at the beginning of the year. For purposes of reconciling the interoffice accounts, the
following facts were ascertained:
a. Computer equipment costing the home office P27,000 was sent to Laoag branch. The home office
will maintain the records of the asset used by the branch. Meanwhile, back at the branch no entry
was made.
b. The branch acquired a machinery costing PI 8,000. The home office will maintain the records of the
asset used by the branch. The home office was not yet notified.
c. The home office charged the branch for freight amounting to P2,220. It should have been charged to
its customer.
d. The home office inadvertently recorded a Laoag branch remittance of P4,200, as collection from its
customers on account.
e. On December 24, 2016, the branch sent a check for P9,600 to its suppliers on account. The branch
erroneously recorded the transaction as a remittance to the home office and sent a copy of the debit
memo to the home office. The home office recorded this upon receiving the debit memo on
December 29, 2016.
f. On December 26, 2016 the branch returned P6,600 of excess merchandise to the home office. The
merchandise was received by the home office on December 30, 2016 and credited Lanao Branch
Current.
g. The home office allocated advertising and rent expense totaling P5,400 to Laoag branch. The home
office charged the said expense to Laguna branch by mistake, Laoag branch had not entered the
allocation at year-end.
h. A home office customer remitted P3,600 to the branch. The branch inadvertently recorded this
transaction on December 28, 2016 as a transfer of cash from the home office. The home office made
no entry during the year.
i. Inventory costing P36,000 was sent to the branch by the home office on December 14, 2016. The
branch recorded the transaction as a purchase of merchandise on account from outsiders by mistake.

47. What is the unadjusted balance of the home office current account as of December 31, 2016:
A. 222,480
B. 171,480
C. 188,880
D. 178,320
48. What is the adjusted balance of the reciprocal accounts as of December 31, 2016?
A. 200,280
B. 247,320
C. 222,480
D. 262,320

On December 31, 2016, ABC Corporation combined net income together with its Bacolod branch
amounted to P350,000. On June 30, 2016, the home office purchased and recorded fixed asset for the
use of the branch amounting to P200,000. Useful life is 5 years.
The following were ascertained in the Bacolod branch's books: During the year, shipments of
merchandise at cost to the branch amounted to P135,000. Remittance of P70,000 was made during the
year to the home office. Purchases of merchandise from outside suppliers amounted to P125,000.
Ending inventories amounted to P80,000. Sales for the year was reported at P400,000. The branch paid
selling and administrative expenses amounting to P 75,000.
49. What is the separate income of the home office?
A. 105,000
B. 225,000
C. 245,000
D. 125,000
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On November 1, 2016, LG, Inc. authorized Warren Buffet to operate as a franchisee for an initial
franchise fee of P1,500,000. Of this amount, 40% was received upon contract signing and the balance,
represented by a note, is due in three annual installments starting December 31, 2016. A 65-day period
of refund was granted. According to the agreement, the down payment represents a fair measure of the
services initially performed. The collectability of the note is reasonably certain. (PV factor of 2.4)
50. What is the unearned franchise fee at December 31, 2016?
A. 1,320,000
B. 720,000
C. 600,000
D. 0

Under IFRS 15, revenue from contracts with customers shall be recognized as revenue when the entity
satisfied a performance obligation which can either be (1) satisfaction over time or (2) satisfaction at a
point in time. Three of the circumstances enumerated below involve satisfaction of performance
obligation over time which will result to recognition of revenue over time.

