COLLEGE OF ACCOUNTANCY

FINAL EXAMINATION
ACCTG 157
INSTRUCTION:
 Make a summary of answers and show your solutions on a separate sheet of paper.
 No solution no points.
 Submit to my messenger account the picture of the summary of answers and solutions.
Multiple Choice Theory
1. The “excess of the acquirer’s interest in the net fair value of acquiree’s identifiable assets,
liabilities, and contingent liabilities over cost” (i.e., negative goodwill) should be
a. Amortized over the life of the assets acquired.
b. Reassessed as to the accuracy of its measurement and then recognized immediately in
profit or loss.
c. Reassessed as to the accuracy of its measurement and then recognized in retained
earnings.
d. Carried as a capital reserve indefinitely.
2. The costs of issuing equity securities in a business combination are
a. expensed
b. treated as direct reduction in equity
c. included in the initial measurement of the credit to share capital account
d. b and c
3. Goodwill may be capitalized
a. only when it arises in a business combination.
b. only when it is created internally.
c. only when it is purchased
d. on any of these cases.
4. A contingent liability assumed in a business combination is recognized
a. if it is a present obligation that arises from past events and
b. if its fair value can be measured reliably.
c. even if it has an improbable outflow of resources embodying economic benefits.
d. All of these
5. The acquisition date is
a. the date on which the acquirer obtains control of the acquiree.
b. the opening date.
c. the date the acquirer transfers to the acquiree the consideration in a business
combination.
d. any of these
6. Contingent liabilities acquired in a business combination are initially recognized by the
acquirer using the provisions of which of the following standards?
a. PAS 37
b. PFRS 3
c. PFRS 37
d. PFRS 7
You are an accountant. Your client acquired another business in a business combination
transaction during the year. Your client asked you for an advice regarding the preparation of
consolidated financial statements.
7. Your advice to your client would most likely be based on which of the following
standards?
a. PFRS 3
b. PFRS 10
c. PAS 27
d. PAS 36
8. Goodwill acquired in a business combination is initially and subsequently measured
using which of the following standards?
Initial measurement Subsequent measurement
a. PFRS 3 PFRS 10
b. PAS 36 PFRS 3
c. PFRS 3 PAS 36
d. PFRS 3 PFRS 5
9. This type of business combination occurs when, for example, a private entity decides to
have itself “acquired” by a smaller public entity in order to obtain a stock exchange listing.
a. Step acquisition c. Reverse acquisition
b. Rewind acquisition d. Stock acquisition
10. After restatement in accordance with PAS 29, the financial statements of an entity
operating under a hyperinflationary economy are translated using which of the following
procedures?
 a. all amounts (i.e., assets, liabilities, equity items, income and expenses, including
comparatives) are translated at the closing rate.
b. comparatives are not restated anymore to the purchasing power current at the end of
reporting period, although they are also translated at the closing rate.
c. non-monetary items are translated at the closing rate while income and expenses are
translated at the average rates.
d. a and b
Use the following information for the next two questions:
You are an auditor. ABC Philippines Co., your client, is not sure on what to disclose in its
financial statements as its functional currency. Relevant information follows:
ABC Philippines Co. is a branch of ABC U.S. Co. ABC Philippines operates in a Philippine
Economic Zone Authority (PEZA) Special Economic Zone. ABC Philippines is engaged in the
apparel business. All of its raw materials are imported from the main office in the U.S. and all
of its finished products are exported directly to U.S. customers. The U.S. customers remit
payments to the U.S. main office. The U.S. main office will then provide the Philippine branch
its working capital needs. None of ABC Philippines Co.s’ finished products are sold in the
Philippines. The raw materials imported and finished goods exported are denominated in U.S.
dollars.
11. What is ABC Philippines Co.’s functional currency?
a. Philippine peso c. a or b
b. U.S. dollar d. none of these
12. ABC Philippines Co. is required to file audited financial statements with the Philippine
Securities and Exchange Commission (SEC) and the Bureau of Internal Revenue (BIR).
What is the presentation currency for the financial statements to be filed with the said
government agencies?
a. Philippine peso c. a or b
b. U.S. dollar d. none of these
13. These are those which do not give rise to a right to receive (or an obligation to deliver) a
fixed or determinable amount of money.
a. Monetary items c. Financial items
b. Non-monetary items d. Non-financial items
14. According to the PFRS for SMEs, It is the currency of the primary economic
environment in which the entity operates.
a. Presentation currency c. Inflationary currency
b. Functionality currency d. Functional currency
15. ABC Co. has a net investment in a foreign operation that it needs to hedge. How
should ABC Co. hedge this item?
a. as a fair value hedge c. a or b
b. similar to a cash flow hedge d. neither a nor b
16. A highly probable forecast transaction is mostly hedged through a
a. futures contract c. fair value hedge
b. cash flow hedge d. any of these
17. Which of the following is not among the conditions for hedge accounting?
a. formal designation and documentation at the start of the hedge
b. hedge is actually highly effective as of the inception of the hedge
c. for cash flow hedges, the hedged forecast transaction must be highly probable and
must present an exposure to variations in cash flows that could ultimately affect profit
or loss
d. effectiveness can be measured reliably
18. Which of the following is included among the conditions for hedge accounting?
a. formal designation and documentation at the end of the hedge
b. hedge is expected to be highly effective
c. for cash flow hedges, the hedged forecast transaction must be highly impossible and
must present an exposure to variations in cash flows that could ultimately affect profit
or loss;
d. effectiveness cannot be measured reliably
19. Under fair value hedges, which of the following is measured at fair value?
a. the hedging instrument c. both a and b
b. the hedged item d. either a or b
20. Under a cash flow hedge of a highly probable forecast transaction, the hedged item is
recognized
a. using other relevant PFRSs
b. only on the date of actual transaction
c. never recognized if settled on a net cash basis
d. a and b
21. Discontinuance of hedging relationships is accounted for
 a. prospectively c. either a or b
b. retrospectively d. partly a and partly b
22. Gains and losses from changes in the fair value of a derivative designated and qualified
as a fair value hedge should be:
a. Disregarded until the derivative is settled.
b. Recognized as a deferred debit or deferred credit in the balance sheet until the
derivative is settled.
c. Recognized in current net income in the period in which the fair value of the derivative
changes.
d. Recognized as a component of other comprehensive income in the period in which the
fair value of the derivative changes.
23. A derivative designated as a fair value hedge must be:
I. Specifically identified to the hedged asset, liability or unrecognized firm commitment.
II. Expected to be highly effective in offsetting changes in the fair value of the hedged
item.
a. I only. c. Both I and II.
b. II only. d. Neither I nor II.
24. Fair value disclosure of financial instruments may be made in the:
Body of financial statements Footnotes to financial statements
a. No No
b. No Yes
c. Yes No
d. Yes Yes
25. Disclosures about the following kinds of risks are required for most financial
instruments.
Credit risk Market risk
a. Yes Yes
b. Yes No
c. No Yes
d. No No

