1. ABET ENCOURAGE Co. has several branches.

On December 31, 20x1, the “Home office” account

maintained by Alpha Branch shows a balance of ₱580,000. The following information was
determined:
a) The home office charged Alpha Branch for a ₱60,000 shipment which was actually sent to Beta
Branch and retained by the latter. Alpha Branch was not notified of the intended shipment.
b) The home office charged Charlie Branch for a ₱64,000 shipment which was actually sent to
Alpha Branch. Alpha Branch retained the shipment.
c) The home office erroneously recorded a remittance for ₱20,000 from its Delta Branch as coming
from Alpha Branch.
d) Utilities expense of ₱16,000 that is allocable to Echo Branch was recorded by the home office in
Alpha Branch’s account. Alpha Branch has inappropriately recorded the related debit memo from
the home office.

How much is the unadjusted balance of the “Investment in Alpha Branch” account in the home office
books?
a. 654,000       
b. 564,000     
c. 556,000
d. 565,000

2. On January 1, 2012, Pine Corp. sold machine for P1,800,000 to Shine Corp., its wholly owned
subsidiary. Pine paid P2,200,000 for this machine, which had accumulated depreciation of P500,000.
Pine estimated a P200,000 salvage value and depreciated the machine on the straight-line method
over 20 years, a policy which Shine continued. In Pine’s December 31, 2011, consolidated balance
sheet, this machine should be included in cost and accumulated depreciation as:
Cost Accumulated depreciation
A. P2,200,000 P600,000
B. P2,200,000 P580,000
C. P1,800,000 P 80,000
D. P1,700,000 P 85,000

The following information was taken from the records of a branch:

Sales by branch 2,800,000
Billings to branch by home office 2,500,000
Operating expenses 400,000
Ending inventory at billed price 1,000,000

The following information was taken from the records of the home office:
Branch current account 2,600,000
Shipments to branch 2,000,000
Allowance for markup - Unadjusted 500,000

3. How much is the ending balance of the “allowance for markup” account before combining the
financial statements?
a. 200,000
b. 166,667
c. 230,000
 d. 266,667

Marc Corporation is a 90% owned subsidiary of Francis Corporation acquired several years ago at
book value equal to fair value. For the years 2011 and 2012, Francis and Mark report the following:

2011 2012
Francis separate income P600,000 P800,000
Marc’s net income 160,000 120,000

The only intercompany transaction between Francis and Marc during 2011 and 2012 was the January
1, 2011 sale of land. The land had a book value of P40,000 and was sold intercompany for P60,000,
its appraised value at the time of sale.

4. If the land was sold by Francis to Marc (downstream sales) and that Marc still owns the land at
December 31, 2012, compute the Profit Attributable to Equity Holders of Parent for 2011 and 2012:

2011 2012 2011 2012

A. P726,000 P908,000 C. P744,000 P920,000
B. P724,000 P908,000 D. P724,000 P920,000

5. ABASE HUMILIATE Co. is currently preparing its combined financial statements for the year ended
December 31, 20x1. As of this date, the “Investment in branch” account has a balance of ₱380,000
while the “Home office” account has a balance of ₱528,000. The following information has been
gathered:

a. The home office allocated unpaid utilities expenses amounting to ₱40,000 to the branch which the
branch did not record in full. Instead, the branch sent a wrong adjusting memo to the home office
reducing the charge by ₱10,000 and setting up a liability for the remaining amount.
b. The home office erroneously credited the branch for a return of shipment of merchandise worth
₱100,000. The branch did not make any return of merchandise.
c. The branch mistakenly received a copy of the home office correcting entry for item (b) above dated
January 3, 20x2 and entered a credit in favor of the home office on December 31, 20x1.
d. The branch mistakenly sent the home office a debit memo amounting to ₱12,000 for an apparent
remittance of collections which did not happen. The home office did not record the debit memo.

How much is the net adjustment to the “Investment in branch” account? increase (decrease)
a. 100,000
b. 48,000
c. (48,000)
d. (52,000)

ABC Co. operates a branch in Davao. There are shipments in transit from home office to the branch. The
home office ships merchandise to the branch at 125% of cost in year 20x1. Profit and loss data for the
home office and branch for 20x1 follows:
Branc
Home Office h
Sales  250,000 75,000
 Purchase from outsiders  200,000 15,000
Shipments to branch: 
    Cost to Home Office  30,000
    Billing price to branch  32,500
Expenses  40,000 10,000
Inventories, Jan. 1, 20x1: 
    Home Office, acquired from outsiders, at cost  80,000
    Branch: Acquired from outsiders at cost  7,500
    Acquired from home office at billing price 
     which averaged 20% above cost  24,000
Inventories, Dec. 31, 20x1: 
      Home Office, acquired from outsiders at cost  55,000
      Branch: Acquired from outsiders at cost  5,500
      Acquired from Home Office, in 20x1, at billed 
      price (physical count)  21,000

6. How much is the amount of merchandise in transit at billed price?

a. 3,000
b. 3,500
c. 5,000
d. 5,500 

7. How much is the combined cost of goods sold?

a. 241,200
b. 240,000
c. 242,400
d. 245,200

8. On January 1, 20x1, SUBTERFUGE Co. acquired all of the identifiable assets and assumed all of the
liabilities of DECEPTION, Inc. by paying cash of ₱4,000,000. On this date, the identifiable assets
acquired and liabilities assumed have fair values of ₱6,400,000 and ₱3,600,000, respectively.

Additional information:
 SUBTERFUGE intends to sell immediately a factory plant included in the identifiable assets of
DECEPTION. All of the “held for sale” classification criteria under PFRS 5 are met. As of January
1, 20x1, the factory plant has a fair value of ₱1,200,000 and a carrying amount of ₱1,000,000 in the
books of DECEPTION. Costs to sell the factory plant is ₱80,000.
 Not included in the identifiable asset of DECEPTION is a research and development intangible asset
that SUBTERFUGE does not intend to use. The fair value of this asset is ₱200,000.
 Also, not included in the identifiable asset of DECEPTION is a customer list, with an estimated value
of ₱40,000, in the form of a database where the nature of the information is subject to national laws
regarding confidentiality.

How much is the goodwill (gain on bargain purchase)?

a. 1,200,000
b. 1,280,000
c. 1,080,000
d. 1,040,000
Scroll, Inc., a wholly owned subsidiary of Pirn, Inc., began operations on January 1, year 1. The
following information is from the condensed year 1 income statements of Pirn and Scroll:
9. What amount should be reported as depreciation expense in Pirn’s year 1 consolidated income
statement?
a. $50,000
b. $47,000
c. $44,000
d. $41,000
10. Diego Val Co. merged with Mackenzie Bourg Corp. on June 30, 2012. In exchange for the net assets
at fair market value of Diego Val Co. amounting to P2,785,800, Mackenzie Bourg Corp. issued
68,000 ordinary shares at P36 par value, then going at a market price of P41 per share. Relevant data
on shareholders’ equity immediately before the combination show:

Included as part of the agreement is the additional cash consideration of P163,000 in the event
Diego’s share price will reach P32 per share by year-end. At acquisition date, the share price is
P27.50, and increased by P4.8 by December 31, 2012.

At acquisition date, there was only a low probability of reaching the target share price, so the fair
value of the additional consideration was determined at P74,000.

What is the amount of expense to be recognized in the statement of comprehensive income for the
year ended December 31, 2012?
a. P 940,700
b. P 851,700
c. P 765,400
d. P 676,400