CPA REVIEW SCHOOL OF THE PHILIPPINES

MANILA

ADVANCED FINANCIAL ACCOUNTING AND REPORTING Friday, April 30, 2021

Final Preboard Examination

Numbers 1, 2, 3 and 4
On January 1, 2022, Parent Corporation purchased 80% of the outstanding shares of Subsidiary
Company for a consideration of P19,000,000. Including in the price paid is control premium in the
amount of P500,000. At that date, Subsidiary had P16,000,000 of ordinary shares outstanding and
retained earnings of P6,400,000. Subsidiary’s equipment with a remaining life of 5 years had a book
value of P9,000,000 and a fair value of P10,520,000. Subsidiary’s remaining assets had book values
equal to their fair values. The income and dividend figures for both Parent and Subsidiary are as
follows: Net income of Parent in 2022 is P3,600,000. Net income of Subsidiary in 2022 is
P1,360,000. Dividends declared by Parent in 2022 is P880,000. Dividends declared by Subsidiary in
2022 is P280,000. Parent’ retained earnings balance at the date of acquisition was P13,800,000.

1. What is the consolidated retained earnings attributable to controlling interest in 2022?

A. 18,156,800
B. 17,140,800
C. 17,276,800
D. 17,763,200

2. What is the non-controlling interest in net income in 2022?

A. 211,200
B. 238,400
C. 272,000
D. 332,800

3. What is the consolidated profit in 2022?

A. 4,568,000
B. 4,689,600
C. 4,432,000
D. 5,016,000

4. What is the non-controlling interest in net assets at the end of 2022?

A. 4,905,200
B. 4,780,200
C. 4,784,000
D. 4,939,200

Number 5

Which of the following consolidation items will affect only the Consolidated Net Income Attributable
to the Parent’s Shareholders but not the Non-controlling Interest in Net Income?
A. Amortization of difference between fair value over book value of the assets or liabilities of the
subsidiary.
B. Impairment loss of the total goodwill arising from business combination
C. Gain on bargain purchase arising from business combination
D. Unrealized or realized gain/loss on upstream transactions
 Page 2

Numbers 6 and 7

Parent Corporation acquired an 80% interest in Subsidiary Company on January 1, 2022 for
P10,080,000. On this date, the share capital and retained earnings of the two companies follow:

Parent Corp. Subsidiary Co.

Share Capital P24,000,000 P9,000,000
Retained Earnings 12,000,000 1,800,000

On January 1, 2022, the assets and liabilities of Subsidiary Co. were stated at their fair values except
for machinery which is undervalued by P900,000 (remaining life is 3 years). On September 30, 2022,
Subsidiary sold merchandise to Parent at an inter-company profit of P600,000; 1/4 was still unsold at
year-end. Likewise, on October 1, 2023, Subsidiary purchased merchandise from Parent for
P14,400,000. The selling affiliate included a 20% mark-up on cost on this sale. Only 3/4 of these
purchases had been sold to unrelated parties as of December 31, 2023. As of December 31, 2023,
goodwill was determined to be impaired by P240,000.

The following is the summary of the 2023 transactions of the affiliated companies:

Parent Corp. Subsidiary Co.

Net Income P6,000,000 P2,400,000
Dividends declared and paid 2,400,000 720,000

6. What is the net income attributable to parent shareholders’ equity in the 2023 consolidated
financial statements?
A. 6,432,000
B. 6,744,000
C. 6,552,000
D. 6,834,000

7. What is the non-controlling interest in net income in the 2023 consolidated financial
statements?
A. 330,000
B. 342,000
C. 282,000
D. 402,000

Number 8

Which of the following statements concerning preparation of consolidated financial statements of a

group or separate financial statements of a parent corporation is incorrect?
A. IAS 27 does not mandate which entities are required to present separate financial statements.
B. IFRS 10 requires an entity (parent) that controls one or more other entities (subsidiaries) to present
consolidated financial statements including all its subsidiaries regardless of industries except when
the parent is an (1) investment entity or (2) a non-public entity which is partially or wholly owned
by another entity which prepares consolidated financial statements.
C. In preparing consolidated financial statements, IFRS 10 provides that the parent corporation shall
recognize and measure at fair value all the identifiable assets and liabilities of subsidiaries
including contingent liability provided it is a present obligation and can be estimated reliably.
D. In preparing consolidated financial statements, IFRS 10 requires the parent to present non-
controlling interest (NCI) as part of consolidated shareholders’ equity separately from the equity of
the owners of the parent and IFRS 3 requires non-controlling interest to be measured initially as the
higher between NCI’s Fair Value or NCI’s Proportionate Share of the fair value of the net assets of
the subsidiary.
 Page 3
Numbers 9, 10 and 11