51. Which of the following will result to recognition of revenue at a point in time?
A. The customer simultaneously receives and consumes the benefits provided by the entity's
performance as the entity performs.
B. The customer obtains absolute control, legal right and possession of the promised asset at a
specific date.
C. The entity's performance enhances or creates an asset that the customer controls as the asset is
created or enhanced.
D. The entity's performance does not create an asset with an alternative use to the entity and the
entity has enforceable right to performance completed to date.
52. Under IAS 11 construction contracts, contract costs that shall be capitalized as part of
construction in progress will include the following, except
A. Depreciation of idle plant and equipment that is not used in a particular construction contract.
B. Cost of moving plant, equipment and materials to and from the contract site.
C. Construction overhead such as preparation arid processing of construction personnel payroll.
D. Site labour costs, including site preparation and costs of materials used in construction.
53. Under IAS18 revenue recognition, how shall revenue be generally measured by an entity?
A. Fair value of the consideration received or receivable minus rebates and volume discount.
B. Book value of the consideration received or receivable plus rebates and volume discount.
C. Face value of the non-interest bearing note received or receivable minus rebates and volume
discount.
D. Cost of the consideration received or receivable minus rebates and volume discount.
54. Which of the following recognition of income and expense accounts related to installment sales
is incorrect?
A. If the collection of the installment receivable is not reasonably assured, gross profit of
installment sales is recognized proportionately on the basis of collection.
B. If the long-term installment receivable is non-interest bearing, interest revenue shall be
recognized based on passage of time using the effective interest method.
C. The cost of installment sales shall he recognized proportionately throughout the term of the
installment contract based on the proportion of collection.
D. Loss on repossession shall be recognized on the date of default of collection of installment due
and repossession of the item so\d computed as the difference between the fair value of
repossessed item and the unrecovered cost of the installment receivable.
 Page 14
REA and KIM are partners engaged in a manufacturing business. Transactions affecting the partners’
capital accounts in 2016 are as follows:
REA KIM
Debit Credit Debit Credit
Beginning Balance P 250,000 P 350,000
April 1 150,000 100,000
June 30 125,000 250,000
Sept. 1 225,000 300,000
Oct.1 350,000 200,000
The income summary has a debit balance of P225,000
Agreement between REA and KIM are as follows:
 Interest on average capital at 8%
 Salaries of P125,000 and P175,000 are given to REA and KIM, respectively
 Bonus to KIM at 25% of net income after deducting interest and salaries but before deducting bonus
 Balance is to be divided equally.
55. What is the net increase/decrease in KIM's capital account during 2016?
A. 518,000
B. 168,000
C. (82,000)
D. (32,000)

Numbers 56 and 57
MARICAR, PATRICK and DON are partners sharing profits and losses of 5:3:2, respectively. As of
Dec 31, 2015, their capital balances were P997,500, P840,000 and P630,000 respectively. On January l,
2016, the partners admitted YER as a new partner and according to their agreement YER will contribute
P840,000 in cash to the partnership and also pay P105,000 for 15% of PATRICK's share. YER will be
given a 20% share in profits, while the original partners' share will be proportionately the same as
before. After admission of YER, the total capital be P3,465,000 and YER capital will be P735,000.
56. What is the asset revaluation?
A. 231,000
B. 73,500
C. 157,500
D. 388,500
57. What is the bonus in the admission of YER?
A. 69,300
B. 115,500
C. 126,000
D. 231,000

PSALM. TRISHA and GLENDA were partners with capital balances on January 2, 2016 of P350,000,
P525,000 and P700,000, respectively. Their profit ratio is 5:3:2 while their capital interest ratio is 4:4:2.
On July 1, 2016, QUEENIE was admitted by the partnership for 20% interest in capital and 25% in
profits by contributing P87,500 cash, and the old partners agree to bring their interest to their old capital
and profit interest sharing ratio. The partnership had net income of P210,000 before admission of
QUEENIE and the partners agree to revalue its overvalued equipment by P35,000.

