UL REFRESHER COURSE IN ACCOUNTANCY

FIRST PREBOARD EXAMINATION - AFAR

FIRST PRE-BOARD EXAMINATION

ADVANCED FINANCIAL ACCOUNTING & REPORTING
August 2, 2022

1. For contracts that include more than one separate performance obligation, ______.
a. revenue is recorded over time at the fair value of each performance obligation
b. revenue is recognized in the amount of the contract price on the date the last separate performance
obligation is satisfied
c. the contract price is allocated to each performance obligation in proportion to the obligations' stand-
alone selling prices
d. revenue is recognized in the amount of the contract price on the date the contract is signed

2. JRE2 Inc. entered into a contract to install a pipeline for a fixed price of P2,200,000. JRE2 recognizes
revenue upon contract completion. Assume that estimated cost to complete is reasonably reliable at
each point in time.
Cost incurred Estimated cost to complete
2022 P250,000 P1,550,000
2023 1,600,000 500,000
2024 450,000 0

In 2024, JRE2 would report gross profit (loss) of ______.

a. P100,000
b. P50,000
c. P123,000
d. P2,000

3. In 2018, Cupid Construction Co. (CCC) began work on a two-year fixed price contract project. CCC
recognizes revenue over time according to percentage of completion for this contract and provides the
following information (amounts in millions):

Accounts receivable, December 31, 2018 (from construction progress billings) P37.5
Actual construction costs incurred in 2018 P135
Cash collected on project during 2018 P105
Construction in progress, December 31, 2018 P207
Estimated percentage of completion during 2018 60%

What is the fixed contract price for CCC's project?

a. P120 million
b. P225 million
c. P345 million
d. P349.5 million

4. Flapper Jack's Pancake Restaurants sells franchises for an initial fee of P36,000 plus operating fees of P500
per month. The initial fee covers site selection, training, computer and accounting software, and on-site
consulting and troubleshooting, as needed, over the first five years. On March 15, 2017, Tim Cruise signed
a franchise contract, paying the standard P6,000 down with the balance due over five years with interest.

Assuming that the initial services to be performed by Flapper Jack's subsequent to the signing are
substantial and that collection of the receivable is reasonably assured, the journal entry required at
signing would include a credit to ______.
a. contract liability for P36,000
b. contract liability for P30,000
c. franchise fee revenue for P36,000
d. franchise fee revenue for P6,000

5. On April 1, Bob the Builder entered into a contract of one-month duration to build a barn for Nolan. Bob is
guaranteed to receive a base fee of P5,000 for his services in addition to a bonus depending on when the
project is completed. Nolan created incentives for Bob to finish the barn as soon as he can without
jeopardizing the structural integrity of the barn. Nolan offered to pay an additional 30% of the base fee if
the project finished two weeks early and 10% if the project finished a week early. The probability of
finishing two weeks early is 30% and the probability of finishing a week early is 60%.

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FIRST PREBOARD EXAMINATION - AFAR
What is the expected transaction price with variable consideration estimated as the expected value?
a. P4,750
b. P5,000
c. P5,500
d. P5,750

6. Arenn Co. purchased 90% of Reann on January 1, 2019 at which time Reann’s assets and liabilities have
book value equal to fair value. Of the original price paid by the parent, P300,000 was allocated to
undervalued equipment (with a 10-year life) and P400,000 to goodwill.
Since the takeover, Reann has transferred inventory to its parent as follows:
Year Cost Transfer Price Remaining at year-end
2019 P 100,000 P 250,000 P 100,000
2020 245,000 350,000 150,000
2021 250,000 500,000 200,000

On January 1, 2020, Arenn sold a building to Reann for P250,000. The building had originally cost
P350,000 but had book value at the date of transfer of only P150,000. The building is estimated to have
a five-year remaining life (straight-line depreciation is used with no salvage value).

Selected figures from the December 31, 2021 trial balances of these two companies are as follows:

Arenn Reann
Sales P 3,000,000 P 2,500,000
Cost of goods sold 2,000,000 1,300,000
Operating expenses* 600,000 400,000
Equity in Reann’s profit not given
Inventory 1,100,000 400,000
Equipment (net) 700,000 550,000
Buildings (net) 1,750,000 950,000

*including depreciation expense

What is the amount of consolidated sales in 2021?

a. P5,500,000
b. P5,300,000
c. P5,000,000
d. P4,500,000

7. (Refer to the information in item #6) What is the amount of consolidated cost of goods sold in 2021?
a. P2,855,000
b. P2,800,000
c. P2,745,000
d. P3,300,000

8. (Refer to the information in item #6) What is the amount of consolidated operating expenses in 2021?
a. P1,000,000
b. P1,030,000
c. P980,000
d. P1,010,000

9. (Refer to the information in item #6) What is the combined amount of consolidated buildings and
equipment (net) on December 31, 2021?
a. P4,100,000
b. P3,860,000
c. P4,250,000
d. P4,010,000

10. (Refer to the information in item #6) If equity method is used in the separate financial statements of
Arenn, the amount of 2017 investment income/equity in Reann’s profit (disregarding income taxes) should
be:
a. P720,000
b. P663,500
c. P661,500
d. P700,000

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FIRST PREBOARD EXAMINATION - AFAR

11. J Corporation has owned 70% of the outstanding voting shares of Arenn Corporation ever since 2014. On
January 1, 2017 Arenn corporation purchases a depreciable machine for P1,200,000 cash with an
estimated useful life of 10 years that will be depreciated on straight-line basis. Arenn used the machine
until 2020. On January 1, 2021, Arenn sells the machine to J Corporation. J Corporation will continue to
use the estimated useful life and depreciation method of Arenn.
At the end of 2021, J Corporation made the following elimination entry in the consolidated working papers.

