CPA REVIEW SCHOOL OF THE PHILIPPINES

Manila

ADVANCED FINANCIAL ACCOUNTING AND REPORTING PREWEEK LECTURE

Numbers 1, 2 and 3

On January 1, 2022, Cindy Company accepted a long-term construction project for an initial contract
price of P2,000,000 to be completed on November 30, 2024. On January 1, 2023, the contract price
was increased by P1,000,000 by reason of change in the design of the project. The outcome of the
construction contract can be estimated reliably. The project was completed on December 31, 2024
which resulted to penalty amounting to P400,000. The entity provided the following data concerning
the direct costs related to the said project for 2022 and 2023:

2022 2023
Costs incurred to date 880,000 2,240,000
Remaining estimated costs to complete at year-end 1,320,000 560,000

1. What is the construction revenue for the year ended December 31, 2023?
A. 800,000
B. 1,600,000
C. 2,400,000
D. 1,200,000

2. What is the realized gross profit for the year ended December 31, 2023?
A. 400,000
B. 160,000
C. 360,000
D. 200,000

3. What is the balance of construction in progress on December 31, 2023?

A. 2,400,000
B. 2,040,000
C. 2,240,000
D. 1,800,000

Number 4

Under IFRS 15, how shall an entity recognize revenue from contracts with customers?
A. An entity shall recognize revenue when (or as) the entity satisfies a performance obligation by
transferring a promised good or service (i.e. an asset) to a customer.
B. An entity shall recognize revenue when it is probable that future economic benefits will flow to the
entity and it can be measured reliably.
C. An entity shall recognize revenue at the time of collection of cash.
D. An entity shall recognize revenue at the time of signing of contract.
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Numbers 5 and 6

On January 1, 2023, Entity A and Entity B, both SMEs, incorporated Entity C, a jointly controlled
entity by investing P400,000 each in exchange for 50,000 ordinary shares each representing 50% share
of Entity C. Entity A and Entity B each incurred P20,000 transaction costs.

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

For the year ended December 31, 2023, Entity C reported net income of P100,000 and declared
dividends in the amount of P20,000.

On December 31, 2023, the investment in Entity C has a value in use of P430,000.

5. If Entity A elected cost method to account its Investment in Entity C, what is the carrying
amount of Entity A’s Investment in Entity C on December 31, 2023?
A. 420,000
B. 430,000
C. 460,000
D. 400,000

6. If Entity B elected equity method to account its Investment in Entity C, what is the net effect
in Entity B’s profit or loss for the year ended December 31, 2023?
A. 50,000 net profit
B. 10,000 net profit
C. 20,000 net profit
D. 30,000 net profit

Number 7

Under IFRS for SMEs, the income of the SME-venturer for its investment in joint venture under fair
value model consists of
A. Share in net income of joint venture
B. Dividend income
C. Gain on changes in fair value of investment
D. Dividend income and gain on changes in a fair value of investment

Number 8

Under IFRS for SMEs, the income of the SME-venturer for its investment in joint venture under cost
method consists of
A. Share in net income of joint venture
B. Dividend income
C. Gain on changes in fair value of investment
D. Both C and D
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Numbers 9, 10 11 and 12

Silay Company is employing process costing regarding its production cycle.

Conversion costs are added uniformly during the production process while direct materials are added
20% at the start of production process, 45% at the middle of the production process and the remainder
at the end of production process. Normal spoilage is 10% of units started during the year.

The entity is conducting inspection when the production process is at 45% of conversion cost. The
entity provided the following production data during the year:

Beginning Work in Process Inventory 20,000 units (40% incomplete as to conversion costs)
Units started during the year 80,000 units
Ending Work in Process Inventory 10,000 units (80% complete as to conversion costs)
Units completed during the period 76,000 units

9. What is the equivalent unit of production for direct material under average process costing?
A. 85,300
B. 82,300
C. 76,500
D. 87,500

10. What is the equivalent unit of production for conversion cost under average process costing?
A. 89,300
B. 90,300
C. 86,500
D. 92,300

11. What is the equivalent unit of production for direct material under FIFO costing?
A. 70,300
B. 74,500
C. 72,300
D. 76,900

12. What is the equivalent unit of production for conversion cost under FIFO costing?
A. 78,300
B. 82,500
C. 74,900
D. 77,300
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Numbers 13 and 14

Bacolod Company recently set-up its standard costs for its direct materials. The entity sets the
benchmark at 3 units of direct materials per product at a standard price of P10 per unit of direct
material.