58. What is the capital balance of PSALM After admission of QUEENIE?

A. 297,500
B. 588,000
C. 354,200
D. 470,400
 Page 15
Numbers 59 and 60
JCA Partnership is entering into liquidation and you are given the following account balances:
Cash 775,000 Liabilities 1,100,000
Noncash assets 6,750,000 Loan from A. 150,000
J. Capital (20%) 1,275,000
C. Capital (20%) 1,625,000
A. Capital (60%) 3,375,000
Total Asset 7,525,000 Total Liabilities and Capital 7,525,000
During June, noncash assets with a book value of P1,875,000 were sold for P1,600,000. JCA paid
P175,000 for the liquidation expenses it incurred and it also paid its liabilities to outside creditors.
However, creditors whose account balances amount to P 150,000 decided to condone JCA's liabilities. ¾
of the cash received from the sale of noncash assets were distributed to the partners.
59. What is J's share in the maximum possible loss?
A. 995,000
B. 985,000
C. 965,000
D. 975,000
60. What is A's interest after the first cash distribution?
A. 3,105,000
B. 2,905,000
C. 2,955,000
D. 2,805,000

Numbers 61, 62, 63, and 64

Hosea Corporation is undergoing liquidation. On January l, 2016 its Statement of Financial Position
showed the following accounts:
ASSETS LIABILITIES AND EQUITY
Cash P 150,000 Salaries Payable P 85,000
Accounts Receivables-net 290,600 Accounts Payable 120,700
Inventory 50,000 Mortgages Payable 428,000
Prepaid Expenses 10,400 Loan Payable 130,000
Building 380,000 Notes Payable 84,300
Goodwill 80 000 Ordinary Shares 170,000
Deficit (57,000)
TOTAL P 961,000 TOTAL P 961,000

The mortgage payable is secured by the Building having a realizable value of P 400,000. Accounts
Payable amounting to P 75,000 is secured by receivables amounting to P 90,600 (P 9,900 of which is
uncollectible).
The balance of receivables which has a realizable value of P 187,500 is used to secure the loan payable.
Inventory has a realizable value of P 41,200. In addition to recorded liabilities are: accrued interest on
mortgage payable amounting to P 4,280, liquidation expenses amounting P 11,300 and taxes amounting
to P 5,600.
(NOTE: Use 2 decimal places for estimated recovery percentage ex. 88.89%)
61. What are the net free assets?
A. 152,500
B. 237,500
C. 254,400
D. 163,800
 Page 16
62. What is the estimated payments to unsecured creditors without priority?
A. 206,486
B. 124,852
C. 122,161
D. 202,036
63. What is the estimated payment to partially secured creditors?
A. 390,334
B. 430360
C. 430,334
D. 420,334
64. What is the estimated deficiency percentage to fully secured creditors?
A. 93.97%
B. 95.50%
C. 90.35%
D. 100.00%
65. In case of partnership dissolution through admission of new partner or retirement of partner,
which of the following statements is correct?
A. In case of admission of new partner by purchase, the total capital of the partnership after the
admission of new partner will be higher than the total capital before admission of new partner
because of the cash or asset paid by the new partner.
B. In case of retirement of a partner wherein the assets of the partnership are properly valued, the
receipt by the retiring partner of an amount lower than his capital balance will decrease the
capital balance of the remaining panniers.
C. In case of admission of new partner by investment, the presence of excess of total agreed
capitalization over the total contributed capital of all partners and the presence of difference
between the contributed capital and agreed capital of new partner will show that there is positive
asset revaluation and bonus to either old or new partner.
D. In case of admission of new partner by investment, the positive asset revaluation or impairment
loss of assets shall be distributed to all the partners including the newly admitted partner using
the new profit or loss ratio agreement.
66. In case of liquidation of the partnership, which of the following statements is inaccurate?
A. If the partnership's assets are not sufficient to cover the partnership's liabilities to third person,
the general partners are liable solidarily up to the extent of their separate assets.
B. The liabilities of the partnership to third persons shall be settled first using the partnership assets
before the claims of the partners against the partnership shall be satisfied.
C. The claims of the partners against the partnership other than capital and profit shall be settled
first before the partner's share in the capitalization of the partnership be distributed to them.
D. The personal assets of the partners are reserved for the payment of the personal debts of the
partners and may be used pay partnership’s creditors in case there will be excess of partner':
personal assets over partner's personal debts.
67. During corporate liquidation, which of the following types of creditors will always receive full
settlements of his claim?
A. Unsecured creditors with priority
B. Unsecured creditors with priority
C. Partially secured creditors
D. Fully secured creditors
 Page 17
IFRS 4 provides that an insurer shall perform liability adequacy test which involves an assessment at the
end of each reporting period whether its recognized insurance liabilities are adequate using current
estimates of future cash flows under its insurance contracts. If at the end of the reporting period, the
insurer’s assessment shows that the carrying amount of its insurance liabilities is adequate in the light of
the estimated future cash flows.