Machine 360,000
Gain on sale of machine 120,000
Depreciation 20,000
Accumulated depreciation 460,000

What amount of depreciation expense was recorded by J Corporation for 2021?

a. P120,000
b. P90,000
c. P84,000
d. P72,000

12. Gold Company purchased 60 percent of the voting shares of Silver Company for P1,300,000 on January
1, 2018. Silver reported total shareholders’ equity of P2,000,000 at the time of acquisition. The fair value
of NCI at date of acquisition was P850,000. The purchase differential is assigned to patents with an
expected economic life of 10 years from the date of combination.

During 2021, Gold Company purchased inventory for P100,000 and sold the full amount to Silver for
P300,000. On December 31, 2021, Silver’s ending inventory included P30,000 of items purchased from
Gold Company. Also in 2021, Silver Company purchased inventory for P250,000 and sold the units to
Gold Company for P400,000. Gold Company included P100,000 of its purchase from Silver Company in
ending inventory on December 31, 2021.

Summary income statement data for the two companies revealed the following:

Gold Co. Silver Co.

Sales P2,000,000 P1,000,000
Less: Cost of goods sold 1,250,000 600,000
Less: Other expenses 350,000 175,000
Net income from own operation P400,000 P225,000

Disregarding taxes, determine the amount of (1) Controlling interest net income and (2) Noncontrolling
interest net income.

(1) (2)
a. P535,000 P90,000

b. P485,500 P67,000
c. P483,500 P69,000
d. P491,500 P61,000

13. On January 1, 2021 P Company purchased an 80% interest in S Company for P1,200,000. On this date,
S Company had share capital of P250,000 and retained earnings of P500,000. Non-controlling interest is
fair valued at P300,000.
An examination of S Company ‘s assets and liabilities revealed that book values were equal to fair values
for all except plant and equipment (net) which had a book value of P500,000 and fair value of P750,000.
The plant and equipment had an expected remaining life of five years.

During 2021 and 2022, P Company reported net income from its own operations of P200,000 and
P250,000, respectively. S Company’s income was P100,000 in 2021 and P120,000 in 2022. S Company
paid dividends of P20,000 in 2021 and P30,000 in 2022. P Company used equity method in its separate
financial statements.

Determine the December 31, 2022 balance of (1) Investment in S Company and (2) Noncontrolling
interest.

(1) (2)
a. P1,224,000 P306,000

b. P1,256,000 P314,000
c. P1,296,000 P354,000
d. P1,200,000 P300,000

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FIRST PREBOARD EXAMINATION - AFAR

14. P Company acquired an 80 percent interest in S Company for P1,950,000 by issuing cash and 10,000
shares. At date of acquisition P Company shares (P100 par value) were trading at market price of P145
per share. The investment elimination entry in P Company’s working paper follows:

Share capital – S Company P 640,000

Retained Earnings – S Company 160,000
Differential 1,150,000
Investment in S Company P1,950,000

An analysis of the identifiable assets and liabilities of S Company produced the following data:

Book Fair
Value Value
Cash P100,000 P 100,000
Receivables (net) 300,000 260,000
Inventory 500,000 620,000
Plant and equipment (net) 700,000 1,000,000
Patents 0 200,000
Land 200,000 300,000
Goodwill 100,000 0

Accounts and notes payable 600,000 560,000

Accruals 100,000 110,000
Bonds payable 200,000 180,000

Non-controlling interest is to be measured at the proportionate fair value of acquiree’s net assets.

Compute goodwill or gain on bargain purchase.

a. P646,000, goodwill
b. P807,500, goodwill
c. P546,000, gain
d. P100,000, gain

15. P Company has 80% ownership in S Company (considered as CGU – cash generating unit) which had
identifiable net assets of P12,000,000 as at December 31, 2021. The recoverable amount of CGU was
P10,000,000 at that date.
Determine the impairment loss to be recognized under each of the following assumptions.

(1) Non-controlling interests measured at fair value at acquisition date. Goodwill recognized was
P1,200,000.
(2) Non-controlling interests measured at proportionate fair value of acquiree’s identifiable net assets at
acquisition date. Goodwill recognized was P1,000,000.

(1) (2)
a. P2,000,000 P2,000,000

b. P960,000 P800,000
c. P1,200,000 P1,000,000
d. P3,200,000 P3,000,000

16. Which of the following is a reason why a company would expand through a combination, rather than by
building new facilities?
a. A combination might provide cost advantages.
b. A combination might provide fewer operating delays.
c. A combination might provide easier access to intangible assets.
d. All of the above are possible reasons that a company might choose a combination.