During the year, the entity acquired 400 units of direct materials at a total cost of P4,800 or P12 per
unit. The entity also manufactured 100 products using 250 units of direct materials.

13. What is the direct material price variance?

A. 500 unfavorable
B. 600 favorable
C. 700 favorable
D. 800 unfavorable

14. What is the direct material usage variance?

A. 300 unfavorable
B. 600 unfavorable
C. 500 favorable
D. 700 favorable

Number 15

If the under or over applied factory overhead is significant, it shall be closed to

A. Cost of goods sold only
B. Finished goods and cost of goods sold proportionately
C. Work in process, finished goods and cost of goods sold proportionately
D. Raw materials, work in process, finished goods, and cost of goods sold proportionately

Number 16

In job order costing, normal spoilage which is a characteristic of a given production cycle shall be
A. Expensed as incurred
B. Charged or capitalized to a specific job
C. Closed to factory overhead account
D. Debited to work in process account
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Number 17

On December 31, 2022, the Home Office Current account in the books of Quezon Branch had a
balance of P975,000. In analyzing the activity in each of these accounts for December, you found the
following differences:

a. A P20,000 branch remittance to the home office initiated on December 21, 2022 was recorded
twice by the home office on December 26 and 28.
b. The home office incurred P36,000 of advertising expenses and allocated 1/3 of this amount to
the branch on December 20. The branch recorded this transaction on December 22 amounting to
P 1,200.
c. Inventory costing P50,300 was sent to the branch by the home office on December 15. The
billing was at cost, but the branch recorded the transaction at P53,000.

The adjusted balance of the reciprocal accounts on December 31, 2022?

A. 966,900
B. 988,500
C. 961,500
D. 983,100

Number 18

The home office in Alabang shipped merchandise costing P55,500 to the Davao branch and paid the
freight amounting to P4,200. The home office transfers merchandise to the branch at a 20% mark-up
based on cost. Davao branch was subsequently instructed to transfer the merchandise to Cebu branch
wherein the latter paid P2,800 freight. If the shipment was made directly from Alabang to Cebu, the
freight cost would have been P6,200.

Compute the amount credited to Home Office Current account in the books of Cebu branch
A. 72,800
B. 61,700
C. 70,000
D. 71,240

Number 19

Phoenix Trading Co. has a branch in Quezon City. On December 31, 2022, Investment in Quezon
City Branch account in the home office books showed a balance of P386,000. The interoffice accounts
were in agreement at the beginning of the year. For purposes of reconciling the reciprocal accounts,
the following facts were ascertained:

a. The home office erroneously recorded a remittance for P4,800 from its Bacolod branch as a
remittance from its Quezon City branch.
b. The branch failed to take up a P1,500 debit memo from the home office representing its share in
marketing expenses.
c. Home office credit memo representing a discount on merchandise for P2,100 was not recorded by
the branch.

Compute the unadjusted balance of the Home Office Current account on December 31, 2022
A. 390,800
B. 391,400
C. 390,200
D. 381,800
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Number 20

A home office ships inventory to its branch at a mark-up of 125% based on cost. The required balance
of the unrealized intercompany account is P285,000. During the year, the home office sent
merchandise to the branch costing P1,800,000. At the start of the year, the branch's books showed
P360,000 of inventory on hand that was acquired from the home office.

Compute the realized mark-up

A. 2,450,000
B. 2,165,000
C. 237,000
D. 522,000

Number 21

During the year 2022, goods billed at P650,000 were shipped to the branch at 130% of cost. The
account Loading in Branch Inventory has a balance of P245,000 before adjustment. The beginning
inventory of the branch from the home office at cost is P475,000; the beginning inventory of the branch
from outsiders is P108,000; purchases from outsiders is P290,000.