68. How shall the insurer treat or account the entire deficiency?
A. It shall be treated as a change in accounting estimate accounted for prospectively and recognized
in profit or loss.
B. It shall be treated as a change in accounting policy accounted for by retrospective application.
C. It shall be treated as a prior period error accounted for by retrospective restatement.
D. It shall be treated as a cumulative or retrospective adjustment in the beginning retained earnings

Eng-Bee-Ten Inc. delivers boxes of Hopia and Tikoy to CPAR co be sold to its reviewees. The
arrangement between the parties provides that CPAR does not have unconditional obligation to pay for
the products but is required to pay a deposit equivalent to 5% of the selling price of the products. The
arrangement also states that Eng-Bee-Ten has the right to require the return of products or to require
CPAR to transfer it to another store.

69. Under IFRS 15, when shall Eng-Bee-Ten recognize sales revenue from the Hopia and Tikoy
delivered to CPAR?
A. Sales revenue shall be recognized by Eng-Bee-Ten upon delivery of the boxes to CPAR.
B. Sales revenue shall be recognized by Eng-Bee-Ten upon payment of 5% deposit by CPAR.
C. Sales revenue shall be recognized by Eng-Bee-Ten upon sale by CPAR of the products to
reviewees.
D. Sales revenue shall be recognized by Eng-Bee-Ten upon remittance by CPAR of the net
proceeds of the sales after deducting the sales commission and other allowable items.

Sky Inc. entered into a concession agreement with the Philippine government to operate the Skyway 3
expressway connecting SLEX to NLEX. The contract provides that Sky Inc. has received a right, not a
license, to charge motorist for the public service and the revenue receivable is not agreed upon in
advance. The contract will last for 30 years.

70. How shall Sky Inc. account for its infrastructure asset in that service concession agreement?
A. The infrastructure asset shall be capitalized as property, plant and equipment to be depreciated
over the contract life of 30 years.
B. The infrastructure asset shall be capitalized as financial asset to be remeasured subsequently at
fair value.
C. The infrastructure asset shall be capitalized as intangible asset to be amortized over the contract
life of .30 years.
D. The infrastructure asset shall be capitalized as prepaid asset to be amortized over the contract life
of 30 years.

END
 CPA REVIEW SCHOOL OF THE PHILIPPINES
MANILA

ADVANCED FINANCIAL ACCOUNTING AND REPORTING

FINAL PREBOARD EXAMINATION Sunday, September 11, 2016, 4:00 pm to 7:00 pm

ANSWER KEY

1. C 11. C 21. D 31. A 41. C 51. B 61. C

2. A 12. C 22. A 32. B 42. B 52. A 62. C

3. D 13. D 23. C 33. C 43. D 53. A 63. C

4. A 14. D 24. B 34. D 44. B 54. C 64. D

5. A 15. C 25. B 35. A 45. B 55. B 65. C

6. D 16. A 26. C 36. C 46. D 56. C 66. A

7. C 17. A 27. C 37. C 47. B 57. D 67. D

8. B 18. A 28. A 38. D 48. C 58. B 68. A

9. D 19. D 29. C 39. D 49. B 59. B 69. C

10. A 20. A 30. B 40. D 50. A 60. C 70. C