17. Konin Corporation (KC) acquires a 75% interest in Donna Corporation (DC), in exchange for cash of
P350,000. DC has 25% of its shares traded on an exchange; KC acquired the 60,000 non–publicly traded
shares outstanding. The fair value of DC’s identifiable net assets is P300,000; the shares of DC at the
acquisition date are traded at P5 per share. Management elects the option to measure noncontrolling
interest at its share of the acquiree’s net assets. The amount of goodwill from this business combination
is:
a. P125,000
b. P150,000
c. P75,000
d. P50,000

18. Konin Corporation (KC) acquires a 75% interest in Donna Corporation (DC), in exchange for cash of
P350,000. DC has 25% of its shares traded on an exchange; KC acquired the 60,000 non–publicly traded

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FIRST PREBOARD EXAMINATION - AFAR
shares outstanding. The fair value of DC’s identifiable net assets is P300,000; the shares of DC at the
acquisition date are traded at P5 per share. Management elects the option to measure noncontrolling
interest at its share of the acquiree’s net assets. How much is the control premium?
a. P125,000
b. P75,000
c. P50,000
d. P100,000

19. On January 1, 2022, Konin Corporation (KC) acquires 75% of the equity interests of Laska Corporation
(LC), a private entity, in exchange for cash of P250,000. The former owners of LC were forced to sell their
investments within a short period of time and unable to market LC to multiple potential buyers in the
marketplace. The management of KC initially measures at the acquisition date in accordance with IFRS
3(R) the separately recognizable identifiable assets acquired at P500,000 and liabilities at P100,000. KC
engages an independent valuation specialist who determines that the fair value of the 25% noncontrolling
interest in LC is P110,000. This business combination will result in recognition of:
a. Goodwill, P100,000
b. Gain on bargain purchase, P40,000
c. Goodwill, P50,000
d. Gain on bargain purchase, P50,000

20. Which of the following statements is not correct?

a. Since fair value measurements take into account the effects of uncertainty regarding the amounts and
timing of future cash flows, the acquirer is not to recognize a separate valuation allowance for assets
subject to such uncertainties (e.g., acquired receivables, including loans).
b. PFRS 3 also applies to business combination of entities under common control.
c. If noncontrolling interest is measured at fair value and goodwill arises from business combination,
there will be imputed goodwill for the noncontrolling interest.
d. Direct acquisition expenses in business combination should be charged to expense.

21. The interoffice account between the home office of Greenbelt Corporation and its branch in Libis was
adjusted to P77,190 as of December 31, 2020. The transactions between the home office and the branch
for 2021 were:
a. Remittance by branch, P144,000 (P19,200 of which was still in transit as of December 31, 2021).
b. Shipments to branch, P525,000 (including goods still in transit as of December 31, 2021 of P57,000).
c. Home office expenses paid by the branch, P21,300.
d. Branch receivable collected by the home office, P30,900.

What is the unadjusted balance of the Home Office Current account as of December 31, 2021?
a. P117,690
b. P167,190
c. P696,090
d. P379,890

22. On April 1, 2021, the home office in Eastwood establishes a branch in Ayala to act as a sales agency. The
following assets are sent to the sales agency on that date:
Cash (for the working fund to be operated under the imprest system) P 84,000
Samples from the merchandise stock 216,000

During April, the sales agency submits sales on account of P1,032,000 duly approved by the home office.
Cost of merchandise shipped to fill the orders from customers obtained by the sales agency is P576,000.
Home office disbursements chargeable to the sales agency are as follows: Furniture and fixtures,
P108,000; Manager’s and salesmen’s salaries, P105,600 and Rent P49,800.

On April 30, the sales agency working fund is replenished; paid vouchers submitted by the sales agency
amounted to P47,550. Sales agency samples are useful until December 31, 2021 which, at this time, are
believed to have a salvage value of 15% of cost. Furnitures are depreciated at 35% per annum.
What is the net profit of the sales agency for the month of April?

a. P194,850
b. P199,950
c. P229,500
d. P234,600

23. Presented below are items taken from the unadjusted trial balances of Cheesecake Company and its branch
on December 31, 2021:

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UL REFRESHER COURSE IN ACCOUNTANCY
FIRST PREBOARD EXAMINATION - AFAR
Home Office Books Branch Books
Shipments to branch P75,000
Allowance for overvaluation 24,975
Shipments from home office P 97,500
Purchases (from outsiders) 36,150
Merchandise inventory, January 1 13,650
Merchandise inventory, December 31 12,188
Sales 135,000
Expenses 12,750
It is the company’s policy to bill all branches for merchandise shipments at 30% above cost. Assuming
that the branch ending inventory acquired from the home office is P9,750 at billed price. What is the net
income (loss) of the branch insofar as the home office is concerned?
a. P22,725
b. P9,863
c. (P12,638)
d. (P12,862)

NEXT TWO QUESTIONS ARE BASED ON THE FOLLOWING:

The following balance sheet for the partnership of Abner, Norman, and Jhun were taken from the books on
September 30, 2021:
Assets Liabilities and Capital
Cash P 40,000 Liabilites P100,000
Other assets 360,000 Abner ,Capital 74,000
Norman capital 130,000
Jhun, capital 96,000
Total assets P400,000 Total liabilities and capital P400,000

The partners agreed to distribute the profit as follows:

a. Allow annual salaries to Abner and Norman of P3,000 each.
b. Allow interest of 6% on beginning capital.
c. Allow bonus of 10% to Norman, the bonus to be treated as an expense, after salaries and interest.
d. Remaining, 40% to Abner, 40% to Norman, and 20% to Jhun.