Compute the total goods available for sale of the branch from the home office
A. 1,061,667
B. 1,267,500
C. 1,618,000
D. 1,220,000

Number 22

Roven Co. operates a branch in Pasig. At the end of the year, the home office current account in the
books of the branch shows a balance of P150,000. The following information were ascertained in
reconciling the reciprocal accounts:

a. A Home Office accounts receivable for P10,500 was collected by the branch. The home office
was not yet notified by the branch.
b. Supplies of P4,500 were returned by the branch to the home office but the home office has not
yet reflected in its records the receipt of the supplies.
c. The branch has not received the cash in the amount of P18,000 sent by the home office on
December 31.

Compute the adjusted balance of the Investment in Branch account in the books of the home
office on December 31
A. 168,000
B. 162,000
C. 174,000
D. 132,000
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Number 23

The Home Office in Makati shipped merchandise costing P280,000 to the Manila branch and paid for
the freight charges of P2,100. The home office bills the branch at 125% of cost. Manila branch was
subsequently instructed to transfer one-half of the merchandise to Quezon City branch wherein Quezon
City branch paid for P700 freight. If the shipment was made directly from Makati to Quezon City, the
freight cost would have been P1,400.

By how much will the Manila Branch charge the Home Office Current account?
A. 179,550
B. 177,100
C. 176,050
D. 176,750

Number 24

The Home Office in Palawan shipped merchandise costing P280,000 to Mindoro branch, the freight
collect amounting to P2,100. Mindoro branch was subsequently instructed to transfer 60% of the
merchandise to Batangas branch wherein Batangas branch paid for P700 freight. Had the merchandise
been shipped directly from Palawan to Batangas, the freight cost would have been P1,400.

Compute the excess freight chargeable to Palawan

A. 560
B. 0
C. 1,400
D. 280

Number 25

The accountant of XYZ Corporation prepared a Statement of Financial Affairs. Assets in which there
are no claims or liens are expected to produce P600,000. Unsecured claims of all classes totaled to
P1,050,000. The following data are claims deemed outstanding:

● Accrued salaries, P15,000.

● A note for P10,000, on which P600 of interest has accrued, held by NOP Co.
● A note for P30,000 secured by P40,000 receivable, estimated to be 60% collectible held by JKL
Co.
● A P15,000 note, on which P300 interest has accrued, held by QRS Company, property with a book
value of P10,000 and estimated realizable value of P18,000 is pledged to guarantee payment of
principal and interest.
● Unpaid income taxes of P35,000.

Compute the expected percentage settlement to JKL

A. 65%
B. 60%
C. 59%
D. 92%
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Numbers 26 and 27

JKL Corporation provided the following balances in May 1, 2022: Statement of Financial Position:

Cash 400,000 Accounts payable 700,000

Accounts receivable 100,000 Wages payable 180,000
Inventories 400,000 Tax payable 120,000
Furnitures 300,000 Notes payable 600,000
Equipment 600,000 Ordinary shares 300,000
Deficit/(RE) (100,000)

Total 1,800,000 Total 1,800,000

In the Statement of Realization and Liquidation the following data were ascertained for the month of
May:

▪ Interests not accrued for the month were for the notes payable P90,000.
▪ P40,000 of the existing accounts receivable at the beginning of the month was collected for
only P25,000.
▪ P240,000 of the total inventories were sold for P300,000 cash.
▪ Furniture was sold for P220,000.
▪ Administrative expenses of P50,000 were paid.
▪ Additional sales on account amounting to P190,000 were made for the remaining inventories.
▪ Remaining non-cash assets are to be realized and remaining liabilities are to be paid in the next
period(s) of liquidating JKL Corporation.