On January 1, 2022, Parent Company purchased 80% of the outstanding shares of Subsidiary
Corporation at book value. The stockholders’ equity of Subsidiary Corporation on this date showed:
Ordinary shares – P4,560,000 and Retained earnings – P3,920,000. On April 30, 2022, Parent
Company acquired a used machinery for P672,000 from Subsidiary Corp. that was being carried in the
latter’s books at P840,000. The asset still has a remaining useful life of 5 years. On the other hand, on
August 31, 2022, Subsidiary Corp. purchased an equipment that was already 20% depreciated from
Parent Co. for P2,760,000. The original cost of this equipment was P3,000,000 and had a remaining
life of 8 years. Net income of Parent Co. and Subsidiary Corp. for 2022 amounted to P2,880,000 and
P1,240,000. Dividends paid totaled to P920,000 and P420,000 for Parent Co. and Subsidiary Corp.,
respectively.

9. What is the net income in the consolidated financial statements in 2022?

A. 3,920,600
B. 3,775,000
C. 3,584,600
D. 3,307,480

10. What is the net income attributable to parent’s shareholders’ equity in the consolidated
financial statements in 2022?
A. 3,336,600
B. 3,307,480
C. 3,643,480
D. 3,584,600

11. What is the non-controlling interest in net assets in the consolidated financial statements in
2022?
A. 1,696,000
B. 1,860,000
C. 1,820,120
D. 1,889,120

Number 12

Which of the following business combination transactions will affect the goodwill or gain on bargain
purchase arising from business combination?
A. Payment for legal, audit and broker’s fees directly connected with the business combination.
B. Incurring costs related to the issuance of ordinary shares given as consideration for the acquisition
of the 51-100% of ordinary shares of subsidiary corporation.
C. Measurement adjustments during measurement period which shall not exceed 12 months from the
date of acquisition date.
D. Payment of costs directly related to the issuance of bonds payable given as consideration for the
acquisition of the net assets of the acquired corporation.

Number 13

In a business combination achieved in stages, if the acquisition date fair value of the net of the
acquisition-date amounts of the identifiable assets acquired and the liabilities of the acquiree is higher
than the aggregate of the (1) acquisition date fair value of the consideration transferred by the acquirer;
(2) amount of non-controlling interest measured at fair value or proportionate share; and (3) acquisition
date fair value of acquirer’s previously held equity interest in the acquire, the difference shall be
accounted for by the acquirer in its consolidated statement of financial position as
A. Goodwill
B. Gain on bargain purchase
C. Expense as incurred
D. Deduction directly to retained earnings
 Page 4
Numbers 14, 15 16 and 17

Condensed Statements of Financial Position of Acquirer Corp. and Acquiree Corp. as of December 31,
2022 are as follows:

Acquirer Acquiree
Current assets P 175,000 P 65,000
Noncurrent assets 725,000 425,000
Total assets 900,000 490,000

Liabilities 65,000 35,000

Ordinary Shares, P20 par 550,000 300,000
Share Premium 35,000 25,000
Retained earnings 250,000 130,000

On January 1, 2023, Acquirer Corp. issued 35,000 shares with a market value of P25/share for the
assets and liabilities of Acquiree Corp. The book value reflects the fair value of the assets and
liabilities, except that the noncurrent assets of Acquiree have fair value of P630,000 and the noncurrent
assets of Acquirer are overstated by P30,000. Contingent consideration, which is determinable, is equal
to P15,000. Acquirer also paid for the stock issuance costs worth P34,000 and other acquisition costs
amounting to P19,000.