24. If the net income was P61,000 during the three month period ending December 31, 2021, the total share
of Norman in the net income is:
a. P21,860 c. P27,700
b. P11,440 d. P22,700

25. If Jhun receives as his share of net income P3,440 for the three month period ending December 31, 2021,
the total net income realized by the partnership for the same period before salaries, interest, and bonus
was:
a. P20,000 c. P25,000
b. P50,000 d. P17,000

26. If E is the total capital of a limited liability partnership before the admission of a new partner, F is the total
capital of the partnership after the admission of the new partner, G is the amount of the new partner's
investment, and H is the amount of capital credited to the new partner, there is:
a. Goodwill to the new partner if F > (is larger than) (E + G) and H < (is less than) G
b. Goodwill to the existing partners if F = E + G and H > G
c. A bonus to the new partner if F = E + G and H > G
d. Neither a bonus nor goodwill if F >(E + G) and H > G

27. The balance sheet for Yet and Mon Partnership on August 1, 2021 before liquidation is as follows:
Assets: Liabilities and Capital:
Cash P14,000 Liabilities P35,000
Other assets 71,000 Yet, Capital (70%) 28,000
. . Mon, Capital (30%) 22,000
Total P85,000 Total P85,000

In August, assets with book value of P34,000 are sold for P29,000, creditor are paid in full, liquidation
expenses of P1,000 is paid and P3,000 is paid to partners.

In August how much did Mon receive and how much is the maximum possible loss?
a. P3,000; P37,000
b. P3,000; P41,000
c. P 0; P41,000
d. P 0; P37,000

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FIRST PREBOARD EXAMINATION - AFAR
28. The accounts of the partnership of Arnold, Cherie and Mike at the end of its fiscal year on September 30,
2021 are as follows:
Cash P 15,000 Loan from Mike P10,000
Other assets 130,000 Arnold, Capital (30%) 45,000
Loan to Cherie 5,000 Cherie, Capital (50%) 30,000
Mike, Capital (20%) 15,000
Liabilities 50,000

If Mike received P9,000 on the first distribution of cash, the cash realized from the initial sale of assets
was:
a. P65,000
b. P15,000
c. P80,000
d. P57,500

29. The accounts of the firm of Lester, Marla and Nadine just before just before liquidation shows the following:
Asset P130,000

Liabilities 50,000
Lester, loan 20,000
Lester, capital 20,000
Marla, capital 32,000
Nadine, capital 8,000
Total P130,000

Lester, Marla and Nadine share profits 5:3:2 respectively. Certain are assets are sold for P78,000.
Creditors are paid in full, partners are paid P23,500.

How much cash is to be distributed to Lester?

a. P13,812.50
b. P14,000.00
c. P 9,687.50
d. P12,500.00

30. Red, White and Blue are partners who had average capital balances, respectively, of P240,000, P120,00,
and P80,000 during 2021. Partners receive 10% on their average capital balances. After deducting
salaries of P60,000 for Red and P40,000 for Blue, the residual profit or loss is divided equally. In 2021,
the partnership sustained a P66,000 loss before the interest and salaries to partners. By what amount
would the capital account of Red change?
a. P14,000 increase
b. P22,000 increase
c. P70,000 increase
d. P84,000 decease

31. On April 30, 2021, Algee, Belger, and Ceda formed a partnership by combining their separate business
proprietorships. Algee contributed cash of P50,000. Belger contributed property with a P36,000 carrying
amount, P40,000 original cost, and P80,000 fair value. The partnership accepted responsibility for the
P35,000 mortgage attached to the property. Ceda contributed equipment with a P30,000 carrying amount,
a P75,000 original cost, and P55,000 fair value. The partnership agreement specifies that profits and
losses are to be shared equally but is silent regarding capital contributions. Which partner has largest
April 30, 2021 capital account balance?
a. Algee
b. Belger
c. Ceda
d. All capital account balances are equal

32. The partnership agreement of Reid and Simm provides that interest at 10% per year is to be credited to
each partner on the basis of weighted-average capital balances. A summary of Simm’s capital account for
the year ended December 31, 2021, is as follows:

Balance, January 1 P140,000

Additional investment, July 1 40,000
Withdrawal, August 1 (15,000)
Balance, December 31 165,000

What amount of interest should be credited to Simm’s capital account for 2021?
a. P15,250
b. P15,375
c. P16,500

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UL REFRESHER COURSE IN ACCOUNTANCY
FIRST PREBOARD EXAMINATION - AFAR
d. P17,250

33. On June 30, 2021, the balance sheet for the partnership of Coll, Maduro and Prieto, together with their
profit and loss ratios, were as follows:

Assets, at cost 180,000

Coll, loan 9,000

Coll, capital (20%) 42,000
Maduro, capital (20%) 39,000
Prieto, capital (60%) 90,000
Total 180,000

Coll has decided to retire from the partnership. By mutual agreement, the assets are to be adjusted to
their fair value of P216,000 at June 30, 2021. It was agreed that the partnership would pay Coll P61,200
cash for Coll’s partnership interest, including Coll’s loan which is to be repaid in full. No goodwill is to be
recorded. After Coll’s retirement, what is the balance of Maduro’s capital account?
a. P36,450
b. P39,000
c. P45,450
d. P46,200