26. Compute the profit or (loss) of the trustee for the month of May
A. 55,000
B. (145,000)
C. (100,000)
D. 200,000

27. Compute the estate equity(deficit) at the end of May

A. 55,000
B. (145,000)
C. (100,000)
D. 200,000

Number 28

JKL Company is currently experiencing severe financial difficulties and is considering the possibility
of liquidation. At this time, the company has the following assets at estimated realizable value and
liabilities:
Assets (pledged against liabilities of P350,000) 580,000
Assets (pledged against liabilities of P650,000) 250,000
Other Assets 400,000
Liabilities with priority 210,000
Unsecured without priority 1,000,000

Compute the estimated payment to partially secured creditors

A. 650,000
B. 250,000
C. 370,000
D. 1,000,000
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Number 29

XY Company has filed for liquidation. The following data is available:

Total free assets at realizable value 500,000
Unsecured liabilities per books 800,000
Unrecorded liabilities:
Trustee expense 30,000
Wages 50,000

Compute the expected percentage claim of the unsecured creditors

A. 52.50%
B. 62.50%
C. 69.36%
D. 56.82%

Number 30

Statement 1. The current and noncurrent classification of assets and liabilities are considered relevant
to companies undergoing liquidation.

Statement 2. In the Statement of Affairs, the expected recovery percentage may be relevant in some
circumstances to creditors who are fully secured.

A. Both statements are true

B. Both statements are false
C. Only statement 1 is true
D. Only statement 2 is true

Number 31

Statement 1. The expected recovery percentage for unsecured liabilities with priority is always 100
percent.

Statement 2. Interest payable on bonds may be categorized as unsecured liabilities with priority claims
as long as the related principal is fully secured.
A. Both statements are true
B. Both statements are false
C. Only statement 1 is true
D. Only statement 2 is true

Number 32

Statement 1. The required balance of the Allowance for Overvaluation account is the mark-up in the
total ending inventory of the branch.

Statement 2. The combined net income of the home office and its branches is presented in the separate
Statement of Comprehensive Income of the Home office.
A. Both statements are true
B. Both statements are false
C. Only statement 1 is true
D. Only statement 2 is true
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Number 33

Statement 1. Assuming the home office ships merchandise to the branch at a mark-up based on cost,
the account Shipments from Home Office in the published income statement is reported at billed price.

Statement 2. A credit memo received by the branch may be a notification from the home office about
allocation of expenses incurred by the latter.
A. Both statements are true
B. Both statements are false
C. Only statement 1 is true
D. Only statement 2 is true

Number 34

Statement 1. The accounts Shipments to Branch and Shipments from Home Office are eliminated in the
working paper and closed in the separate books.

Statement 2. A branch may debit an Investment in “another” Branch account for purposes of inter
branch transactions.
A. Both statements are true
B. Both statements are false
C. Only statement 1 is true
D. Only statement 2 is true

Numbers 35 and 36

Fox, Greg, and Howe are partners with average capital balances during 2022 of P120,000, P60,000,
and P40,000, respectively. Partners receive 10% interest on their average capital balances. After
deducting salaries of P30,000 to Fox and P20,000 to Howe, the residual profit or loss is divided
equally.

35. In 2022, the partnership sustained a P33,000 loss before interest and salaries to partners. By
what amount should Fox’s capital account change?
A. 7,000 increase
B. 11,000 decrease
C. 35,000 decrease
D. 42,000 increase

36. If the partnership agreement does not specify how income is to be allocated, profits and loss
should be allocated
A. Equally
B. In proportion to the weighted average of capital invested during the period
C. Equitably so that partners are compensated for the tine and effort expended on behalf of the
partnership
D. In accordance with their capital contributions.
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Number 37

A and B formed a partnership. The partnership agreement stipulates the following:

 A shall contribute noncash assets with carrying amount of P60,000 and fair value of P100,000.
 B shall contribute cash of P200,000.
 A and B shall have interests of 80% and 20%, respectively, on both the initial partnership
capital and in subsequent partnership profits and losses.
 No outside cash settlements shall be made between and among the partners.