14. What is the combined total assets after the acquisition?

A. 1,742,000
B. 1,825,000
C. 1,772,000
D. 1,567,000

15. What is the total share premium after acquisition?

A. 26,000
B. 176,000
C. 210,000
D. 60,000

16. What is the total retained earnings after acquisition?

A. 231,000
B. 380,000
C. 361,000
D. 197,000

17. What is the total shareholders' equity after acquisition?

A. 835,000
B. 1,657,000
C. 1,710,000
D. 1,642,000

Number 18

In the consolidated statement of comprehensive income to be prepared by the parent corporation,

which of the following items will affect both consolidated net income attributable to parent and non-
controlling interest in net income?
A. Amortization of difference between fair value and book value of liability of subsidiary.
B. Recognition of gain on bargain purchase arising from business combination.
C. Realization of unrealized gain or (loss) from sale of parent company to subsidiary company.
D. Impairment loss on goodwill recognized when the non-controlling interest is measured at
proportionate share of fair value of net assets of subsidiary.
 Page 5

Number 19

Partners Red and Blue share profits in the ratio 2:3 respectively. The capital balances of Red and Blue
as of December 31, 2020 are P211,600 and P156,400, respectively. On January 1, 2021, the
partnership commenced its liquidation process. Among the assets of the partnership, P289,800
pertained to non-cash assets. Also, liabilities amounting to P36,800 were still outstanding. It is
expected that a total of P16,560 will be incurred for liquidation expenses in the following months.

Assuming that available cash will be distributed to the partners, how much will be the capital
balance of Partner Red immediately after distribution?
A. 211,600
B. 165,600
C. 158,240
D. 149,960

Numbers 20 and 21

Capital balances of the EK, MH, and CS immediately before liquidation were P25,000, P30,000, and
P45,000, respectively. Partners EK and MH have loss absorption potentials of P125,000 and P100,000,
respectively. Not all non-cash assets were realized this month. Proceeds from the sale of some noncash
assets were P80,000 more than the book value of those noncash assets. A total of P7,500 was
distributed to partners during the first month of liquidation.

20. How much is CS’s capital balance immediately after the sale of noncash asset?
A. 40,000
B. 45,000
C. 85,000
D. 90,000

21. How much cash did Partner EK receive by the end of the first month of liquidation?
A. 7,500
B. 7,000
C. 1,500
D. 6,000

Number 22

An non-cash investment of a capitalist partner should be credited to the contributing partner’s capital
account at
A. Contributing partner’s original cost
B. Fair value on the date of contribution
C. Assessed value for property tax purposes
D. Contributing partner’s original cost less accumulated depreciation using SLM

Number 23

All of the following can be considered for the computation of the recovery rate for unsecured
nonpriority creditors, EXCEPT:
A. Cash
B. Free assets
C. Assets pledged to fully secured liabilities
D. Assets pledged to partially secured liabilities
 Page 6
Numbers 24, 25 and 26

DoubleTrouble Inc. will be undergoing liquidation proceedings. Its statement of financial position
immediately before commencement of the liquidation process were as follows:

Cash 250,000 Trade payable 530,000

Trade receivables 300,000 Salary payable 400,000
Inventory 250,000 Loan payable 1,120,000
Equipment, net 1,000,000 Share capital ?
Intangible assets 200,000 Accumulated deficit (?)
TOTAL 2,000,000 TOTAL 2,000,000

On the first day of liquidation, the following estimates were determined:

 A total of P50,000 is expected to be incurred for the trustee’s fee;
 Trade receivables were estimated to be only 60% collectible;
 Only 20% of the inventories were deemed to be completely obsolete;
 Equipment, which was pledged as a collateral for the loan, was fairly stated.

During the first month of liquidation, trustee’s fee actually incurred amounted to P50,000. All
unsecured liabilities with priority were paid during the first month of liquidation. No other liabilities
were settled during that month. P300,000 of the trade receivables were collected in full. All of the
inventories were sold for a total of only P200,000. Equipment remained unsold as of the month end,
while intangible assets were no longer expected to be realized for any amount.