34. Partners Dalton, Edwards, and Finley have capital balances of P40,000, 90,000 and P30,000, respectively,
immediately prior to liquidation. Total remaining assets have a book value of P160,000, the liabilities
having been paid. Among these remaining assets is a machine with a fair value of P35,000. The partners
split profits and losses equally. Edwards covets the machine and is willing to accept it for P35,000 in lieu
of cash. The other partners have no designs on specific assets, only cash in liquidation. How much cash,
in addition to the machine, would be first distributed to Edwards, before any of the other partners received
anything?
a. P15,000
b. P50,000
c. P166,667
d. P300,000

35. On January 1, 2021, the partners of Coo, Daisy, and Ely, who share profits and losses in the ratio of 5:3:2,
respectively, decided to liquidate their partnership. On this date, the partnership condensed balance sheet
was as follows:
Cash P 50,000
Other assets 250,000
Total Assets P300,000

Liabilities P 60,000
Coo, Capital 80,000
Daisy, Capital 90,000
Ely, Capital 70,000
Total Liabilities and Equity P300,000
On January 15, 2021, the first cash sale of other assets with a carrying amount of P150,000 realized
P120,000. Safe installment payments to the partners were made the same date. How much cash should
be distributed to each partner?
Coo Daisy Ely
a. P15,000 P51,000 P44,000
b. P40,000 P45,000 P35,000
c. P55,000 P33,000 P22,000
d. P60,000 P36,000 P24,000

36. Cool Time Refrigeration uses an actual cost system for job order costing. The following transactions are
for August 2021. At the beginning of the month, Direct Material Inventory was P7,100, Work in Process
Inventory was P22,700, and Finished Goods Inventory was P11,000.
 Direct material purchases on account totaled P90,000.
 Direct labor cost for the period totaled P75,600 for 8,000 direct labor hours; these costs were paid
in cash.
 Actual overhead costs were P82,000 and are applied to production based on direct labor hours.
 The ending inventory of Direct Material Inventory was P3,000.
 The ending inventory of Work in Process Inventory was P11,500.
 Goods costing P243,700 were sold for P346,050.

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Determine the ending balance in Finished Goods Inventory.

a. P30,200
b. P11,400
c. P19,900
d. P82,000

37. Gurvitz Company manufactures three products – A, B, and C as a result of joint process. During October,
joint processing costs totaled P288,000. Details regarding each of the three products show:
A B C
Units produced 1,000 3,000 5,000
Units sold 800 2,500 4,300
Further processing costs P25,000 P60,000 P105,000
Sales price per unit P 100 P 80 P 50

Compute the cost assigned to the ending inventory of each product, using the market value method for
joint cost allocation. There were no units in finished goods on October 1.
A B C
a. P15,000 P21,600 P14,616
b. P 9,763 P19,525 P17,085
c. P15,800 P31,600 P29,316
d. P19,750 P37,920 P34,088

38. On November 1, Yankee Company has 20,000 units of work in process in Department, 100% complete as
to materials, and 20% complete as to conversion cost. During November, 160,000 units were started in
Department in Department A and 170,000 units were transferred to Department B. The work in process
on November 30 was 100% complete as to materials cost and 40% complete as to conversion cost. What
are the equivalent units of production for materials and conversion cost under FIFO and Average method?
FIFO AVERAGE
Materials Conversion Materials Conversion
a. 180,000 160,000 180,000 174,000
b. 160,000 170,000 180,000 174,000
c. 170,000 160,000 180,000 174,000
d. 160,000 158,000 160,000 170,000

39. Poole, Inc., produces a chemical compound in two departments, A and B, using the following procedures:
The chemical compound requires one pound of Chemical X and one pound of Chemical Y. One pound of
Chemical X is processed in Department A and transferred to Department B, where one pound of Chemical
Y is added when the process is 50% complete. When the processing is complete in Department B, the
finished chemical compound is transferred to finished goods. The process is a continuous 24-hour-a-day
operation. Normal spoilage occurs in Department A where 5% of Chemical X is lost throughout the
processing. Department A’s conversion cost is incurred uniformly throughout the process and is allocated
to good pounds produced, since spoilage is normal. Department B’s conversion cost is allocated equally
to each equivalent pound of output. No spoilage occurs in department B.

Data available for October are:

Department A Department B
Work in process, October 1 8,000 pounds 10,000 pounds
Stage of completion 3/4 3/10
Started or transferred in 50,000 pounds ?
Transferred out 46,500 pounds ?
Work in process, October 31 ? 12,000 pounds
Stage of completion of ending inventory 1/3 1/5
Total equivalent pounds of material added 44,500 pounds

What are the equivalent units of production for materials and conversion in each department using the
FIFO method?
Dept. A Dept. B
Materials Conversion Materials Conversion
a. 47,500 43,500 44,500 43,900
b. 47,500 49,500 46,500 43,900
c. 47,500 43,500 45,500 44,900
d. 47,500 43,500 43,500 43,500

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UL REFRESHER COURSE IN ACCOUNTANCY
FIRST PREBOARD EXAMINATION - AFAR
40. Roy Company manufactures Product X in a two-stage production cycle in Department A and B. Materials
are added at the beginning of the process in Department B. Roy uses the weighted-average method.
Conversion costs for Department B were 50% complete as to the 6,000 units in the beginning work in
process and 75% complete as to the 8,000 units in the ending work in process. Twelve thousand units
were completed and transferred out of Department B during February 2021. An analysis of the cost
relating to work in process (WIP) and production activity in Department B for February 2021 is as follows:
Transferred In Materials Conversion
WIP, February 1 P 12,000 P 2,500 P 1,000
Cost added 29,000 5,500 5,000