MULTIPLE CHOICE PROBLEMS

On January 1,2021, ABC Co. acquired 60% interest in XYZ, Inc. for P2,000,000 cash. ABC
Co. incurred transaction costs of P100,000 in the business combination. ABC Co. elected to
measure NCI at fair value. An independent valuer assessed the NCI’s fair value at
P1,080,000. The fair values of XYZ’s identifiable assets and liabilities at the acquisition date
were P6,000,000 and P3,500,000, respectively.
26. How much is the goodwill (gain on a bargain purchase)?
a. 500,000
b. (478,000)
c. (500,000)
d. 580,000

On January 1,2021, P Co. acquired 15% ownership interest in Y, Inc. for P400,000. The
investment was accounted for under PFRS 9. From2021 to the end of2023, P recognized net
fair value gains of P200,000.
On January 1,2024, P acquired additional 60% ownership interest in Y, Inc. for P3,200,000.
As of this date, P has identified the following:
a. The previously held 15% interest has a fair value of P720,000.
b. Y’s net identifiable assets have a fair value of P4,000,000.
c. P elected to measure non-controlling interests at the non-controlling interest’s
proportionate share of Y’s identifiable net assets.
27.The previously held interest was initially classified as FVPL. How much is the goodwill (gain on
bargain purchase)?
a. 200,000
b. 420,000
c. 920,000
d. 540,000

