CPA REVIEW SCHOOL OF THE PHILIPPINES

Manila

ADVANCED FINANCIAL ACCOUNTING AND REPORTING PREWEEK LECTURE

Numbers 1 and 2
During the first year of operations, the books of Bacolod Branch showed the following balances:
Sales 1,200,000
Shipments from home office 1,120,000
Purchases 120,000
Ending inventory 200,000
Operating expenses 150,000
Shipments to branch were billed at 140% of cost. The ending inventory of the branch included P26,400
from outside purchases.

1. What amount should be reported as ending inventory of the Bacolod branch at cost?
A. 200,000
B. 173,600
C. 150,400
D. 269,440

2. What amount should be reported as true net income of Bacolod branch?

A. 280,400
B. 10,000
C. 254,000
D. 270,400

Numbers 3 and 4
On October 1, 2021 the Home Office established a branch and on December 31, 2021, in the books of
the Home Office, the balance of the Investment in Branch account was P132,000. However, there were
some errors in recording the reciprocal accounts. The following were the relevant transactions that
were investigated:
a) The branch purchased for cash P30,000 machine for its use. The policy of the home office was that
the fixed asset accounts were maintained by the home office. Notification was sent to the home
office by the branch, but the home office did not record the transaction.
b) Cash of P4,000 was received by the branch from the home office, and was erroneously recorded by
the branch as P40,000.
c) Notification was sent by the home office to the branch, informing the branch of P10,000 worth of
expenses were paid on behalf of the branch. However, the branch did not receive the said
notification and the branch had not recorded the transaction.
d) Merchandise costing P16,000 was sent by the home office to the branch at a billed price of
P18,000. The merchandise is still in transit.
e) Cash of P20,000 was remitted or forwarded to the home office by the branch. However, the home
office did not record the transaction.

3. What is the adjusted balance of the reciprocal accounts?

A. 82,000
B. 182,000
C. 122,000
D. 142,000

4. What is the unadjusted balance of the home office account in the branch books?
A. 174,000
B. 82,000
C. 124,000
D. 90,000
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Number 5
The unadjusted balance in the allowance for overvaluation account at the end of the year represents
A. The mark-up on the merchandise shipped to the branch during the year
B. The mark-up on cost of goods sold by the branch for the year
C. The mark-up on the merchandise available for sale by the branch for the year
D. The mark-up on the merchandise shipped to the branch during the year less the mark-up on the
merchandise returned by the branch during the year

Number 6
Which of the following reconciling transactions will require a credit to the home office account in
Branch X's books?
A. Credit memo received by Branch X from the home office
B. Collection by Branch X of Branch Y's accounts receivable
C. Reshipment of goods received by Branch X to Branch Y
D. Payment of Branch X of home office's accounts payable

Number 7
Neither Branch A nor the Home Office had any intracompany transactions for the month of October.
However, the balance of the Home Office Current account in the books of Branch A was greater than
the Investment in Branch account in the books of the Home Office. What is the most likely reason for
the discrepancy?
A. The branch reported a net income for the month of October
B. The home office reported a net loss for the month of October
C. The branch returned merchandise to the home office
D. The branch reported a net loss for the month of October

Numbers 8 and 9
Boeing Company used a job order costing system. The entity had three jobs in process: #7, #10, and
#13. The entity provided the following information:

Raw material used P130,000

Direct labor per hour P9.50
Overhead applied based on direct labor cost 125%

Direct material was requisitioned for each job respectively: 25 percent, 30 percent, and 30 percent. The
balance of the requisitions was considered indirect. Direct labor hours per job are 2,800, 3,300 and
4,000, respectively for Job #7, Job #10 and Job #13. Indirect labor is P45,000. Other actual overhead
costs totaled P50,000.