The total cost per equivalent unit transferred out for February 2021 of Product X, rounded to the nearest
penny, was:
a. P 2.75
b. P 2.78
c. P 2.82
d. P 2.85

41. Icee Company employs a process cost system. A unit of product passes through three departments:
molding, assembly, and finishing – before it is complete. Finishing Department information for May is as
follows:
Work in process, May 1 1,400 units
Transferred-in from Assembly 14,000
Units spoiled 700
Transferred out 11,200

Raw materials are added at the beginning of the process in finishing department without changing the
number of units being processed. Work in process was 70% complete as to conversion cost on May 1 and
40% complete as to conversion cost on May 31. All spoilage was discovered at final inspection before the
units were transferred to finished goods; 560 of the units spoiled were within the limit considered normal.
The Icee Company employs the weighted average costing method. The equivalent units and the current
costs per equivalent unit of production for each cost factor are s follows:

EUP Cost Per EUP

Transferred-in 15,400 P 5.00
Raw materials 15,400 1.00
Conversion cost 13,300 3.00

The cost of production transferred to finished goods inventory is:

a. P 100,800
b. P 105,840
c. P 107,100
d. P 102,060

42. Miller Manufacturing Company buys zeon for P.80 per gallon. At the end of processing in Department I,
zeon splits off into products A, B, and C. Product A is sold at the split off point, with no further processing.
Products B and C require further processing before they can be sold; product B is processed in Department
II and product C is processed in Department III. Following is the summary of costs and other related data
for the year ended June 30, 2018.
D E P A R T M E N T
I II III
Costs of Zeon P96,000
Direct labor 14,000 P45,000 P65,000
Manufacturing overhead 10,000 21,000 49,000

PRODUCTS A B C
Gallons sold 20,000 30,000 45,000
Gallons on hand at June 30 10,000 - 15,000
Sales P30,000 P96,000 P141,750

There were no inventories on hand at July 1, 2021, and there were no zeons on hand at June 30, 2022.
All gallons on hand at June 30, 2022, were complete as to processing. There were no manufacturing
variances. Miller uses the net realizable value method of allocating joint costs.

The unit cost of the products :

A B C

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UL REFRESHER COURSE IN ACCOUNTANCY
FIRST PREBOARD EXAMINATION - AFAR
a. P1.20 P3.00 P2.90
b. P1.20 P3.20 P3.15
c. P1.20 P2.20 P1.90
d. None of the above.

43. The Reardon Company manufactures novelty toys. In June, 400 of these toys were completed on Job
Order No. 2525. On final inspection, 20 toys were rejected and transferred to the spoiled goods inventory
to be sold at P2 each.
Costs recorded on Job Order No. 2525 follow:

Direct materials P1,600

Direct labor 1,400
Factory overhead 800

If the loss on spoilage is to be charged to Job Order No. 2525 only, the cost per finished unit on the Job
is:
a. P10.00
b. P10.11
c. P 9.89
d. P12.00

44. The following were among Page Co.’s 2021 costs:

Normal spoilage P 5,000
Freight out 10,000
Excess of actual manufacturing costs over standard costs 20,000
Actual prime manufacturing costs 80,000
Standard manufacturing costs 100,000

Page’s 2021 manufacturing overhead was:

a. P40,000
b. P45,000
c. P55,000
d. P120,000

45. Dove Co., makes a single product in two department. The production data for Department 2 for May,
2022 follow:
Quantities:
In process, May 1 (40% done) 4,000 units
Received from Dept. 1 30,000 units
Completed and transferred 25,000 units
In process, May 31 (60% done) 6,000 units
Production Costs:
May 1 May
Transferred In P16,300 P89,100
Materials 3,800 67,500
Conversion Cost 1,940 81,000
Materials are added at the start of the process, and losses normally occur during the early stages of the
operation. The cost of goods manufactured assuming FIFO costing is:
a. P187,250
b. P193,040
c. P195,250
d. P214,040

46. (Refer to number 45) The cost of the ending work in process inventory, using average costing is:
a. P44,640
b. P45,600
c. P46,800
d. P51,680

47. Alf Company is an assisted – living facility that provides services in the form of residential space, meals
and other occupant assistance (OOA) to its occupants. Alf currently uses a traditional cost accounting
system that defines the service provided assisted living, with service output measured in terms of occupant
days. Each occupant is charged a daily rate equal to Alf’s annual cost of providing residential space, meals
and OOA divided by total occupant days. However, an activity-based costing (ABC) analysis has revealed
that occupants’ use of OOA varies substantially. This analysis determined that occupants could be grouped
into three categories (low, moderate, and high usage of OOA) and the activity driver of OOA is nursing

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FIRST PREBOARD EXAMINATION - AFAR
hours. The driver of the other activities is occupant days. The following quantitative information was also
provided:

Annual Annual
Occupant Category Occupant Days Nursing Hours
Low usage 36,000 90,000
Medium usage 18,000 90,000
High usage 6,000 120,000
60,000 300,000

The total annual cost of OOA was P7.5 million, and the total annual cost of providing residential space and
meals was P7.2 million. Accordingly, the ABC analysis indicates that the daily costing rate should be
a. P182.50 for occupants in the low-usage category.
b. P145.00 for occupants in the medium-usage category.
c. P245.00 for occupants in the high-usage category.
d. P620.00 for all applicants.