The adjusted capital account of B after the formation is

A. 100,000
B. 200,000
C. 60,000
D. None of these

Number 38, 39 and 40

On June 30, 2022, the condensed balance sheet for the partnership of Eddy, Fox and Grimm, together
with their respective profit and loss sharing percentages were as follows:

Assets, net of liabilities 320,000

Eddy, capital (50%) 160,000

Fox, capital (30%) 96,000
Grimm, capital (20%) 64,000
320,000

38. Eddy decided to retire from the partnership and by mutual agreement is to be paid P180,000
out of partnership funds for his interest. No goodwill is to be recorded. After Eddy’s
retirement, what is the capital balance of Fox?
A. 84,000
B. 102,000
C. 108,000
D. 120,000

39. Assume instead that Eddy remains in the partnership and that Hamm is admitted as a new
partner with a 25% interest in the capital of the new partnership for a cash payment of
P140,000. The bonus method shall be used to record the admission of Hamm. Immediately
after admission of Hamm, Eddy’s capital account balance should be
A. 280,000
B. 172,500
C. 160,000
D. 140,000

40. The admission of a new partner effected through purchase of interest in the partnership is
A. Recorded in the partnership books as a debit to cash or other asset and credit to the incoming
partner’s capital account
B. Recorded in the partnership books as a transfer within equity
C. Recorded in the partnership books as a transfer from equity to liability
D. Not recorded in its entirety
 Page 12
Numbers 41 and 42
Jack and Beans, who share profits and losses at a ratio of 3:7, decided to liquidate their Talk
Partnership. The partners’ capital balances are P300,000 and P190,000, respectively.

41. The partnership has total liabilities of P200,000. If all partnership assets are realized for
P500,000, how much would Jack receive from the liquidation?
A. 243,000
B. 57,000
C. 300,000
D. 133,000

42. If on final settlement of partners’ claims, Beans received P99,000, how much did Jack
receive?
A. 261,000
B. 234,000
C. 89,000
D. 0

Number 43
Statement of Financial Position for Puro Corporation and Sato Company on December 31, 2021 are
given below:

Puro Sato

Cash and cash equivalents P70,000 P90,000

Inventory 100,000 60,000

Property and equipment 500,000 250,000

Investment in Sato Company 260,000 -

Total assets 930,000 400,000

Current liabilities 180,000 60,000

Long-term liabilities 200,000 90,000

Common stock 300,000 100,000

Retained earnings 250,000 150,000

Total liabilities and SHE 930,000 400,000

Puro Corporation purchased 80% ownership of Sato Company on December 31, 2021, for P260,000.
On that date, Sato Company’s property and equipment had a fair value of P50,000 more than the book
value shown, while its long-term liabilities had a market value of P150,000. All other book values
approximated fair values. In the consolidated statement of financial position on December 31, 2021:

What amount of goodwill will be reported?

A. 0
B. 85,000
C. 25,000
D. 60,000
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Numbers 44, 45 and 46

Statement of financial position reflecting uniform accounting procedures, as well as fair values that are
to be used as basis of the combination are prepared on September 1, 2021, as follows:

A Company B Company C Company

Assets 5,250,000 6,800,000 900,000

Liabilities 3,950,000 2,650,000 530,000

Capital stock, all P10 par 1,700,000 1,200,000 275,000

APIC 500,000 140,000

Retained Earnings (deficit) (400,000) 2,450,000 (45,000)

A company (Acquirer) shares have a market value of P22 per share.

On September 1, 2021, A Company acquires all of the assets and assumes the liabilities of B Company
and C Company by issuing 200,000 shares of its stock to B Company and 29,000 of its stock to C
Company. A Company pays P10,000 share issuance costs and P20,000 for other acquisition costs of
combination.

44. What is the total goodwill to be recorded by A Company arising from the acquisition of B
and C?
A. 518,000
B. 250,000
C. 268,000
D. 500,000

45. What is the total stockholders’ equity in the combined statement of financial position after
combination?
A. 6,308,000
B. 7,148,000
C. 6,728,000
D. 1,300,000

46. Direct costs incurred in a business combination are

A. Capitalized
B. Expensed
C. Capitalized, except for costs of issuing equity and debt instruments
D. Expensed, except for costs of issuing equity and debt instruments
 Page 14

Number 47

On January 2, 2021, Peter Co. acquired 80% of Sato’s outstanding common stock for P500,000. Sato’s
book value on that date was P500,000. There were no significant differences between the market value
and book value of Sato’s net assets. Goodwill, if any, is not impaired. During 2021, Peter and Sato
reported the following:

if the problem is silent, included Peter Sato

Comprehensive income, excluding dividends from Subsidiary 1,000,000 200,000

Dividends declared and paid 300,000 120,000

How much is the CNI attributable to parent?