8. What amount should Boeing Company report as prime cost for Job #7?
A. 59,100
B. 59,850
C. 32,500
D. 65,750

9. What amount should Boeing Company report as overhead applied for Job #13?
A. 45,000
B. 47,500
C. 50,000
D. 62,500
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Numbers 10 and 11
Bacolod Manufacturing Corp. has the following cost of production data for the month of October:
Work-in-process October 1:
Job 03 Job 04
Direct materials 2,400 1,500
Direct labor 3,600 2,880
Applied overhead 2,340 1,872
Finished goods October 1:
Job 01 Job 02
Direct materials 18,000 6,720
Direct labor 24,000 8,400
Applied overhead 15,600 5,460
Total manufacturing cost added during the month of October:
Job 03 Job 04 Job 05 Job 06
Direct materials 10,920 13,200 36,000 4,800
Direct labor 14,400 16,800 42,000 7,200
Applied overhead 9,360 10,920 27,300 ?
During the month of October, Job 03, Job 04, Job 05, were completed. The predetermined overhead
rate was 65% of direct labor cost. Actual overhead at the end of the year was P33,000.

10. What is the cost of goods manufactured for the month of October?
A. 195,492
B. 180,900
C. 143,700
D. 180,912

11. Assuming Job 06 was also completed, what is the cost of goods manufactured of Job 06?
A. 6,252
B. 20,580
C. 40,920
D. 16,680

Numbers 12 and 13
Airbus Company produces two products from a joint process: X and Z. Joint processing costs for this
production cycle are P8,000.
Yards Sale price per Disposal cost per Further processing Final sale price
yard at split off yard at split off per yard per yard
X 1,000 P6.00 P4.00 P1.00 P 7.00
Z 2,000 9.00 5.00 3.00 10.00

12. What amount of joint cost should be allocated to product Z if the company opted to use the
relative sales value at split off method?
A. 4,800
B. 6,400
C. 6,000
D. 5,200

13. Assuming that after further processing, Product X yielded 800 yards of Final Product X.
What is the approximated / estimated net realizable value of the Final Product X at the split-
off point?
A. 6,000
B. 4,800
C. 1,600
D. 2,000
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Numbers 14 and 15
C17 Company provided the following information for June of the current year:

Beginning work in process inventory (20% complete as to conversion) 12,000 units

Started 150,000 units
Ending work in process inventory (25% done as to conversion) 35,000 units

Beginning work in process inventory costs:

Direct materials P2,500
Conversion P2,650

Costs added during the year:

Direct materials P36,000
Conversion P112,750

All materials were added at the beginning of production.

14. Under FIFO, what is the Conversion EUP?

A. 135,750
B. 126,150
C. 133,350
D. 150,850

15. Under Weighted Average, what is the Direct material EUP?

A. 150,000
B. 162,000
C. 153,250
D. 185,000

Number 16
Which of the following formulas would calculate the net realizable value of a product?
A. Final sales value less cost of goods sold
B. Sales value multiplied by the constant gross margin
C. Sales value at the split-off point less cost to produce up to the split-off point
D. Final sales value less separable cost

Number 17
Which of the following would guide you in distinguishing a main product from a by-product?
A. Number of units per processing period
B. Joint costs incurred up to the split-off point
C. Percentage of total sales value
D. Weight or volume of outputs per period
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Number 18
Which of the following statements regarding Partnership Accounting is FALSE?
A. A partnership loan that was made from a partner who has a capital deficiency may be offset against
the debit balance in his capital account.
B. Gains and losses incurred at liquidation are distributed to the partners using the residual profit and
loss sharing ratios when these amounts represent profits and losses from prior periods that would
have been shared using the remainder profit and loss ratios.
C. In dividing the profit or loss to the partners, all types of withdrawals made by a partner affects the
computation of the ending capital balance used as a basis in providing an allowance as to interest.
D. When partners agree to make their capital ratio in conformity with their profit and loss ratio using
the transfer of capital method, the partner whose agreed capital is lower than his contributed
capital, may receive a payment from the partner whose agreed capital is higher than his contributed
capital.

Number 19
Which of the following statements regarding Partnership Accounting is TRUE?
A. In installment liquidation, a safe payment is the amount of distribution that can be made to the
partners which will not have to be returned to the partnership.
B. When the result of partnership operation is net income then it is always assured that bonus will be
given to a partner(s).
C. Fixed assets contributed by a partner in the partnership shall be credited to his capital account at
original cost.
D. In a partnership liquidation, with more than one deficient partner, partner or partners with personal
liabilities lower than his personal assets are the first to be eliminated in the distribution of cash.