48. RTW Co. manufactures a “one-size-fits-all” ready-to-wear outfit and uses a standard cost system. Each
unit of finished outfit contains 2 yards of fabric that cost P75 per yard. Based on experience, 20% loss on
fabric input is incurred. For each unit of outfit, the standard material cost is:
a. P150.00
b. P180.00
c. P187.50
d. P200.00

49. The following direct manufacturing labor information pertains to the manufacture of product Glu:
Time required to make one unit 2 direct labor hours
Number of direct workers 50
Number of productive hours per week, per worker 40
Weekly wages per worker P500
Workers benefit treated as direct manufacturing labor costs 20% of wages

What is the standard direct manufacturing labor cost per unit of product Glu?
a. P30
b. P24
c. P15
d. P12

50. Kansas Company uses a flexible budgeted system and prepared the following information for the year:
Percent capacity 80% 90%
Direct labor hours 24,000 27,000
Variable factory overhead P 48,000 P 54,000
Fixed factory overhead P108,000 P108,000
Total factory overhead rate per DLH 6.50 6.00

Kansas’s operated at 80% of capacity during the year but applied factory overhead based on the 90%
capacity level. Assuming that the actual factory overhead was equal to the budgeted amount for the
attained capacity, what is the amount of overhead variance for the year?
a. P6,000 over-absorbed
b. P6,000 under-absorbed
c. P12,000 over-absorbed
d. P12,000 under-absorbed

Next two questions relate to the following:

The standard direct labor cost to produce one pound of output for a company is presented below. Related
data regarding planned and actual production activities for the current month for the company are also given
below.

Note: DLH = direct labor hours.

Direct labor standard:

.4 DLH @ P12 per = P4.80
Planned production 15,000 pounds
Actual production 15,500 pounds
Actual direct labor costs (6,250 DLH) P75,250

51. Direct labor rate variance would be:

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FIRST PREBOARD EXAMINATION - AFAR
a. P10 unfavorable
b. P240 unfavorable
c. P248 unfavorable
d. P250 unfavorable

52. Direct labor efficiency variance would be:

a. P600 unfavorable
b. P602 unfavorable
c. P2,400 unfavorable
d. P3,000 unfavorable

53. The standard direct material cost to produce a unit of Lem is four meters of material at P2.50 per meter.
During May 2022, 4,200 meters of material costing P10,080 were purchased and used to produce 1,000
units of Lem. What was the material price variance for May 2022?
a. P400 favorable
b. P420 favorable
c. P80 unfavorable
d. P480 unfavorable

54. Dahl Co. uses a standard costing system in connection with the manufacture of a “one size fits all” article
of clothing. Each unit of finished product contains 2 yards of direct material. However, a 20% direct
material spoilage calculated on input quantities occurs during the manufacturing process. The cost of the
direct material is P3 per yard. The standard direct material cost per unit of finished product is
a. P4.80
b. P6.00
c. P7.20
d. P7.50

55. Carr Co. had an unfavorable materials usage variance of P900. What amounts of this variance should be
charged to each department?
Purchasing Warehousing Manufacturing
a. 0 0 900
b. 0 900 0
c. 300 300 300
d. 900 0 0

56. Yola Company manufactures one product with a standard direct manufacturing labor cost of four hours at
P12.00 per hour. During June, 1,000 units were produced using 4,100 hours at P12.20 per hour. The
unfavorable direct labor efficiency variance was:
a. P1,220
b. P1,200
c. P820
d. P400

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FIRST PREBOARD EXAMINATION - AFAR

57. Chemex produces three products (A, B, and C) from the same common input (X). 50,000 pounds of X will
yield 25,000 lbs. of A, 15,000 lbs. of B, and 10,000 lbs. of C. The sales values at the split-off point of A, B,
and C are P4 per lb, P5 per lb, and P6 per lb, respectively. B can be sold at the split-off point or processed
further at an additional cost of P20,000. If processed further, B can be sold for P6 per lb. There is no loss in
the manufacturing process. Should B be sold at the split-off point or processed further and what is the
difference in profit between the alternatives?
a. Process further; make an additional P5,000
b. Sell at the split-off point; make an additional P5,000
c. Process further, make an additional P10,000
d. Sell at the split-off point; make an additional P10,000
e. None of the above

58. The following information relates to X Company.

 Opening Inventory 4,000 units
Completion % Value
Material all P1,992
Labor 50% 1,074
Overhead 50% 846

 Put in Process 20,000 units

Material P12,000
Labor 9,984
Overhead is 100% of labor cost.

 Units Completed and transferred 21,000 units

 In process at the end 3,000 units

Materials – all
Labor and overhead - 60%

The total Cost of Work in Process at the end:

Average FIFO
a. P3,577 P3,500
b. P3,477 P3,528
c. P3,528 P3,477
d. P3,500 P3,577

59. Martin Corporation manufactures a specialty line of jeans using a job-order-cost system. During May, the
following costs were incurred in completing Job JMH1: direct materials, P13,700; direct labor, PP4,800;
administrative, P1,400; and selling, P5,600. Overhead was applied at the rate of P25 per machine hour,
and Job JMH1 required 800 machine hours. If Job JMH1 resulted in 7,000 good jeans, the cost of goods
sold per unit would be
a. P8.50
b. P6.30
c. P5.70
d. P5.50