On January 1,2021, ABC Co. acquired all of the assets and assumed all of the liabilities of
XYZ, Inc. As of this date, the carrying amounts and fair values of the assets and liabilities of
XYZ acquired by ABC are shown below:
 Carrying
Assets amounts Fair values
Cash in bank 40,000 40,000
Receivables 800,000 480,000
Allowance for probable losses on
(120,000)
receivables -
Inventory 2,080,000 1,400,000
Building – net 4,000,000 4,400,000
Goodwill 400,000 80,000
Total assets 7,200,000 6,400,000
Liabilities
Payables 1,600,000 1,600,000
On the negotiation for the business combination, ABC Co. incurred transaction costs
amounting to P400,000 for legal, accounting, and consultancy fees.
28. If ABC Co. paid P6,000,000 cash as consideration for the assets and liabilities of
SMALL, Inc., how much is the goodwill (gain on bargain purchase) on the business
combination?
a. 1,200,000
b. 1,120,000
c. 1,280,000
d. 1,240,000
29. If ABC Co. paid P4,000,000 cash as consideration for the assets and liabilities of
SMALL, Inc., how much is the goodwill (gain on bargain purchase) on the business
combination?
a. (800,000)
b. (720,000)
c. (880,000)
d. 1,200,000

On January 1,2021, Entity ABC acquires Entity Y in a business combination. The financial
statements of the combining constituents are shown below:

  Entity ABC Entity Y

Cash in bank 12,000 6,000
Accounts receivable 36,000 14,400
Inventory 48,000 27,600
Investment in subsidiary 90,000 -
Building, net 216,000 48,000
Total assets 402,000 96,000

Accounts payable 60,000 7,200

Share capital 204,000 60,000
Share premium 78,000 -
Retained earnings 60,000 28,800
Total liabilities and
402,000 96,000
equity
Additional information:
 Entity Y’s assets and liabilities are stated at their acquisition-date fair values, except
for the following:
- Inventory, P37,200
- Building, net, P57,600
 The goodwill determined under PFRS 3 is P3,600.
 The NCI in the net assets of the subsidiary, also determined under PFRS 3, is P21,600.
30. How much is the consolidated total assets on January 1,2021?
a. 430,800 c. 428,600
b. 440,800 d. 465,800
31. How much is the consolidated total equity on January 1,2021?
a. 330,800 c. 328,600
b. 340,800 d. 363,600
On September 1,2021, ABC Co. acquired 75% interest in S Co. On this date, S's net
identifiable assets have a carrying amount of P180,000, which approximates fair value.
In December2021, S sold goods to ABC for P81,000. S had marked up these goods by 50%
based on cost. One-third of these goods remain unsold at year-end. The group assessed that
there is no impairment loss on goodwill for the current year.
The individual statements of profit or loss of the entities for the year ended December
31,2021 are shown below:
ABC Co. S Co.
Revenue 1,000,000 720,000
Cost of sales (400,000) (300,000)
Gross profit 600,000 420,000
Distribution costs (200,000) (100,000)
Administrative costs (80,000) (45,000)
Profit before tax 320,000 275,000
Income tax expense (96,000) (95,000)
Profit after tax 224,000 180,000
All of S’s income and expenses (including profit from intercompany sale) were earned and
incurred evenly during the year.
32. How much is the consolidated gross profit?
a. 689,000
b. 731,000
c. 798,000
d. 792,000
33. How much is the consolidated profit?
a. 275,000
b. 284,000
c. 295,000
d. 302,000
34. How much is the profit attributable to parent?
a. 262,000
b. 224,000
c. 262,250
d. 256,250
35.How much is the profit attributable to NCI?
a. 13,000
b. 60,000
c. 12,750
d. 45,750