Number 20
Which of the following statements regarding Partnership Accounting is FALSE?
A. In the preparation of a schedule of safe payments to partners, cash withheld for future liquidation
expenses and unrecorded liabilities that may be discovered are treated as loss on realization.
B. In an installment liquidation, a partner whose share in the maximum possible loss is greater than
his total interest will not receive cash for that period but may receive distributions from the
partnership by the next period.
C. Admission by investment will result in a bonus to the new partner and an asset revaluation upward
if the total contributed capital of all partners is less than the total agreed capital of the new
partnership while the agreed capital of the new partner is higher than the amount he contributed.
D. If a partner who retired from the partnership receives settlement from the partnership less than his
capital balance before retirement which also resulted in a decrease in the capital balance of
remaining partners, an impairment loss is recognized before the retirement.

Number 21
Which of the following statements regarding Accounting for Foreign Currency Transactions is
FALSE?
A. If a sale on account by an Australian Company is made with a foreign company, and the Australian
Company has no foreign currency risk, then the Australian Company has denominated the
transaction in its local currency.
B. A Japanese importer that acquired merchandise from a firm in Thailand would be exposed to a net
exchange gain on the unpaid balance if the yen strengthened relative to the baht and the foreign
currency was the denominated currency.
C. Accounts representing an accumulated depreciation are translated into U.K. pounds at current rates
regardless of the functional currency.
D. Accounting exposure is the exposure to changes in exchange rates as a result of a firm making
export sales to a foreign customer or import purchase from a foreign vendor.
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Number 22

Which of the following statements regarding Derivatives and Hedging is TRUE?

A. The sole purpose for entering into derivative contracts is to manage market risks such as foreign
exchange risk and interest rate risk.
B. When a firm commitment is hedged using a derivative financial instrument, fair value hedge
accounting requires explicit recognition of the statement of financial position at fair value of both
the derivative financial instrument and the firm commitment.
C. Options are frequently used to mitigate risks associated with fluctuations in the market prices of
securities or commodities. A call option is purchased to limit the price it will have to pay for a
commodity, a put option is purchased to limit potential price declines in the value of a financial
asset or commodity.
D. All derivative instruments are presented in the Statement of Financial Position at a positive fair
value.

Number 23
J and K decided to form a Partnership and provided the following transactions:
 J invested P250,000 cash and equipment with a fair value of P150,000.
 K invested P350,000 cash, merchandise with an agreed value of P550,000, and Land with an
appraised value of P500,000 subject to a mortgage payable of P250,000 which the partnership will
assume.
 The partners also agreed to an equal interest in the partnership capital.
Compute the amount reported as total capital of the partners after formation
A. 1,800,000
B. 1,550,000
C. 1,750,000
D. 1,500,000

Number 24
On January 1, 2021, Q and R were partners with capital balances of P1,500,000 and P1,150,000
respectively. The profit and loss agreement of the partners included the following:

 Monthly salaries of P30,000 and P25,000 respectively for Q and R

 6% interest based on their January 1, 2021 capital balances
 Remainder to be shared equally
At the end of 2021, the partnership generated a net income of P500,000.
Compute the share of Partner R in the net income
A. 250,000
B. 227,500
C. 209,500
D. 217,000
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Number 25
On December 31, 2021, the Statement of Financial Position of LMN Partnership provided the
following data with profit or loss ratio of 1:6:3:

Current Assets 2,500,000 Total Liabilities 1,500,000

Noncurrent Assets 5,000,000 L, Capital 2,250,000
M, Capital 2,000,000
N, Capital 1,750,000

On January 1, 2022, O was admitted to the partnership by purchasing 40% of the capital interest of M
at a price of P1,250,000.

Compute the capital balance of M after the admission of O on January 1, 2022

A. 1,350,000
B. 1,200,000
C. 1,050,000
D. 750,000

Number 26
O and P have capital balances of P1,400,000 and P1,540,000 respectively before admission of N. Their
profit and loss agreement was 35:65. On January 1, N was to be admitted for 40% interest in the
partnership and 20% in the profits and losses by contributing used equipment which had a cost of
P1,435,000 and a fair value of P1,260,000. After the admission of N, O and P agreed to share profits
and losses equally. At the end of the year the new partnership generated net income of P910,000.