60. Merry company has two major categories of factory overhead: material handling and quality control. The
costs expected for these categories for the coming year are as follows:
Material handling P120,000
Quality inspection P200,000

The plan currently applies overhead based on direct labor hours. The estimated direct labor hours are
80,000 per year. The plant manager is asked to submit a bid and assembles the following data on a
proposed job:

Direct materials P4,000

Direct labor (2,000 hours) P6,000

What is the estimated product cost on the proposed job?

a. P8,000
b. P10,000
c. P14,000
d. P18,000
UL REFRESHER COURSE IN ACCOUNTANCY
FIRST PREBOARD EXAMINATION - AFAR

61. In March 2017, a local not-for-profit organization received a pledge from a donor for P10,000; the donor
promised to pay the money to the organization in September 2017, to be used in providing reading programs
for underprivileged children. The donor gave money to the organization in September 2017, and it was
spent for reading programs in the first half of 2018. When should the revenue associated with this
contribution be recognized?
a. In March 2017, when the pledge was received
b. In September 2017, when the cash was received
c. In the first half of 2017, when the money was spent for the appropriate purpose
d. Either A or B, depending on the policies of the organization's board of directors
e. None of the above; this transaction does not involve revenue.

62. In March 2016, Mike Winslow promised to give P10,000 to a local not-for-profit organization, provided the
organization could raise another P25,000 to be used in caring for abandoned and neglected pets. The
organization raised the P25,000 by November 20016, and Winslow gave the P10,000 in December 2016.
The P10,000 was used for the indicated purpose in the first half of 2017. When should the organization
recognize the revenue for this gift?
a. In March 2016
b. In November 2016
c. In the first half of 2017, when the money was spent for the indicated purpose
d. Either A or B, in accordance with organizational policy
e. None of the above

63. On December 13, 2016, Fox Historical Society (a calendar year not-for-profit organization) received a
donation of P6,000 in cash from a member. The member stipulated that the entire amount be spent on a
new computer system during the following year. On January 24, 2017, the Society spent P6,000 to purchase
a computer system. Which of the following is true about this situation?
a. No entries should be recorded in 2016.
b. The donation of cash in 2016 may be recognized as temporarily restricted or unrestricted.
c. The computer system need not be depreciated unless the Society chooses to record it as temporarily
restricted.
d. If the computer system is recorded as temporarily restricted, an amount equal to annual depreciation
should be reclassified to unrestricted each year during the useful life of the computer.
e. The depreciation on the computer system should be classified as a restricted expense because the asset
was purchased with restricted funds.

64. Finely Corporation owes the Loyal Corporation P9,000 on account, which is secured by inventory that has a
book value of P8,000. Finely Corporation has filed for bankruptcy. Its statement of affairs lists the inventory
securing the Loyal account as having an estimated realizable value of P7,000. If the dividend to general
unsecured creditors is 70%, how much can the Loyal Corporation expect to receive?
a. P9,000
b. P8,400
c. P8,000
d. P7,000

65. S & L Inc. owes the Merian Corporation P6,000 on account, which is secured by accounts receivable with a
book value of P5,000. S & L Inc. has filed for bankruptcy. Its statement of affairs lists the accounts receivable
securing the Merian account with an estimated realizable value of P4,500. If the dividend to general
unsecured creditors is 20%, what can Merian expect to collect?
a. P6,000
b. P4,800
c. P4,000
d. Cannot be determined without additional data.

66. The statement of realization and liquidation was prepared for No - hope Corporation for the three-month
period ending December 31, 2015. The totals are as follows:

Assets to be realized P 62,000

Assets acquired 60,000
Assets realized 70,000
Assets not realized 25,000
Liabilities to be liquidated 90,000
Liabilities assumed 30,000
Liabilities liquidated 60,000
Liabilities not liquidated 75,000
Supplementary credits 85,000
Supplementary charges 78,000

The net income (loss) for the period must be:

a. P 7,000
b. P(35,000)
c. P(28,000)
UL REFRESHER COURSE IN ACCOUNTANCY
FIRST PREBOARD EXAMINATION - AFAR
d. P 28,000

67. A joint arrangement which is structured through a separate vehicle and the parties have rights to assets
and obligations for the liabilities should be classified as:
a. Joint venture
b. Joint operation
c. Service concession arrangements
d. Partnership

68. A joint venturer shall account for its investment in accordance with
a. PFRS 11
b. PAS 31
c. PAS 28
d. PFRS for SME

69. The Government Accounting Manual presents the basic accounting policies and principles in accordance with
the

a. Philippine Public Sector Accounting Standards (PPSAS)

b. Philippine Financial Reporting Standards
c. Philippine Standards on Auditing
d. New Government Accounting System

70. Which of the following is NOT CORRECT?

a. Unless otherwise specifically provided by law, all revenues accruing to an entity by virtue of the
provisions of existing law, orders and regulations shall be deposited/remitted in the National Treasury
(NT) or in any duly authorized government depository, and shall accrue to the General Fund (GF) of
the National Government.
b. No money shall be paid out of any public treasury or depository except in pursuance of an appropriation
law or other specific statutory authority.
c. Government funds or property shall be spent or used solely for public purposes.
d. The Department of Budget and Management shall keep the general accounts of the Government and,
for such period as may be provided by law, preserve the vouchers and other supporting papers
pertaining thereto, pursuant to Section 2, par. (1), Article IX-D of the 1987 Philippine Constitution.

End of examination.