A. 1,143,750
B. 1,160,000
C. 1,146,875
D. 1,150,000

Numbers 48, 49 and 50

Papa Corporation owns 75% of the outstanding stock of San Company, acquired at book value in 2020.
Selected information from the accounts of Papa Corporation and San Company for 2022 are as follows:

Papa San

Sales 900,000 500,000

Cost of goods sold 490,000 190,000

During 2022, Papa sold merchandise to San for P50,000 at a gross profit of P20,000. Half of this
merchandise remained in San’s inventory at December 31, 2022. San’s December 31, 2021(beginning
inventory of 2022) included unrealized profit of P4,000 on goods acquired from Papa.

In the consolidated CI for Papa Corporation and subsidiary for 2022, compute for the following:

48. Consolidated Sales

A. 1,450,000
B. 1,350,000
C. 1,250,000
D. 1,400,000

49. Consolidated Cost of Goods Sold

A. 640,000
B. 636,000
C. 634,000
D. 625,000

50. The realized gross profit of P4,000 would be:

A. Deducted from Consolidated Cost of Goods Sold
B. Added to Consolidated Cost of Goods Sold
C. Ignored in the determination of Consolidated Net Income
D. Added to Consolidated Sales
 Page 15
Numbers 51 and 52

On January 1, 2022, Pete Company sold equipment to Sison Company, its wholly-owned subsidiary,
for P400,000. The equipment had a cost of P500,000; the accumulated depreciation at the time of sale
was P250,000. Pete used a 10-year life, no salvage value, and straight-line depreciation. Sison will
continue this practice. In the consolidated statement of financial position at December 31, 2022,
compute for the following balances:

51. Cost of equipment

A. 500,000
B. 400,000
C. 300,000
D. 150,000

52. Gain (Loss) on sale of equipment

A. (100,000)
B. 150,000
C. (150,000)
D. 0

Numbers 53, 54 and 55

SGT Foundation received the following donations:

 Cash of P1,500,000 internally restricted by the board of trustees

 Cash of P2,200,000 restricted by the donor for acquisition of a piece of machinery
 Trust fund of P3,000,000 to be invested perpetually in equity instruments
SGT Foundation acquired the piece of machinery using P2,200,000. The trust fund yielded an
investment income of P100,000 cash for the year.

53. Under a fund accounting system, the entry to record the receipt of the trust fund in the
permanently restricted fund records will include a debit to an investment account and a
credit to
A. Contribution revenue, P3,000,000
B. Agency fund liability, P3,000,000
C. Cash P3,000,000
D. Net assets released from restriction, P3,000,000

54. Under a fund accounting system, the entry to record the funds released from restriction will
include a debit to “net assets released from restriction” account for P2,200,000, and credit
cash P2,200,000 in the
A. Unrestricted fund
B. Temporarily restricted fund
C. Permanently restricted fund
D. None of the above

55. Under a fund accounting system, the entry to record the receipt of P100,000 dividends will
include a debit to cash P100,000 and credit to dividend income P100,000 in the

A. Unrestricted fund
B. Temporarily restricted fund
C. Permanently restricted fund
D. None of the above
 Page 16

Number 56

ABL Medical Clinic, a non-profit hospital, had the following transactions:

 P300,000 sales of hospital cafeteria
 P50,000 fees of hospital parking lot
 A professional consultant rendered services to the hospital worth P500,000. The consultant waived
80% of this fee.
 A pharmaceutical company donated P400,000 worth of medicine to the hospital.

How much is treated as “other revenue” in the hospital’s statement of activities?

A. 1,250,000
B. 1,150,000
C. 900,000
D. 800,000

Number 57

Which of the following will allow the NPO to recognize revenue?