Assuming there is an implied undervaluation or (overvaluation) of an asset, compute the capital

balance of P at the end of the year
A. 3,269,000
B. 539,000
C. 2,586,500
D. 1,221,500

Number 27
On December 31, 2021, the Statement of Financial Position of TUV Partnership provided the following
data with profit or loss ratio of 5:1:4:
Current Assets 3,750,000 Total Liabilities 1,250,000
Noncurrent Assets 5,000,000 T, Capital 2,750,000
U, Capital 3,000,000
V, Capital 1,750,000
On January 1, 2022, S was admitted to the partnership by investing P1,250,000 to the partnership for
10% capital interest. The total agreed capitalization of the new partnership is P7,500,000.
Compute the capital balance of V after the admission of S to the Partnership
A. 1,450,000
B. 2,050,000
C. 1,250,000
D. 1,950,000
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Number 28

On December 31, 2021, the Statement of Financial Position of DEF Partnership with profit or loss ratio
of 5:2:3 of partners D, E and F respectively revealed the following data:
Cash 2,500,000 Liabilities 5,000,000
Non Cash assets 6,250,000 D, Capital 1,750,000
E, Capital 1,250,000
F, Capital 750,000
On January 1, 2022, the partners decided to liquidate the partnership. All partners are legally declared
to be personally insolvent. The noncash assets were sold for P4,500,000. Liquidation expenses
amounting to P750,000 were incurred and paid.
Compute the amount of cash received by Partner D after liquidation
A. 1,750,000
B. 875,000
C. 1,375,000
D. 500,000

Number 29
On September 30, 2021, The R, S, and T Partnership had the following fiscal year-end Statement of
Financial Position.
Cash P 48,000 Accounts Payable P 84,000
Accounts Receivable 72,000 Loan from T 60,000
Merchandise Inventory 168,000 R, Capital (20%) 168,000
Fixed Assets, net 144,000 S, Capital (20%) 120,000
Loan to R 72,000 T, Capital (60%) 72,000
P504,000 P504,000
The partners dissolved the partnership on October 1, 2021and began the liquidation process. During
October the following events occurred:
a. Accounts receivables of P36,000 were collected
b. All the merchandise inventory was sold for P48,000.
c. Cash withheld for anticipated expenses amount to P24,000
Compute the amount of cash S would receive in the first distribution
A. 24,000
B. 4,800
C. 14,400
D. 0
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Number 30, 31 and 32

Cebu Company, a Philippine company acquired inventory items from a supplier in Singapore on
December 1, 2021 for 250,000 SGD due on February 28, 2022, when the selling spot rate was P33.60.
On December 31, 2021, the selling spot rate was P33.10. On the due date, on February 28, 2022, the
selling spot rate was P33.20.

30. Compute the amount Cebu Company should report as forex gain or loss for the year ended
December 31, 2021
A. 125,000 gain
B. 125,000 loss
C. 100,000 gain
D. 0

31. Compute the amount Cebu Company should report as liability on December 31, 2021
A. 8,275,000
B. 8,400,000
C. 8,300,000
D. 8,250,000

32. Compute the amount Cebu Company should report as forex gain or loss for the year ended
December 31, 2022
A. 25,000 loss
B. 25,000 gain
C. 100,000 gain
D. 0

Number 33

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 $130,000. (option price = P4.965)

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

Spot rate P4.934 P4.908 P4.750
Fair value of option P19,600 P22,800 P27,950
Compute the gain/loss affecting earnings for the first quarter of 2021?
A. 3,380
B. (3,380)
C. 3,200
D. (180)
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Number 34
Ortigas Company sold merchandise for 105,000 pounds to a customer in London on October 01, 2021.
Collection in British pounds was due on January 30, 2022. On the same date, Ortigas entered into a
120-day forward contract to sell 105,000 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, 2020?
A. 21,000 negative
B. 21,000 positive
C. 42,000 negative
D. 42,000 positive

Number 35, 36 and 37

Use the following information for number 35 to 37.
Loco Company bought the net assets of Coco Company by issuing 100,000 shares with P20 par value.
The fair value of the shares was P4,800,000. Immediately before the acquisition, the following balances
were ascertained for Coco Company:
Book Value Fair Value
Current assets 2,000,000 2,500,000
Noncurrent assets 3,000,000 4,400,000
Liabilities 600,000 1,700,000
Ordinary shares 4,000,000
Retained earnings 400,000
Loco Company also incurred the following costs:
 Professional fees to arrange business combination P50,000.
 SEC registration of newly issued shares P20,000.
 Printing and issuing of stock certificates P10,000.