On January 1,2021, P Co. issued equity instruments in exchange for 75% interest in S Co. S
Co.’s net identifiable assets have carrying amount and fair value of P300,000 and P360,000,
respectively. The difference is attributable to a building with a remaining useful life of 6
years.
The December 31,2021 statements of profit or loss of P Co. and S Co. are summarized below:
Statements of profit or loss
For the year ended December 31,2021
P Co. S Co.
Revenues 1,200,000 480,000
Operating expenses (960,000) (400,000)
Profit for the year 240,000 80,000
36. How much is the consolidated profit in2021?
a. 301,000 c. 320,000
b. 310,000 d. 336,000
37. How much is the consolidated profit attributable to owners of the parent in2021?
a. 292,500 c. 320,000
b. 310,000 d. 232,500
38. How much is the consolidated profit attributable to non-controlling interest in2021?
a. 6,500 c. 57,500
b. 17,500 d. 77,500
Details of S Corp.'s plant assets at December 31,2023, are as follows:
Percent
Year acquired depreciated Historical cost Estimated current cost
2021 30 200,000 280,000
2022 20 60,000 76,000
2023 10 80,000 88,000
S calculates depreciation at 10% per annum, using the straight-line method. A full year's
depreciation is charged in the year of acquisition. There were no disposals of plant assets.
39.The net current cost (after accumulated depreciation) of the plant assets at December 31,2023
should be stated as
a. 364,000
b. 336,000
c. 260,000
d. 232,000

On January 1, 2002, P Company received a two-year $500,000 loan. The loan calls for
payments to made at the end of each year based on the prevailing market rate at January 1
of each year. The interest rate at January 1, 2002, was 10 percent. B company also has a
two-year $500,000 loan, but B's loan carries a fixed interest rate of 10 percent. P Company
does not want to bear the risk that interest rates may increase in year two of the loan. B
Company believes that rates may decrease and they would prefer to have variable debt. So
the two companies enter into an interest rate swap agreement whereby B agrees to make P's
interest payment in 2003 and P likewise agrees to make B's interest payment in 2003.
40. The two companies agree to make settlement payments, for the difference only, on
December 31, 2003. If the interest rate on January 1, 2003 is 8 percent, what will be P's
settlement payment to/from B?
a. $5,000 payment c. $10,000 payment
b. $5,000 receipt d. $10,000 receipt

Entity A has just started its operations on January 1,2021. On this date, Entity A’s equity
consisted of P2M share capital, which were issued also on this date. Entity A’s functional
currency is the Philippine peso (P). However, it wishes to present its2021 financial statements
into Japanese yen (¥). The following information was gathered on December 31,2021, after a
year of operations.
Total assets P10M
Total liabilities P5M
Share capital 2M
Retained earnings 3M
Total liabilities and equity P10M

Income P7M
Expenses (4M)
Profit P3M
Relevant exchange rates:
January 1,2021 (historical rate for the share capital) P1: ¥2
Average rate P1: ¥3
December 31,2021 (closing rate) P1: ¥4
41.How much is the translated total assets?
a. ¥40M
b. ¥36M
c. ¥20M
d. ¥18M
42. How much is the translated total equity?
a. ¥40M
b. ¥36M
c. ¥20M
d. ¥18M
43. How much is the translated profit or loss?
a. ¥9M
b. ¥7M
c. ¥6M
d. ¥12M
On December 15,2021, A Co. purchased goods from a Korean firm for 40,000 wons. A Co.
was concerned about the fluctuation in the Korean won, so on this date, A Co. entered into a
30-day forward contract to buy 40,000 wons for P49,600 from a bank at the forward rate of
P1.24.
Relevant rates are shown below:

  Dec. 15,2021 Dec. 31,2021 Jan. 15,2022

Spot rate 1.20 1.26 1.30

Forward rate 1.24 1.27

1.30
44.The purchased inventory shall be recognized at
a. 48,000 b. 49,600 c. 50,400 d. 50,800
45. The derivative asset (liability) to be included in the December 31,2021 statement of
financial position is
a. 2,400 b. (2,400) c. 1,200 d. (1,200)
46. The adjustment to the inventory account on December 31,2021 is – increase (decrease)
a. 2,400 b. (2,400) c. 1,200 d. 0
47. How much is the FOREX gain (loss) on foreign currency transaction on January
15,2022?
a. (2,400) b. (1,600) c. 1,200 d. (1,200)
48. How much is the gain (loss) on change in fair value of the derivative on January
15,2022?
a. 1,200 b. (1,200) c. 1,600 d. (1,600)
49. The total net effect of the two contracts on profit or loss in2022 is – gain (loss)
a. (1,600) b. (400) c. 1,600 d. 0
50. Assuming the forward contract is settled on a net cash basis, how much is the net
cash settlement receipt (payment) on January 15,2022?
a. 1,600 b. (400) c. 2,400 d. (2,400)

“The best way to predict your future is to create it.”

-Abraham Lincoln-

=======end of examination=========
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