NCR CUP 6 - AFAR

Clincher Round
Lina, Mina and Nina were partners with capital balances on January 2, 2019 of P300,000, P200,000 and P100,000,
respectively. On July 1, 2019 Lina retires from the partnership. On the date of retirement the partnership net loss is
P60,000 and the partners agreed that certain asset is to be revalued at P80,000 from its original cost of P50,000. The
partners agreed further to pay Lina P225,000 in settlement of her interest. The remaining partners continue to operate
under a new partnership, MN partnership.
What is the total capital of MN partnership?
a. P345,000
b. P285,000
c. P340,000
d. P280,000

Answer: a
Lina Mina Nina
Capital balances P300,000 P200,000 P100,000
Net loss (30,000) (20,000) (10,000)
Undervaluation of asset, P30,000 15,000 10,000 5,000

Total 285,000 190,000 95,000

Settlement (225,000)
Bonus to Mina and Nina, 2:1 (60,000) 40,000 20,000

Capital balances P230,000 P115,000

Total capital (P230,000 + P115,000) P345,000

The PLDT Group comprises the Smart Co. and its 75% owned subsidiary, Ka-Talk Co. The PLDT Group also owns one-
third of the equity of the Ka-Text Co. and has signed a contract with other equity holders in Ka-Text Co., whereby all
strategic financial and operating decisions in respect of Text n Text require the unanimous consent of all shareholders.
The PLDT uses proportionate consolidation to account for jointly controlled entities. The carrying amounts of trade
receivables in the separate financial statements of these companies at December 31, 2019 are:
PLDT Co. 800,000
Ka-Talk Co. 500,000
Ka-Text Co. 300,000
In accordance with IAS 27, Consolidated and Separate Financial Statetments, and IAS 31, Interest in Joint Ventures, what
carrying amount of trade receivables should be presented in the consolidated financial statements of PLDT Co.?
a. 1,275,000
b. 1,300,000
c. 1,400,000
d. 1,600,000

Answer: c
PLDT Co. 800,000
Ka-Talk Co. 500,000
Ka-Text Co. 300,000
Trade receivables in consolidated financial statements 1,400,000
Under the full consolidated method, consolidation of parent and subsidiary is achieved by adding together similar items like
trade receivables, except intercompany receivables and payables. While under proportionate consolidation method, the
investor includes its share of the assets, like trade receivables, it jointly controls. Thus, only one-third of trade receivables of Ka-
Text shall be included.

Nike Corporation operates a number of branches in the provinces. On December 31, 2019, its Davao branch showed a
Home Office account balance of P54,700 and the home office books showed an Investment in Davao Branch account
balance of P51,100. The following information may help in reconciling both accounts:
1. A P24,000 shipment, charged by home Office to Davao Branch, was actually sent to and retained by Cebu Branch.
2. A P30,000 shipment, intended and charged to Aklan Branch was shipped to Davao Branch and retained by the latter.
3. A P4,000 emergency cash transfer from Cebu Branch was not taken up in the Home Office books.
4. Home office collects a Davao Branch accounts receivable of P7,200 and fails to notify the branch.
5. Home office was charged for P2,400 for merchandise returned by Davao Branch on December 30. The merchandise is in
transit.
Home office erroneously recorded Davao Branch’s net income for 2019 at P32,550. The branch reported a net income of
P25,350.
What is the adjusted balances of the Home Office and Davao Branch reciprocal accounts on December 31, 2019?
a. P40,300
b. P54,700
c. P47,500
d. P43,500

Answer: c
To compute the adjusted balances of the reciprocal accounts a reconciliation statement is to be prepared as follows:
(Branch books) (HO Books)
Home Office Investment in
Account Davao Branch
Account

Unadjusted balances, December 31, 2019 P54,700 P51,100

Add (deduct) the following adjustments:
1. Shipment charged to Davao branch but actually sent to Cebu
branch (24,000)
2. Shipment charged to Aklan branch but actually sent to Davao
branch 30,000
3. No effect.
4. Home office collection of Davao Branch accounts receivable
(7,200)
5. Merchandise returned by Davao branch
Still in transit to home office (2,400)
6. Overstatement of Davao branch net
Net income (P32,550 – P25,350) (7,2000)

Adjusted balances, December 31, 2019 P47,500 P47,500