35. What amount should Loco Company report as result of the business combination?
A. 400,000 goodwill
B. (400,000) gain on bargain purchase
C. 600,000 goodwill
D. (600,000) gain on bargain purchase

36. What amount should Loco Company record as additional paid in capital after acquisition?
A. 2,780,000
B. 2,800,000
C. 2,770,000
D. 2,720,000

37. What amount should Loco Company report as net increase (decrease) in the retained
earnings after acquisition?
A. 400,000
B. 320,000
C. (50,000)
D. 350,000
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Number 38
On January 1, 2022, Entity A acquired 80% of the outstanding shares of Entity B for a cash
consideration of P1,185,000. On this date, the book value of the shareholders' equity of Entity B was
P1,350,000. At the acquisition date, the inventory of Entity B was understated by P75,000 and the
equipment was understated by P150,000. The acquisition date fair value of the noncontrolling interest
was P300,000. What amount should Entity A report as result of the business combination?
A. 90,000 gain on bargain purchase
B. 90,000 goodwill
C. 75,000 gain on bargain purchase
D. 75,000 goodwill

Numbers 39 and 40

On January 1, 2021, Pei Company acquired 75% of the outstanding shares of Dari Company that
resulted at a gain on acquisition in the amount of P75,000. On this date the Ordinary shares and
Retained earnings of Dari Company were P1,200,000 and P300,000 respectively.

All of the book values of the assets and liabilities of Dari Company equal their fair values except for
the equipment which was understated by P156,000. The equipment had a remaining life of 10 years.

For the year ended, December 31, 2021, Pei Company reported a net income of P600,000, while Dari
Company reported a net income of P360,000 and declared dividends of P240,000

39. What amount should Pei Company report as consolidated net income attributable to parent
for the year ended December 31, 2021?
A. 600,000
B. 776,700
C. 678,300
D. 753,300

40. What amount should Pei Company report as noncontrolling interest net income for the year
ended December 31, 2021?
A. 360,000
B. 90,000
C. 93,900
D. 86,100

Number 41
A parent company that uses the equity method in accounting for its investment in subsidiary has
neglected to adjust the investment balance for its share in the subsidiary’s net income or net loss. The
parent’s share in the net income of the subsidiary was P60,000 last year and P40,000 this year. If the
subsidiary did not declare any dividends during the year, which of the following statements is true?
A. The net income of the parent this year should be increased by P100,000.
B. The retained earnings of the parent should be increased by P100,000.
C. The net income of the parent this year should be increased by P40,000 and retained earnings
should be increased by P60,000.
D. Any of the choices is true, depending on the company’s accounting policy.
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Number 42
On January 1, 2020, Pint Company has acquired 100% controlling interest in Sterest Company. The net
assets of Sterest Company were all fairly value except for a note payable. The face value of the note is
P1,000,000 with a stated rate of 10%, but the effective rate in the market for a similar type of note is
only 8%. The principal of the note is payable in lumpsum after 2 years and interest is payable annually.
Which of the following is true?
A. The book value of the net assets of the subsidiary on date of acquisition is less than its fair value.
B. Amortization of the excess will ultimately increase the consolidated retained earnings.
C. The difference in nominal and effective rate will not affect the measurement of the net assets
acquired by the acquirer.
D. All of the choices are true

Number 43
Statement 1: On the consolidated working papers, the net income of the parent is allocated between the
controlling and non-controlling interests.
Statement 2: On the consolidated working papers, the net income of the subsidiary is allocated between
the controlling and non-controlling interests.
A. Both statements are true
B. Both statements are false
C. Statement 1 is true; statement 2 is false
D. Statement 2 is true; statement 1 is false

Number 44
A parent company provided a P10,000 non-interest bearing loan to its wholly owned subsidiary. With a
market rate of 9%, the fair value of the loan is determined to be P7,722. Which of the following is
false?
A. In the books of the parent, the journal entry at the end of the first year will include a debit to
intercompany loan receivable for P695
B. In the books of the subsidiary, the journal entry at the end of the second year will include a debit to
interest expense for P758
C. The working paper entries at the end of the second year will include a debit to intercompany loan
payable for P758
D. The working paper entries at the end of the first year will include a credit to interest income for
P695.

