Prefinal Exam Solutions

1. d

2. d

3. d

4. a
5. d
6. a
7. a

8. b

9. b
10. C
11. B

12. A

13. d
Total capital of the new partnership (refer to No. 14) P 296,875
Multiply by RR’s interest 20%
Cash to be invested by RR 59,375

14. a

15. A
16. C

17. A

18. B

19. B

20. C – P60,000 + [(P120,000 + P6,000) – (P30,000 + P35,000) = P121,000

21. B - P20,000 + P80,000 + [P170,000 – (P150,000 + P7,000)] = P113,000 – (P10,000 + P10,000) =
P93,000
Note: The lowest priority is given to claims by General Unsecured Creditors (i.e., without
priority). These creditors are paid only after secured creditors and unsecured creditors with
priority are satisfied to the extent of any legal limits. Often the general unsecured creditors
receive less than the full amount of their claim. The amounts to be paid to these creditors are
usually stated as a percentage of total claim, such as 77 cents per peso (refer to No. 22), or
whatever the specific percentage is. The payment to general unsecured creditors is often
termed a “dividend”.
22. C - P93,000/P121,000 = 77% rounded. Refer to “Note” in No. 21
23. D -

24. C
25. D
26. C
27. A

28. D

29. A

30. D
31. B

32. B
33. A
34. A
35. A

36. C
37. B
38. B
39. C
40. A
41. D
Performance Stand-Alone Allocated
Revenue
Obligations Selling Price Transaction price
Handset 45,000 (45/75) 36,000 36,000 One-time
Network Services 30,000 (30/75) 24,000 *2,000 Over-time
(2,500 x 12mos.)
75,000 60,000
*24,000/12
42. C
Handset 36,000
Network Services (2,000 x 10) 20,000
Total 56,000

43. D
Total Transaction Price 12,000,000
After-sales support *(1,200,000 x150%) 1,800,000
Revenue from sale of computer system 10,200,000

*Alternative Solution (detailed)

Cost of the after sales support 1,200,000
Mark-up (50% x 1,200,000) 600,000
Selling price of after sales support 1,800,000
44. C – 10,200,000 + 900,000 = 11,100,000
45. B - 1,800,000 x 6/12 = 900,000
46. B
Fair value of Forward Contract:
September 1, 2019 (no initial fair value - ……………….. 0
December 31, 2019:
9/1/2019: current (original) forward rate
(HK$6M/HK7.7) …………………….. P779,221
12/31/2019: Spot rate (HK$6M/HK$8.0) ………. 750,000
Forex loss on forward contract ………………………….. 29,221
Fair value of forward contract, 12/31/2019 (a payable) …………. P29,221

*Under the forward contract, Ram must pay P779,221 to purchase HK$6,000,000 on January 1,
2020. Equivalently, Ram can make a settlement payment if the peso value of HK$6,000,000 on
January 1, 2020 is less than P779,221 and it can receive a payment if the value is more. In this
case, the value is P750,000 (HK$6,000,000/8.0), so Ram must make a payment.

47. b – refer to No. 46 for computation

48. d – HK$6,000,000/HK$7.7 = P779,221. The notional amount is the total amount of the
asset or liability that underlies the derivative contract. The notional amount can be
misleading because the value of a derivative is a function of changes in prices or interest
rates and is normally equal to just a small fraction of the notional amount of the
underlying asset.

A notional amount may be expressed in the number of currency units, shares, bushels,
pound or other units specified in the financial instrument.

The P779,221 is the notional amount of the forward contract, but has a fair value of P0
(refer to No. 11 for computation) on the day the forward agreement is signed, eg.
September 1, 2019. In summary, there might be a possibility that notional amounts
grossly overstate/understate both the fair value and the potential cash flows of the
derivative.
49. B
50. B
51. D
52. D
53. C

54. C
55. C
56. A
57. D
58. D
59. A

60. A