Saint Columban College

College of Business Education

2nd Semester, S.Y. 2021–2022

ACCTG 308 – AUDITING & ASSURANCE: SPECIALIZED INDUSTRIES

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FINAL EXAMINATION

General Instruction: MARK FULLY with Pencil No. 2 or Ballpen the letter of your
choice on the answer sheet provided. Write your solutions on the blank sheets neatly
and legibly.

Estimated Time Frame:

Test I. Multiple Choice Theory (15 items x 2 minutes) 30 minutes
Test II. Multiple Choice Problem(30 items x 5 minutes) _150 minutes
TOTAL 180 minutes

TEST I. MULTIPLE CHOICE THEORY

Instruction: Choose the letter of the correct answer.

1. Unrealized holding gain or loss on intrinsic value (effective portion) of

derivatives designated as cash flow hedge shall be recognized in
A. Profit or loss
B. Other comprehensive income with reclassification adjustment
C. Retained earnings
D. Other comprehensive income without reclassification adjustment

2. How shall an entity account for hedging transactions classified as hedge of firm
commitment?
A. Cash flow hedge only
B. Fair value hedge only
C. Undesignated hedge only
D. IAS 39 gives the entity the option to elect either cash flow hedge or fair
value hedge for firm commitment.

3. In case of hedging transaction designated as fair value hedge, which of the

following statements is correct?
A. The gain or loss from remeasuring the hedging instrument/derivative designated
as fair value hedge shall be recognized in profit or loss.
B. The gain or loss on the changes in fair value of hedged item attributable to
the hedged risk shall not adjust the carrying amount of the hedged item.
C. Both A and B
D. Neither A nor B.

4. For which type of derivative are changes in the fair value deferred and recognized
as an equity adjustment?
A. Fair value hedge
B. Cash flow hedge
C. Operating hedge
D. Notional value hedge

5. This derivative represents a private contract between two parties to exchange a

specified amount of a commodity, security, or foreign currency at a specified
date in the future at a pre-agreed price
A. Forward contract
B. Futures contract
C. Backward contract
D. Pasts contract

6. It is an option that gives the holder the right to sell

A. Purchased option
B. Written option
C. Call option
D. Put option

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7. If the strike price is greater than the market price, a put option is said to be
A. Out of money
B. In the money
C. At the money
D. None of the choices

8. Which of the following can be a hedged item under a fair value hedge?
A. Highly probable forecast transaction
B. Net investment in foreign operation
C. A non-cancelable contract to acquire inventory in the future
D. None of the choices

9. Which of the following can be a hedged item only under cash flow hedge?
A. A foreign-currency denominated account receivable recognized from a foreign
currency transaction
B. A recognized account payable
C. A firm commitment to import goods which are to be paid in foreign currency
D. Highly probable forecast transaction

10. When gains or losses on derivatives designated as fair value hedges exceed the
gains or losses on the item being hedged, the excess
A. Affects reported net income
B. Is recognized as an equity adjustment
C. Is recognized as part of comprehensive income
D. Is not recognized

11. Joint control exists when there are the following items, except
A. There exists a contractually agreed sharing of control
B. There must be a unanimous consent of the parties
C. There is no single party that has control over the arrangement
D. The party that holds the substantial portion over the company must have a sole
control over the arrangement

12. A joint arrangement whereby parties that have joint control of the arrangement
have rights to the assets, and obligations for the liabilities of the arrangement.
A. Joint venture
B. Joint operation
C. Jointly controlled asset
D. Jointly controlled entity

13. In a joint arrangement, a separately identifiable financial structure

recognized by statute may be in the form:
A. corporation
B. foundation
C. sports club
D. single proprietorship

14. A joint arrangement that is structured without a separate vehicle is a

A. Joint asset
B. Joint venture
C. Joint operation
D. Joint entity

15. Under PFRS 11, joint arrangements that are classified as joint ventures are
accounted for under
A. Cost method in accordance with PAS 39.
B. Equity method in accordance with PAS 28.
C. Fair value method in accordance with PFRS 9.
D. Proportionate consolidation method in accordance with PAS 31.

TEST II. MULTIPLE CHOICE PROBLEMS

Instruction: Choose the letter of the correct answer. Provide solutions in good form
to support your answer. Answers without solution are considered wrong.