Number 45
Parent company has an investment in a subsidiary which it accounts for using the cost method.
Accordingly, the original cost of P250,000 is its carrying value. On December 1, 2021, the parent
declared its subsidiary as property dividends to its shareholders, to be distributed on January 30, 2022.
The fair value of the subsidiary shares amounted to P280,000 on December 1, 2021, and P270,000 on
December 31, 2021. In the books of the parent, which of the following is true?
A. The entry on December 1, 2021 will include a debit to asset held for distribution at P280,000.
B. The entry on December 1, 2021 will include a credit to property dividends payable for P280,000.
C. The entry on December 31, 2021 will include a debit to property dividends payable for P270,000
D. The entry on December 31, 2021 will include a debit to equity for P10,000.
 Page 13
Number 46
Which of the following statements is true?
A. A statutory merger occurs when exactly 2 companies combine, while a statutory consolidation
occurs when more than 2 companies combine.
B. A statutory merger is recorded in the books of the acquirer while a statutory consolidation is
recorded in the books of the acquiree.
C. A statutory merger legally dissolves all the companies in a business combination except for one,
while a statutory consolidation legally dissolves all the companies in a business combination.
D. A statutory merger is exactly the same as a statutory consolidation.

Numbers 47 and 48
Use the following information for number 47 and 48
Department of Health (DOH) received Notice of Cash Allocation (NCA) in the amount of P240,000
from Department of Budget and Management (DBM). DOH made a total cash disbursements in the
amount of P228,000.

47. What is the journal entry to record the receipt of NCA from the DBM?

A. Cash-Modified Disbursement System (MDS), Regular 240,000

Subsidy Income National Government 240,000
B. Cash-Modified Disbursement System (MDS), Regular 240,000
Revenue 240,000
C. Cash-Modified Disbursement System (MDS), Regular 240,000
Advances from DBM 240,000
D. Cash-Modified Disbursement System (MDS), Regular 240,000
Accounts Receivable 240,000

48. What is the journal entry to recognize reversion of unused Notice of Cash Allocation?

A. Subsidy Income National Government 12,000

Cash-Modified Disbursement System (MDS), Regular 12,000
B. Retained earnings of DOH 12,000
Cash-Modified Disbursement System (MDS), Regular 12,000
C. Expenses of DOH 12,000
Cash-Modified Disbursement System (MDS), Regular 12,000
D. Investment in DOH 12,000
Cash-Modified Disbursement System (MDS), Regular 12,000

Number 49
Leyte Hospital, a nonprofit organization, reported the following information for the year ended
December 31, 2021:
Gross patient service revenue 3,940,000
Bad debt expense 70,000
Contractual adjustments, VAT 267,270
Allowance for discounts to hospital employees 45,000
In Leyte Hospital’s statement of activities for the year ended December 31, 2021, what amount should
be reported as net patient service revenue?
A. 3,940,000
B. 3,627,730
C. 3,597,730
D. 3,895,000
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Numbers 50, 51 and 52

Use the following information for numbers 50 to 52
SPKH Foundation, a nonprofit organization, provided the following transactions during its first year of
operations:

 The nonprofit organization received P500,000 cash from a donor who stipulated that it shall be
used based on the discretion of the Board of Trustees of the nonprofit organization. The
nonprofit organization used P100,000 for the acquisition of souvenir items which were sold by
the nonprofit organization for P150,000. The remaining P400,000 was designated by the Board
of Trustees for future fundraising projects
 The nonprofit organization received P750,000 cash from a donor who stipulated that it shall be
used for the acquisition of service car. The nonprofit organization used P400,000 of the fund for
the acquisition of a service car with useful life of 4 years. The car was acquired at the middle of
the year.
 The nonprofit organization received P1,500,000 cash from a donor who stipulated that it shall
be invested indefinitely and the dividend from such investment shall be used for research
project of the organization. Dividend amounting to P225,000 was received during the year but
only P75,000 was spent for the research project.