24. In the statement of affairs, how much is the estimated deficiency?

A. 270,000
B. 420,000
C. 470,000
D. 720,000

25. Based on the statement of affairs, what is the estimated recovery rate to unsecured non-priority
creditors?
A. 27.69%
B. 35.38%
C. 58.46%
D. 77.62%

26. In the statement of realization and liquidation, how much is the estate equity / (estate deficit) at
the end of the first month of liquidation?
A. 250,000
B. (50,000)
C. (350,000)
D. (420,000)

Number 27
During July 2020, 40,000 units were produced by Fearless Inc. The standard quantity of material
allowed per unit was 5kg at a cost of P2.50 per kg. There were no beginning nor ending inventory
balances. Upon inspection of the journal, entries made during the month included a credit to usage
variance for P25,000 and a debit to price variance for P28,500.

How much is the actual price per kg?

A. 2.350
B. 2.364
C. 2.650
D. 2.638
 Page 7

Numbers 28 and 29

The following information is available pertaining to the production division of Enchanted

Manufacturing Corporation:

Assembly Dept. Finishing Dept. Total

Overhead costs P750,000 P2,250,000 P3,000,000
Direct labor hours 75,000 25,000 100,000
Machine hours 25,000 75,000 100,000

Production information pertaining to Job 143:

Assembly Dept. Finishing Dept. Total
Prime costs P125,000 P0 P125,000
Direct labor hours 2,500 0 2,500
Machine hours 10 1,000 1,010
Units produced 5,000 0 5,000

28. Using a plantwide predetermined overhead rate based on direct labor hours, how much is the
cost of Job 143?
A. 125,000
B. 200,000
C. 875,000
D. 3,125,000

29. Using departmental predetermined overhead rates, how much is the cost of Job 143 if the
assembly department is considered labor intensive and the finishing department is
considered machine intensive?
A. 150,000
B. 180,000
C. 200,000
D. 240,000

Number 30

In job-order costing, the basic document to accumulate the cost of each order is the ___
A. Sales invoice
B. Job-cost sheet
C. Purchase order
D. Materials requisition

Number 31

An equivalent unit of direct materials or conversion cost is equal to

A. A unit of work-in-process inventory.
B. The amount of direct materials or conversion cost necessary to complete one unit of production.
C. The amount of direct materials or conversion cost necessary to start a unit of production in work-
in-process.
D. Fifty percent of the direct materials or conversion cost of a unit of finished goods inventory
(assuming a linear production pattern).
 Page 8
Numbers 32, 33 and 34
Long Live Manufacturing Corporation produces and sells a large volume of homogenous products.
The production manager presented the following production report for the month of December 2021:

Costs
Stage of
Units Materials Conversion
Completion
Work in process, December 20%
25,000 P 116,400 P 124,300
1
Started during December 100,000 - ? ?
Work in process, December 30%
10,000
31
Goods manufactured ? -
Lost units 5,000 -

The company uses FIFO costing assumption in accounting for its production process. Upon
observation, it can be concluded that 100% of the materials are added at the start of the process. Upon
inquiry with the management, it was determined that no losses were expected to have occurred for this
process this month. Quality inspection occurs at the end of the process.

Looking at the costing report, total goods transferred to finished goods costed P1,322,200. Of this
amount, P943,500 pertained to goods started and finished during December 2021.

32. How much is the current conversion cost for December 2021?
A. 702,800
B. 779,700
C. 943,500
D. 827,100

33. How much is the current materials cost for December 2021?
A. 420,000
B. 407,400
C. 378,700
D. 254,400

34. How much should be treated as period cost for the month of December 2021, if any?
A. 0
B. 34,500
C. 55,500
D. 62,700

Number 35

Under activity-based costing, which of the following is considered as a value-added activity?

A. Idle time
B. Setup time
C. Storage time
D. Processing time
 Page 9

Number 36
DMF Manufacturing Inc uses only one production process which produces two main products
(Products EUF and Product SCC) and one by-product (Product VGS). The joint cost is allocated
among the main products using the approximated NRV method, while the by-product is treated as a
reduction to production costs from the moment they are produced. The following information were
made available:

Joint cost of production P1,000,000

Units produced:
EUF 20,000
SCC 15,000
VGS 5,000
Selling price @ split-off:
EUF P14
SCC P37
VGS P6
Ultimate selling price:
EUF P23
SCC P44
VGS P6
Est. selling cost per unit:
EUF P3
SCC P4
VGS P1

How much of the joint cost will be allocated to Product EUF?