Numbers 16 to 20
Kline Company purchased inventory on December 1, 2018 for $10,000 payable March
1, 2019. On the same date, the entity entered into a forward contract to purchase
$10,000 to hedge the purchase of inventory. The relevant direct exchange rates for
dollars in different dates were as follows:

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 Selling Spot Rate Buying Spot Rate
December 1, 2018 P46 P48
December 31, 2018 50 51
March 1, 2019 49 50

Forward Rates
Dec. 1 Dec. 31 March 1
30-day futures 46 50 49
60-day futures 47 51 50
90-day futures 48 52 51
120-day futures 49 53 52

16. What is the balance in the forward contract account on December 1?

A. P0
B. P10,000
C. P20,000
D. P30,000

17. What is the balance in the forward contract account on December 31?
A. P10,000
B. P20,000
C. P30,000
D. P40,000

18. What is the amount of the exchange gain or loss recognized with respect to the
Accounts Payable on December 31?
A. P30,000 gain
B. P30,000 loss
C. P40,000 gain
D. P40,000 loss

19. What is the amount of the exchange loss or gain recognized with respect to the
Forward Contract on December 31?
A. P30,000 gain
B. P30,000 loss
C. P40,000 gain
D. P40,000 loss

20. What is the amount of the exchange loss or gain recognized with respect to the
Forward Contract on March 1?
A. P10,000 gain
B. P10,000 loss
C. P20,000 gain
D. P20,000 loss

Numbers 21 to 26
On November 1, 2020, Entity A entered into firm commitment for the exportation
of goods at a price of $2,000. Delivery will happen on January 31, 2021. In order
to hedge this foreign currency denominated firm commitment, Entity A entered into a
forward contract with a bank to sell $2,000. Entity A has the option to elect either
fair value hedge or cash flow hedge to account this hedge of firm commitment. The
following direct exchange rates are given:
November 1, 2020 December 31, 2020 January 31, 2021
Spot Rate P43 P40 P44
90-day forward rate 41 43 45
60-day forward rate 45 42 41
30-day forward rate 47 46 42

21. Using fair value hedge, the December 31, 2020 profit and loss statement, net
foreign exchange gain or loss (forward contract and commitment):
A. Zero
B. P10,000 net gain
C. P10,000 net loss
D. Not applicable

22. Using fair value hedge, what is the carrying amount of firm commitment asset
or liability on December 31, 2020?
A. 2,000 asset
B. 2,000 liability
C. 10,000 liability
D. 10,000 asset
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23. Using fair value hedge, what is the fair value of the forward contract on
January 31, 2021?
A. P4,000 receivable
B. P4,000 payable
C. P6,000 receivable
D. P6,000 payable

24. Using cash flow hedge, the December 31, 2020 profit and loss statement, foreign
exchange gain or loss on hedged item/commitment amounted to:
A. Zero
B. P10,000 loss
C. P10,000 gain
D. Not applicable

25. Using cash flow hedge, the December 31, 2020 foreign exchange gain or loss on
the hedging instrument (forward contract) amounted to:
A. P10,000 gain, other comprehensive income
B. P10,000 gain, current earnings
C. P10,000 loss, other comprehensive income
D. P10,000 loss, current earnings

26. The value of the sales on January 31, 2021

A. 82,000
B. 86,000
C. 88,000
D. 92,000

Numbers 27 to 30
On October 1, 2020, Entity A forecasted the sale pf merchandise to a foreign
customer at a price of $3,000. The sale would probably occur on March 31, 2021. In
order to hedge this highly probable forecasted transaction, Entity A purchase a put
option to sell $3,000 at a srike price of P24 by paying option premium of P300. The
following data are provided:
October 1, December 31, 2020 March 31, 2021
2020
Spot Rate P24 P21 P22
Fair value of put option ? 10,000 ?

27. What is the fair value of put option on October 1, 2020?

A. 0
B. 300
C. 700
D. 1,000

28. The gain/(loss) on hedging instrument due to change in the effective portion
on December 31, 2020;
A. 700
B. 1,000
C. 9,000
D. 9,700

29. The gain/(loss) on hedging instrument due to change in the ineffective portion
on December 31, 2021;
A. (1,000)
B. (3,000)
C. (4,000)
D. (6,000)

30. If nonsplit accounting is used, what amount of gain/(loss) on hedging

instrument shall be recognized on December 31, 2020?
A. 700
B. 1,000
C. 9,000
D. 9,700

Numbers 31 to 35
On November 1, 2020, Entity A anticipated the purchase of inventory on January
31, 2021 at a price of $1,000. In order to hedge this highly probable forecasted
importation, Entity A acquired a call option from a bank giving it the right to
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purchase $1,000 at an option price of P40 by paying an option premium of P300. The
following data are provided:
November 1, 2020 December 31, 2020 January 31, 2021
Spot Rate P40 P44 P43
Fair value of call option ? 4,500 ?
Entity A imported the goods on the ate anticipated. Afterwards, Entity A was
able to resell 30% of the goods imported during 2021.

