BUSINESS COMBINATION

#1 12/31/24 FC Transaction ($20,000**0.25) P5,000

 P Company sells all goods it manufactures to its wholly owned subsidiary Accounts Payable P5,000
S Company at 125% of cost. (under Equity Method) (40.80-40.55=0.25)
 During the 1st year of this arrangement, goods that cost P Company 3/1/25 Accounts Payable ($20,000*40.80) P816,000
P100,000 are sold to S Company for P125,000. (Downstream sale) FC Transaction (Gain/Loss) P3,000
 During the same year, S Company sold all the goods purchased from P Cash ($20,000*40.65) P813,000
Company to third parties for P135,000 and paid P Company P125,000.
#4
P Company  On Nov. 1, 2024, Two firm (USA) ordered 1,000 units of inventory from
Accounts Receivable P125,000 Duwa firm (Phils) for $20,000. The inventory was shipped and invoiced to
Sales P125,000 Two firm on Dec. 1, 2024 to be paid on Mar. 1, 2025. Duwa firm's fiscal
Cash P125,000 year-end is Dec. 31, 2024. Assume further that Duwa did not engage in
Accounts Receivable P125,000 any form of hedging activity.

S Company Duwa (seller)

Purchases P125,000 12/1/24 Accounts Receivable ($20,000*40.00) P800,000
Accounts Payable P125,000 Sales P800,000
Accounts Receivable/Cash P135,000 12/31/24 FC Transaction (Gain/Loss) P14,000
Sales P135,000 Accounts Receivable P14,000
Accounts Receivable P125,000 *Comp: FV ($20,000*40.70) 814,000
Cash P125,000 Recorded 800,000
Decrease 14,000
Working Paper Entries 3/1/25 Cash ($20,000*40.60) P812,000
Accounts Payable P125,000 FC Transaction P2,000
Accounts Receivable P125,000 Accounts Receivable P814,000
Sales P125,000
Purchase P135,000 #5
On July 1, 2021, ABC Co. obtained a $40,000 loan that bears 10% annual
Sales 135,000 125,000 135,000 interest when the spot exchange rate is P50:$1. The closing rate on December
COGS 100,000 100,000 125,000 31, 2021 is P55:$1. No payments had been made on the loan during the year.
Gross Profit 35,000 25,000 10,000 How much is the foreign exchange gain (loss) to be recognized in the year-end
statement of profit or loss?
#2 a. (200,000) b. (220,000) c. (210,000) d. 210,000
 On January 1, 2024, P Company sells to S Company a 90% owned
subsidiary, equipment with a book value of P375,000 (original cost of 7/1/21 Loans Payable ($40,000*P50) P2,000,000
P675,000 and accumulated depreciation Of P300,000) for P450,000. Interest Payable ($40,000*10%*6/12*P50)P100,000
(downstream sale) P2,100,000
 On the date of sale, the equipment has an estimated remaining useful 12/31/21 Loans ($40,000*P55) P2,200,000
life of 3 years, has no residual value and is depreciated using the straight Interest ($40,000*10%*6/12*P55) P110,000
line method. P2,310,000
 No other equipment is owned by S Company or P Company. Foreign exchange gain/loss (P210,000)

P Company 7/1/21 Cash ($42,000*50) P2,100,000

Cash P450,000 Loans Payable ($40,000*50) P2,000,000
Accumulated Depreciation P300,000 Interest Payable ($2,000*50) P100,000
Equipment P675,000 To record the loan obtained.
Gain/Loss P75,000 12/31/21 Forex gain/loss P210,000
Depreciation expense P125,000 Loans payable P200,000
Accumulated Depreciation P125,000 Interest payable P10,000
(1/3*375,000) To record forex loan.

S Company
Equipment P450,000
Cash P450,000
Depreciation expense P150,000
Accumulated Depreciation P150,000
(1/3*450,000)

Working Paper Entries

Gain/Loss P75,000
Equipment (675,000 - 450,000) P225,000
Accumulated Depreciation P300,000
Accumulated Depreciation P25,000
Depreciation Expense P25,000

EquipmentP375,000
Depreciation P125,000
Book Value P250,000

#3 1/1/23 Cash ($40,000*48) P1,920,000

 On Nov. 1, 2024, Duwa firm (Phils) ordered 1,000 units of inventory from Sales P1,920,000
Two firm (USA) for $20,000. The inventory was shipped and invoiced to 9/30/23 Cash ($80,000*45) P3,600,000
Duwa firm on Dec. 1, 2024 to be paid on Mar. 1, 2025. Duwa firm's fiscal Sales P3,600,000
year-end is Dec. 31, 2024. Assume further that Duwa did not engage in 12/16/23 Various debits ($20,000*44) P880,000
any form of hedging activity. Cash P880,000
 The spot rates for US dollars at various times are as follows:
Buying Spot Rates Selling Spot Rates Cash in Bank
Nov. 1, 2024 39.80 40.25 1,920,000 800,000
Dec. 1, 2024 40.00 40.55 3,600,000
Dec. 31, 2024 40.70 40.80 P4,640,000
Mar. 1, 2025 40.60 40.65

Duwa (buyer) A. $100,000*45 = P4,500,000

11/1/24 No entry B. Cash in Bank P4,640,000
12/1/24 Purchases ($20,000*40.55) P811,000 P4,500,000
Accounts Payable P811,000 Loss (P140,000)