A. 297,297
B. 300,000
C. 390,000
D. 390,244

Number 37

Which of the following statements is CORRECT?

A. Appreciation in a foreign currency results in a foreign exchange gain when the foreign currency is
to be received and a foreign exchange loss when the foreign currency is to be paid.
B. The sole purpose for entering into derivative contracts is to manage market risks such as foreign
exchange risk and interest rate risk.
C. A transaction exposure exists when the importer is required to pay in foreign currency on the date
the purchase was made.
D. In accounting for foreign currency transactions, the most widely-used alternative assumes that an
import purchase is not complete until the foreign currency payable has been paid and converted
into the local currency.
 Page 10

Number 38

On January 1, 2021, ABC Inc. paid a premium to acquire a put option from a writer. This is in relation
to a forecasted sale of merchandise worth $65,000. (option price = P4.965)

1/1/2021 3/31/2021 6/20/2021

Spot rate P4.934 P4.908 P4.75
Fair value of option P9,800 P11,400 P13,975

Compute the gain/loss affecting earnings on the first quarter of 2021

A. 1,690
B. (1,690)
C. 1,600
D. (90)

Number 39

On December 6, 2021, XYZ Co. entered into a forward exchange contract to purchase 225,000 euros
in 90 days. The relevant exchange rates are as follows:

Spot rate Forward rate (for March 6, 2022)

November 15, 2021 P64.82 P64.89
December 6, 2021 P64.84 P64.80
December 31, 2021 P64.87 P64.83

The purpose of this derivative instrument is to hedge a liability exposure in November 2021, payable
in March 2022.

Compute the foreign currency transaction gain or loss on the hedged item to be reported in the
December 31, 2021 Statement of Comprehensive Income
A. 11,250 loss
B. 6,750 loss
C. 4,500 loss
D. 9,000 gain

Number 40

Malolos Company sold merchandise for 315,000 pounds to a customer in London on October 01,
2021. Collection in British pounds was due on January 30, 2022. On the same date, Malolos entered
into a 120-day forward contract to sell 315,000 pounds to a writer. Direct exchange rate for pound on
different dates are as follows:

Oct. 1 Dec. 31 Jan. 30

Spot rate 52.6 52.1 51.8
30-day forward 50.2 52.3 50.4
60-day forward 52.2 52.4 53.1
90-day forward 51.7 52.1 52.5
120-day forward 52.5 52.5 53.3

Compute the fair value of the derivative instrument on December 31, 2021
A. 63,000 negative
B. 63,000 positive
C. 126,000 negative
D. 126,000 positive
 Page 11

Number 41

On September 1, S Company entered into a firm commitment to sell a machinery. Delivery and
passage of title would be on January 30, 2021 at the price of $15,750 Singapore dollars. On the same
date, S Company entered into a 150-day forward contract with China bank to sell the $15,750
Singapore dollars. Direct exchange rate were as follows:

Spot Rate Forward Rate

Sept. 01, 2020 36.25 34.30
Dec. 31, 2020 37.40 36.70
Jan. 31 2021 39.50 39.50

Compute the gain or loss recognized by S Company on the firm commitment in 2021
A. 44,100 gain
B. 37,800 loss
C. 44,100 loss
D. 37,800 gain

Number 42

Certain Statement of Financial Position accounts of a foreign subsidiary of the Manila Co. had been
stated in Philippine pesos on December 31 as follows:

Stated at
Current Historical
Rates Rates
Accounts receivable — current P 280,000 P 308,000
Accounts receivable — long -term 140,000 154,000
Prepaid insurance 70,000 77,000
Goodwill 112,000 119,000
Totals P 602,000 P 658,000

If the subsidiary’s local currency is its functional currency, what total amount should be
included in Manila’s Statement of Financial Position as a group in Philippine Pesos?
A. 609,000
B. 658,000
C. 602,000
D. 630,000
 Page 12
Number 43

A subsidiary of Porter Inc., a Philippine company, is located in a foreign country. The functional
currency of this subsidiary was the Stickle (§) which is the local currency where the subsidiary is
located. The subsidiary acquired inventory on credit on November 1, 2020, for §120,000 that was sold
on January 17, 2021 for §156,000. The subsidiary paid for the inventory on January 31, 2021.
Currency exchange rates between the dollar and the Stickle were as follows:

November 1, 2020 P.19 = §1

December 31, 2020 P.20 = §1
January 1, 2021 P.22 = §1
January 31, 2021 P.23 = §1
Average for 2021 P.24 = §1

What amount would have been reported for the Cost of Goods Sold in Porter's Consolidated
Statement of Comprehensive Income for the year ended at December 31, 2021?
A. 26,400
B. 22,800
C. 27,600
D. 28,800

Number 44

On December 31, 2020 a foreign subsidiary in Hongkong submitted the following accounts stated in its
local currency which is the functional currency of the foreign operation. The subsidiary in Hongkong
acquired in 2020 is not integrated with the operations of the parent in the Philippines. Moreover, its
cash flows do not directly affect the parent company. The foreign operation is self-sufficient and is not
dependent on the parent company for financing.

Total Assets HK$ 245,000

Total liabilities 49,000
Ordinary Shares 122,500
Retained Earnings 73,500

The exchange rate are: Current rate, P8.75 ; Historical rate, P8.10 ; Weighted average rate, P8.50.

Compute the cumulative translation adjustment (Dr)/Cr on December 31, 2020

A. (250,250)
B. 127,400
C. 98,000
D. 250,250

Number 45

Agency X received Maintenance and Other Operating Expenses (MOOE) allotment from the
Department of Budget and Management in the amount of P10,000,000 with Notice of Cash Allocation
(NCA) of P6,000,000. Under the Government Accounting Manual (GAM) what is the journal entry to
record the receipt of the NCA?
A. Cash Disbursement Ceiling 6,000,000
Appropriation Allotted 6,000,000
B. Cash – National Treasury MDS 6,000,000
Appropriation Allotted 6,000,000
C. Cash-MDS, Regular 6,000,000
Subsidy from the Nat. Govt. 6,000,000
D. Memo entry in the appropriate registry.
 Page 13

Number 46

The Department of Budget and Management ordinarily shall release the allotments and NCA of an
agency before the start of the fiscal year. Under the GAM, this transaction must be recorded in the
books of accounts, except in the
A. Books of the agency
B. Books of the Commission on Audit
C. Books of Bureau of Treasury
D. Books of the Department of Budget and Management

Number 47

It is a cash authority issued periodically by the DBM to the operating units of government agencies to
cover their cash requirements.
A. Notice of Cash Allocation (NCA)
B. Non-Cash Availment Authority (NCAA)
C. Cash Disbursement Ceiling (CDC)
D. Cash Release Program (CRP)

Number 48

Agency MMM have an obligation for equipment per purchase order amounting to P400,000. The
entry for the transaction would be:
A. Office Equipment 400,000
Accounts Payable 400,000
B. Office Equipment 400,000
Cash-MDS, Regular 400,000
C. Memorandum entry in Registry of Allotments, Obligations, and Disbursements – Capital
Outlays RAODCO)
D. Office Equipment 400,000
Subsidy from the Nat’l. Gov’t. 400,000

Number 49

Using the same information in number 48, Agency MMM received the office equipment based on
invoice/delivery receipt. The entry for this transaction would be (ignore tax implication):
A. Office Equipment 400,000
Accounts Payable 400,000
B. Office Equipment 400,000
Cash-MDS, Regular 400,000
C. Memorandum entry in Registry of Allotments, Obligations, and Disbursements – Capital Outlays
RAODCO)
D. Office Equipment 400,000
Subsidy from the Nat’l. Gov’t. 400,000

Number 50

A unique reporting requirement of Not for Profit entities in a cash flow statement would be:
A. Investing activities do not include aquiring and disposing of long term assets.
B. Operating activities do not include transactions involving unrestricted net assets.
C. Finance activities include cash inflows from contributions and investment income that are
restricted for capital assets, endowment, or long term purposes.
D. Depreciation expense is included in operating activities.
 Page 14
Number 51

Mr. AFOUR makes an unconditional promise to donate a painting to the CPAR Library on June 1,
2021 for delivery on July 31, 2021. His cost basis in the painting is P250,000 and the current market
value of the painting is P500,000. The Library will record the donation as an asset and contribution
revenue:
A. At 500,000 on June 1, 2021.
B. At 250,000 on June 1, 2021.
C. At 500,000 on July 31,2021.
D. At 250,000 on July 31,2021.