50. What amount should SPKH Foundation report as permanently restricted net assets at the
end of the first year?
A. 1,650,000
B. 1,950,000
C. 1,800,000
D. 1,500,000

51. What amount should SPKH Foundation report as temporarily restricted net assets at the end
of the first year?
A. 1,150,000
B. 500,000
C. 750,000
D. 975,000

52. What amount should SPKH Foundation report as unrestricted net assets at the end of the
first year?
A. 900,000
B. 500,000
C. 975,000
D. 950,000
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Numbers 53 and 54
ABC Company is a manufacturer that sells its product to local retailers. Retailers sell the product to its
customers and for each product purchased by the customers, a coupon of P200 discount is given and
may be used on future purchase of the same product. Retailers are reimbursed for the discount by the
manufacturer when customers redeem their coupons. During 2021, the manufacturer sold 8,000
products to the retailers at P1,100 each product. It is expected that 75% of the coupons will be
redeemed. By December 31, 2021, the manufacturer had paid the retailers P500,000 as reimbursement.

53. What amount should ABC record as sales revenue for 2021?
A. 7,200,000
B. 8,400,000
C. 8,800,000
D. 7,744,000

54. What amount should ABC report as rebate liability on December 31, 2021?
A. 556,000
B. 1,056,000
C. 1,200,000
D. 1,600,000

Numbers 55 and 56
XYZ Company, a high street chain, is offering a promotion whereby a customer who purchases three
boxes of chocolates at P400 per box in a single transaction shall receive a coupon for one free box of
chocolates if the customer fills out a request form and mails it before a set expiration date. It is
expected that 75% of the coupons will be redeemed. During 2021, the entity sold 30,000 boxes of
chocolates at P400 per box. During 2022, the entity delivered 6,000 additional free boxes of chocolates.

55. What amount should XYZ report as sales revenue in 2021?

A. 4,800,000
B. 9,600,000
C. 6,000,000
D. 12,000,000

56. What amount should XYZ report as sales revenue from the delivery of free products in 2022?
A. 1,440,000
B. 960,000
C. 1,200,000
D. 1,800,000
 Page 16

Numbers 57 and 58
On July 1, 2021, DEF Company, a manufacturer of office furniture, supplied goods to GHI Company
for P12,000,000 on condition that this amount is paid in full on July 1, 2022.
GHI Company had earlier rejected an alternative offer from DEF Company whereby it could have
bought same goods by paying cash of P10,800,000 on July 1, 2021.

57. What amount should DEF Company recognize as sales revenue on July 1, 2021?
A. 10,000,000
B. 13,400,000
C. 12,000,000
D. 10,800,000

58. What amount should DEF Company reported as interest income for 2021?
A. 1,200,000
B. 600,000
C. 1,000,000
D. 0

Numbers 59 and 60

On July 1, 2021, KDC Company handed over to a client a new computer system. The contract price for
both the supply of the system and after-sales support for 12 months was P8,000,000.

The entity estimated the cost of the after-sales support at P1,200,000 and it marked up such cost by
50% when tendering for support contracts.

59. What amount should KDC report as revenue from the sale of computer system for 2021?
A. 8,000,000
B. 6,800,000
C. 6,200,000
D. 9,200,000

60. What amount should KDC report as contract revenue from the after-sales support system for 2021?
A. 1,800,000
B. 900,000
C. 1,200,000
D. 600,000

Numbers 61 and 62
On January 1, 2021, CD Company accepted a long-term construction project for a fixed contract price
of P4,000,000 to be completed on November 30, 2023. The entity provided the following data
concerning the direct costs related to the said project for 2021 and 2022:
2021 2022
Costs incurred to date 1,200,000 3,000,000
Remaining estimated costs to complete at year-end 4,800,000 750,000

61. Under IFRS 15, what amount should CD Company report as gross profit or (loss) for the year
ended December 31, 2022?
A. 200,000
B. 250,000
C. 2,200,000
D. (1,800,000)
 Page 17

62. Under IFRS 15, what amount should CD Company report as construction in progress balance on
December 31, 2022?
A. 3,000,000
B. 3,200,000
C. 4,400,000
D. 5,200,000

Numbers 63, 64 and 65

On January 1, 2021, SDC Company granted a franchise to a franchisee. The franchise agreement
required the franchisee to pay a nonrefundable upfront fee in the amount of P1,600,000 and on-going
payment of royalties equivalent to 10% of the sales of the franchisee. The franchisee paid the
nonrefundable upfront fee on January 1, 2021.

In relation to the nonrefundable upfront fee, the franchise agreement required the entity to render the
following performance obligations which were separate and distinct from each other:

 To construct the franchisee’s stall with stand-alone selling price of P400,000.