31. What is the fair value of call option on January 31, 2021?
A. 0
B. 300
C. 1,500
D. 3,000

32. What is the foreign currency gain or loss to be recognized in the profit or
loss for the year ended December 31, 2020?
A. 200
B. 500
C. 4,000
D. 4,200

33. What is the foreign currency gain or loss to be recognized as component of

Other comprehensive Income for the year ended December 31, 2021?
A. 500
B. 1,000
C. 1,500
D. 3,000

34. If nonsplit accounting is used, what amount of gain/(loss) on hedging

instrument shall be recognized in 2021?
A. 500
B. 1,000
C. 1,500
D. 3,000

35. What is the net cumulative Other Comprehensive Income in December 31, 2021?
A. 900 cumulative credit
B. 2,100 cumulative credit
C. 3,000 cumulative credit
D. 4,000 cumulative credit

Numbers 36 to 37
Trisha and Bella in a joint venture contributed P30,000 each in order to
purchase merchandise which were sold in lots at a closing-out sale. They agreed to
divide their profits equally and each shall record her purchases, sales, and expenses
in her own books. After almost all merchandise had been sold, they wind up their
venture. The following are the venture transaction:
Trisha Bella
Purchases of merchandise P30,000 P30,000
Expenses paid from It venture 3,000 3,900
Cash Receipts (24,000) (21,000)

Undisposed merchandise upon

Termination of JV 900 1,400

All transactions for the joint venture are in cash. The venturers are to take over
the unsold merchandise at cost.

36. Calculate the net profit of the joint venture undertaking

A. P47,300
B. P(2,150)
C. P 2,150
D. P 1,250

37. Determine the amount of cash Bella would receive/(pay) from/ to Trisha upon
final cash settlement by the venturers.
A. P(1,250)
B. P(2,150)
C. P 2,150
D. P 1,250

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Numbers 38 to 39
K and L join a joint arrangement for the sale of certain merchandise. The
joint operators agree to the following: K shall be allowed a commission of 10% on
his net purchases; the joint operators shall be allowed commissions of 25% on their
respective sales; and K and L shall divide the profit or loss 60% and 40%
respectively. Joint arrangements transactions follow:
Dec. 1 K make cash purchase of P142,500.
3 L pays joint arrangement expenses of P22,500.
5 Sales are as follows: K, P120,000; L, P90,000. The operators keep their
own cash receipts.
7 K returns unsold merchandise and receives P37,500 cash.
15 The operators make cash settlement.

38. In the distribution of the balance in net profit of the joint arrangement, the
shares of K and L:
K L
A. 10,650 8,075
B. 11,700 7,800
C. 12,050 8,575
D. 12,100 10,575

39. In the final cash settlement, L would pay K the amount of:
A. 35,250
B. 37,200
C. 37,750
D. 39,725

Numbers 40 to 41
The following information is available:
Investment in Joint Operations
Nov. 6 Merchandise – Jose 34,000 Nov 20 Cash Sales – Ampon 81,600
8 Merchandise-Deyro 28,000 12 Cash Sales – Ampon 16,800
10 Freight paid – Ampon 800 28 Merchandise – Deyro 4,840
12 Advertising – Ampon 600
Dec. 8 Purchase -Ampon 14,000
14 Selling expenses - Ampon 1,600
The joint arrangement provided for the division of gains and losses among Jose,
Deyro and Ampon in the ratio of 2:3:5. The arrangement was to close as of December
31, 2012.

40. The total gain from the joint arrangement amounted to:
A. 24,240
B. 48,480
C. 72,720
D. None

41. As final settlement, Jose received in cash:

A. 24,240
B. 30,432
C. 32,320
D. 938,848

Numbers 42 to 43
Ace Company purchases 40% of Basket Company on January 1 for P1,300,000 that
carry voting rights of a general meeting of shareholders of Basket Company. Ace
Company and Blake Company immediately agreed to share control (wherein unanimous
consent is needed to all the parties involved) over Basket Company. Basket reports
assets on that date of P3,500,000 with liabilities of P1,250,000. One building with
a seven-year life is undervalued by P350,000. Also Basket’s book value for its
trademark (10-year life) is undervalued by P525,000. During the year, Basket reports
net income of P225,000, while paying dividends of P75,000.

42. What is the Investment in Basket Company Balance (equity method) in Ace’s
financial records as of December 31 and the income from Investment in Basket
Company in Ace’s financial records as of December 31?
A. P1,310,000
B. P1,260,000
C. P1,269,000
D. P1,319,000
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43. What is the income from Investment in Basket Company in Ace’s financial records
as of December 31?
A. P90,000
B. P37,500
C. P49,000
D. Any other Answer

Numbers 44 to 45
Ace Company purchases 40% of Basket Company on January 1 for P720,000 that
carry voting rights of a general meeting of shareholders of Basket Company. Ace
Company and Blake Company immediately agreed to share control (wherein unanimous
consent is needed to all the parties involved) over Basket Company. Basket reports
assets on that date of P2,100,000 with liabilities of P750,000. One building with a
seven-year life is undervalued by P210,000. Also Basket’s book value for its
trademark (10-year life) is undervalued by P315,000. During the year, Basket reports
net income of P135,000, while paying dividends of P45,000.

44. What is the Investment in Basket Company Balance (equity method) in Ace’s
financial records as of December 31?
A. P756,000
B. P786,000
C. P731,400
D. P761,400

45. What is the income from Investment in Basket Company in Ace’s financial records
as of December 31?
A. P54,000
B. P84,000
C. P29,400
D. P59,400

GOD BLESS !!!

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