Number 52

Helping Hands is a voluntary welfare organization funded by contributions from the general public.
During 2021 unrestricted pledges of P800,000 were received, half of which were payable in 2021 with
the other half payable in 2022 for use in 2022. It was estimated that 10% of these pledges would be
uncollectible. How much should National report as net contribution revenue for 2021 with respect to
the pledges?
A. 800,000
B. 720,000
C. 360,000
D. 0

Numbers 53 and 54

Falcon Motors sells cars both on installment and cash basis. On March 30, 2021, Falcon Motors sold a
car to Mr. Wilson for P525,000 costing P414,000. A used car is accepted as down payment, P128,000
being allowed on the trade-in. The used car can be resold for P160,200 after reconditioning cost of
P7,660. The company expects to make a 20% gross profit on the sale of used car. The balance of the
sale is to be paid on a 10-month installment basis starting May 1, 2021.

Mr. Wilson defaulted payment starting November 1, 2021, and the car was immediately repossessed.
The repossessed car was appraised at a value of P93,750 at the time of repossession. Falcon Motors
had to incur additional cost of repairs amounting to P9,250 before the car was subsequently resold on
December 1, 2021 cash to Mr. Barnes.

53. What is the realized gross profit on December 31, 2021?

A. 97,490
B. 98,990
C. 71,740
D. 47,640

54. What is the net income for the year ended December 31, 2021?
A. 64,200
B. 38,450
C. 49,100
D. 40,100
 Page 15

Numbers 55 and 56

On January 1, 2021, White Wolf Builders, Inc. won a bidding to build an athletic stadium. The project
was to be built at a total cost of P5,500,000 and was scheduled for completion by September 1, 2023.
One clause of the contract stated that White Wolf Builders, Inc. was to deduct P15,000 from the
P6,600,000 bid price for each week that completion was delayed. Completion was delayed for six
weeks.

Data for the three year construction period follows:

2021 2022 2023

Costs incurred each year P1,782,000 P2,068,000 P1,650,000
Estimated costs to complete 3,618,000 1,650,000 -
Contract billings each year 1,200,000 1,900,000 ?
Cash collections each year 1,000,000 1,800,000 3,710,000
Operating expenses 100,000 90,000 70,000

55. What is the net income for the year 2022, using the percentage of completion method?
A. 374,000
B. 284,000
C. 248,000
D. 743,000

56. Using the percentage of completion method, what is the balance of the Construction in
Progress account net of billings at December 31, 2022?
A. 1,520,500
B. 1,784,500
C. 1,520,000
D. 1,250,000

Numbers 57 and 58

The following information are taken from the books and records of Flag Smashers Company and its
branch. The balances at December 31, 2021, the second year of the company’s operations, are:

Home Office Books Branch Books

Sales 400,000
Expenses 100,000
Shipments to branch P200,000
Allowance for overvaluation 57,500
of branch inventory

The branch obtains all of its merchandise from the office. The home office ships the merchandise at
125 percent of its cost. The ending inventory of the branch is P40,000 at the billed price.

57. What was the billed price of the branch beginning inventory?
A. 30,000
B. 32,500
C. 22,500
D. 37,500

58. The branch net income as far as the home office is concerned:
A. 102,000
B. 100,000
C. 112,500
D. 112,000
 Page 16
Numbers 59 and 60

On January 1, 2020, Zemo, Inc. granted a franchise right to a franchisee for the operation of coffee
shop using Zemo’s trade name for a nonrefundable initial franchise fee of P10M and continuing
franchise fee of 10% of franchisee’s annual sales. It is the obligation of Zemo to construct the coffee
shop and to deliver the movables. In addition to that, Zemo has the obligation to deliver 100,000 units
of raw maters to the franchisee. The stand-alone selling price of the right to use Zemo’s trade name is
P4m. The stand-alone selling price of the construction of the coffee shop and delivery of movables is
P3M while the standalone selling price of the 100,000 units of raw materials is P1M.