 To deliver 20,000 units of raw materials to the franchisee with stand-alone selling price of
P500,000.

 To allow the franchisee to use the entity's tradename for a period of 5 years starting January 1,
2021. The stand-alone selling price of the use of the tradename was P100,000.

On July 31, 2021, the entity completed the construction of the franchisee’s stall. On December 31,
2021, the entity was able to deliver 15,000 units of raw materials to the franchisee. For the year ended
December 31, 2021, the franchisee reported sales revenue amounting to P1,000,000.

63. Under IFRS 15, what amount should SDC Company recognize as revenue in relation to the
delivery of the raw materials on December 31, 2021?
A. 800,000
B. 500,000
C. 600,000
D. 375,000

64. Under IFRS 15, what amount should SDC Company recognize as revenue in relation to the
construction of the franchisee's stall on December 31, 2021?
A. 640,000
B. 400,000
C. 1,600,000
D. 0

65. Under IFRS 15, what amount should SDC Company recognize as total revenue for the year ended
December 31, 2021?
A. 1,600,000
B. 1,372,000
C. 1,700,000
D. 1,276,000
 Page 18

Number 66

On January 1, 2021, Entity X, a public entity, and Entity Y, a public entity, incorporated Entity Z
which has its fiscal and operational autonomy. The contractual agreement of the incorporating entities
provided that the decisions on relevant activities of Entity Z will require the unanimous consent of both
entities. Entity X and Entity Y will have rights to the net assets of Entity Z.

Entity X and Entity Y invested P4,000,000 and P6,000,000, respectively, equivalent to 40:60 capital
interest of Entity Z. The financial statements of Entity C provided the following data for its two-year
operation:

Net income / (Net loss) Dividends declared

2021 800,000 400,000

2022 (2,000,000) -

What amount should Entity X report as Investment in Entity Z on December 31, 2021?
A. 4,000,000
B. 4,320,000
C. 4,160,000
D. 4,480,000

Numbers 67 and 68

On January 1, 2021, Entity X and Entity Y, both SMEs, incorporated Entity Z, a jointly controlled
entity by investing P10,000,000 each in exchange for 100,000 ordinary shares representing 50%
interest each of Entity Z. Entity X and Entity Y each incurred P400,000 transaction costs.

The contractual agreement of the incorporating entities provided that the decisions on relevant
activities of Entity Z will require the unanimous consent of both entities. Entity X and Entity Y will
have rights to the net assets of Entity Z.

For the year ended December 31, 2021, Entity C reported net income of P2,000,000 and declared
dividends in the amount of P600,000.

On December 31, 2021, the ordinary shares of Entity C are quoted at P112.

67. If Entity X elected fair value model to account for its investment in Entity Z, what is the net effect
on Entity X’s profit or loss for the year ended December 31, 2021?
A. 1,100,000 net income
B. 1,200,000 net income
C. 300,000 net income
D. 800,000 net income

68. If Entity Y elected equity method to account for its investment in Entity Z, what is the carrying
amount of Entity Y’s Investment in Entity C on December 31, 2021?
A. 10,400,000
B. 10,900,000
C. 10,700,000
D. 11,100,000
 Page 19
Number 69

Statement 1: An entity has to remeasure its retained interest in a joint venture when it loses joint control
over a joint venture.

Statement 2: If a joint venturer loses joint control but retains an interest in an associate, it could
continue to apply the equity method.

A. Statements 1 and 2 are true

B. Statement 1 is false; Statement 2 is true
C. Statement 1 is true; Statement 2 is false
D. Statements 1 and 2 are false

Number 70

Five parties jointly bought a helicopter. By contractual agreement, each party has the right to use the
helicopter for a certain number of days each year and shares proportionately in the maintenance cost.
They share decision-making regarding the maintenance and disposal of the helicopter, which are the
relevant activities for the helicopter. These decisions require the unanimous agreement of all of the
parties.

The contractual agreement covers the expected life of the helicopter and can be changed only by
agreement of parties holding 75% of the voting rights.

Which of the following statements is true about this arrangement?

A. The agreement is not a joint arrangement
B. The multiple combinations of how the 75% can be achieved created joint control
C. The agreement is a joint arrangement
D. None of the above

- END-