A. Receipt of services from a non-professional professional
B. Receipt of a work of art to be held for public exhibition
C. Receipt of relief goods to be distributed to fire victims
D. Receipt of services that enhance an existing asset

Number 58

The keeping of the general accounts of the government, supporting vouchers, and other documents is
tasked to the
A. Department of Budget and Management
B. House of Representatives
C. Commission on Audit
D. Senate of the Philippines

Number 59

Which of the following is the most common payment medium used by NGA’s and GOCC’s?
A. Cash
B. Credit Card
C. Cryptocurrency
D. Modified Disbursement System Checks

Number 60

The entry of a NGA to record a receipt of P1,000,000 NCA will include a debit to Cash - Modified
Disbursement System (MDS), Regular and a credit to
A. Accounts receivable
B. Cash – Tax Remittance Advice (TRA)
C. Subsidy Income from National Government
D. Advances from the Department of Budget and Management
 Page 17

Number 61

A receipt of a P1,000,000 allotment by a NGA will be:

A. Debited to Cash – Modified Disbursement System (MDS), Regular
B. Credited to Subsidy Income from National Government
C. Recorded in the RAPAL only
D. Recorded in the RAPAL and RAOD

Numbers 62 and 63

A National Government Agency in the Philippines paid one of its accounts payable and withheld cash
of P9,000, which represents the 5% withholding VAT in accordance with relevant tax laws.

62. The entry of the NGA will include a debit to

A. Accounts payable P180,000
B. Accounts payable P171,000
C. Cash - Modified Disbursement System (MDS), Regular P171,000
D. Cash - Modified Disbursement System (MDS), Regular P180,000

63. The entry of the NGA will include a credit to

A. Accounts payable P180,000
B. Accounts payable P171,000
C. Cash - Modified Disbursement System (MDS), Regular P171,000
D. Cash - Modified Disbursement System (MDS), Regular P180,000

Numbers 64 and 65

On November 1, 2023, LLL Corporation imported goods from a foreign supplier for $5,900, with
payment due on March 1, 2024. To hedge against this foreign currency exposure, LLL Corporation
entered into a forward contract to purchase $5,900 on March 1, 2024. The following relevant rates were
made available:

Offer rates November 1, 2023 December 31, 2023 March 1, 2024

Spot rate P50.50 P50.95 P51.20

Forward rate P50.90 P51.05 P51.20

64. How much is the fair value of the forward contract on November 1, 2023?
A. nil
B. 295 asset
C. 885 asset
D. 885 liability

65. How much is the fair value of the forward contract on December 31, 2023?
A. nil
B. 295 asset
C. 885 asset
D. 885 liability
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Numbers 66 and 67

On November 1, 2023, LLL Corporation imported goods from a foreign supplier for $5,900, with
payment due on March 1, 2024. To hedge against this foreign currency exposure, LLL Corporation
purchased a call option contract for P555, obtaining the right to purchase $5,900 for a strike price of
P50.77, and will expire on March 1, 2024. The following relevant rates were made available:

Offer rates November 1, 2023 December 31, 2023 March 1, 2024

Spot rate P50.50 P50.95 P51.20

66. How much is the fair value of the option contract on November 1, 2023?
A. 0
B. 555
C. 1,500
D. 2,537

67. With an ineffective portion valued at P438 on December 31, 2023, how much is the fair value
of the option contract on December 31, 2023?
A. 0
B. 555
C. 1,500
D. 2,537

68. How much is the fair value of the option contract on March 1, 2024, immediately before
expiration?
A. 0
B. 555
C. 1,500
D. 2,537

Numbers 69 and 70

69. When translating the financial statements of an entity from its functional currency to its selected
presentation currency
A. Exchange difference arising from translation will be recognized in other comprehensive
income
B. Asset and liability accounts will be translated using the closing rate
C. Share capital and share premium accounts will be translated using the historical rates
D. All of the choices are applicable.

70. Which of the following is TRUE when using the temporal method of remeasuring the financial
statements of an entity?
A. Non-monetary assets are always remeasured using the historical rates
B. Monetary liabilities are always remeasured using the closing rates
C. All equity accounts are remeasured the same way as the current rate method
D. Exchange difference arising from translation will be recognized in other comprehensive
income

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