On July 1, 2020, Zemo finished the construction of the coffee shop and delivered all the required
movables. 20,000 units of raw materials have been delivered as of December 31, 2020. The franchisee
reported sales revenue amounting to P2M for the year 2020.

59. How much of the upfront fee is to be allocated to the delivery of raw materials?
A. 200,000
B. 3,750,000
C. 5,000,000
D. 1,250,000

60. What is the total amount of revenue to be reported by Zemo Inc. for the year ended
December 31, 2020?
A. 8,750,000
B. 5,700,000
C. 10,000,000
D. 4,700,000

Numbers 61 and 62

Sharon purchased a 40% interest of Madripoor Joint Venture on January 1, 2021. Sharon has joint
control over Madripoor Joint Venture. On April 1, 2021, Sharon purchased equipment for P500,000
with a carrying amount of P300,000 from Madripoor. The equipment has a remaining life of 8 years on
the date of sale. The entities use the straightline method of depreciating the equipment.

Madripoor reports income amounting to P900,000 and P750,000 in years 2021 and 2022.

61. How much is the investment income to be reported by Sharon on December 31, 2021?
A. 290,000
B. 360,000
C. 287,500
D. 167,500

62. How much is the investment income to be reported by Sharon on December 31, 2022?
A. 278,000
B. 310,000
C. 325,000
D. 300,000

Number 63

Which of these items may be included in the contract price of a construction price?
A. Penalties
B. Incentive payments
C. Variation
D. All of the above
 . Page 17
Numbers 64, 65 and 66

BP (SME A) and BTS (SME B) each acquired 30% of the outstanding shares of Big Hit Corporation
for P202,000, including the transaction cost of P2,000. BP and BTS agreed to a joint control over Big
Hit. During the year, Big Hit reported the following:

 Profit for the year – P20,000

 Dividends declared – P4,000

It was determined after a thorough test that due to economic changes, there was an adverse effect to
Big Hit during the year. Hence, there appears to be impairment of the investment in the said entity.

64. Assuming that BP elected to carry the investment in Big Hit using the Cost Method and the
Fair Value of Big Hit at year end is P196,000 and cost to sell amounts to P1,800, How much
is the impairment loss to be recognized by BP in its investment in Bighit?
A. 0
B. 2,000
C. 7,800
D. 5,800

65. Assuming that BP elected to use the Fair Value method and the fair value of Bighit at year
end is P196,000 and cost to sell amounts to P1,800. How much is the net profit/loss from the
investment?
A. 1,200
B. (1,800)
C. 4,000
D. (4,800)

66. Assuming that BP elected to use the Fair Value method and the fair value of BigHit at year
end is P196,000 and cost to sell amounts to P1,800. How much is the impairment loss to be
recognized for the year?
A. 0
B. 2,000
C. 7,800
D. 12,600

Number 67

A joint arrangement that is structured through a separate vehicle should be accounted for as

A. Joint operation
B. Joint venture
C. Either joint operation or joint venture
D. Neither joint operation nor joint venture

Number 68

Joint control is defined as

A. The contractually sharing of control of an arrangement which exists only when decisions about
relevant activities require unanimous consent of the parties sharing control
B. The power to govern the financial and operating policies of another entity so as to obtain benefits
from its activities.
C. The power to participate in the financial and operating policy decisions of another entity.
D. The contractually agreed sharing of control of an arrangement which exists only when decisions
about relevant activities require majority consent of the parties sharing control
 Page 18

Number 69

Which of the following transactions will increase the normal balance of home office account in the
separate statement of financial position of the branch?
A. Credit memo issued by the home office
B. Debit memo received from the home office
C. Collection by the home office of branch receivable
D. Payment by the branch of home offices loans payable

Number 70

Which of the following statements is correct regarding accounting for home office and branch?
A. If the home office purchased an equipment to be used by the branch but the record of the asset is
being maintained by the home office for uniform depreciation policy, no entry is required on the
part of the branch.
B. Assuming the home office ships merchandise to the branch at a mark-up above cost, the account
Shipments from Home Office in the published income statement is reported at billed price.
C. The allowance for overvaluation account must be debited in the separate books of the home office
to adjust the results of operations of the branch whether it is a net income or net loss per branch
books.
D. A credit memo received by the branch may be a notification from the office about allocation of
expense incurred by the latter.

END