Icare Afar First Preboard Examinations Batch 3

No. 125 Brgy.
San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : icarecpareview@gmail.com
ADVANCED FINANCIAL ACCOUNTING & REPORTING

iCARE Accountancy Review
st
1 Open Preboard Examination, Batch 3
INSTRUCTIONS: Choose the best answer among the given choices. Policies on academic
honesty are strictly enforced.
1. A summary of balance sheet for ABC Co. appears below. Partners A, B and C share
profits and losses in the ratio of 2:3:5, respectively.
Assets Liabilities and Capital

Cash 100,000 A, capital 425,000
Inventory 125,000 B, capital 400,000
marketable Securities 200,000 C, capital 200,000
Land 100,000
Building-net 500,000
Total Assets 1,025,000 Total 1,025,000
The partners agree to admit D for a 1/5 interest. The fair value of partnership land is
appraised at P200,000 and the fair value of inventory is P175,000. The assets are to
be revalued prior to the admission of D and there is a decrease of P30,000 in the
capital interest of the new partner after his admission.
The increase (decrease) in the capital interest of C after admission of D.

a. P60,000 c. P75,000
b. P90,000 d. P36,000
2. The amount of cash investment of D to acquire 1/5 interest in the partnership?

a. P301,250 c. P226,250
b. P256,250 d. P331,250
3. Which of the following statement is correct?

Statement 1: In partnership, each partner has his own owner’s capital account.
Statement 2: A debit to partner’s capital account is made whenever the partner

borrowed substantial amount from the partnership.
a. I only c. Both statements are correct
b. II only d. Both statements are incorrect
4. On January 1, 20x1, A and B formed a partnership the AB partnership. A and B

share profits and losses in a 40:60 ratio, respectively. The following are information
available on the date of formation:
A B
Cash 100,000 25,000
Inventory 300,000
Land 500,000
Building 300,000
Accounts payable 50,000
1|P a g e RFERRER/RLACO/ ATANG/PDEJESUS

No. 125 Brgy. San Sebastian
Mobile : 0927 283 8234
Telephone : (043) 723 8412
The accounts payable of A will be paid by partner A using his personal assets. The
land contributed by B has a mortgage liability of P150,000 which was assumed by the
partnership.
How much is the capital interest of A and B after formation?

a. P450,000 and 675,000 c. P430,000 and 645,000
b. P400,000 and 675,000 d. P615,000 and P410,000
5. Assuming the partners agree to revalue the assets, so that their capital interest will
agree to their profit and loss sharing ratio, which of the following statements is
incorrect?
a. The capital interest of A after formation is P450,000
b. The capital interest of B after formation is P675,000
c. The amount of revaluation is P50,000
d. The total capital contribution of the partners are P1,125,000

Statement 1: The balance of partner’s capital account represents his share in the net
of the partnership.
Statement 2: Temporary withdrawals of cash from the partnership are charged to

the partner’s drawings account, when these are made in anticipation of profit to be
earned by the partnership.

Statement 1: As a rule, the industrial partner should share in the partnership’s net
loss.
Statement 2: In the absence of a specific agreement regarding division of losses,
the existing division of profit agreement is to be followed.
8. M, N and O are partners in the MNO Co. Their capital contributed were: M
P100,000; N P220,000 and O P100,000.
 Partner O is to receive a bonus of 10% of net income after bonus
 Interest of 10% shall be paid on that portion of capital beginning in excess of
P200,000.
 Salaries of P20,000 and P24,000 shall be paid to partners M and O,
respectively.
Assuming the net income of the partnership is P88,000, the total profit share of O is:
a. P38,800 c. P40,095
b. P32,000 d. P43,333

Statement 1: Funds extended by the partners to the partnership as a loan shall be
accounted for by crediting the partner’s capital account.
Statement 2: When industry is contributed into the partnership, a memorandum
entry is prepared.

Mobile : 0927 283 8234
Telephone : (043) 723 8412

Statement 1: Drawing accounts are included in the computation of the ending
capital balances regardless whether the drawing account is a temporary or a
permanent withdrawals.
Statement 2: The admission of a new partner either by purchase of an existing
partner’s interest or by the investment in the partnership will result in the increase
of the total partnership assets.
11. A and B formed a partnership on March 1 , 20x1. A invested P250,000 and B

150,000. It was agreed that A, will be appointed as the managing partner and he
will receive a salary of P60,000 per year and also 10% bonus on the net profit after
the adjustment for the salary; the balance of the profit was to be shared in a
62.5:37.5 ratio to A and B, respectively. On December 31, 20x1, the following
accounts are available:
Accounts
Cash 140,000 Payable 120,000
Accounts Receivable 134,000 Sales 466,000
Furniture and Fixtures 90,000 A, capital 250,000
Purchases 392,000 B, capital 150,000
Sales Return and
Allowances 10,000 A, drawings (40,000)
Operating expenses 120,000 B, drawings (60,000)
On December 31, 20x1 the inventories on hand were P146,000; unused supplies
P5,000; prepaid insurance were P1,900 (the entity uses the expense method). The
accrued liabilities totaled P3,100 and the depreciation of furniture’s is 20% per year
which are not yet included in the operating expenses.
The share of A in the net income is:

a. P70,580 c. P69,080
b. P64,768 d. P67,205

Statement 1: The personal creditors of the general partner have priority of claim
over the creditors of the partnership pertaining to the partner’s personal assets.
Statement 2: Admission of new partner by investment in the partnership will

increase the partnership capital even under the bonus method.
13. A and B are partners with a profit and loss of 75:25 and capital balances of
P200,000 and P100,000, respectively. C is to be admitted into the partnership by
purchasing a 20% interest in the capital, profits and losses for P120,000.
The partners agree to revalue the assets before admitting C as a new partner.
Which of the following statements is incorrect?
a. The capital interest sold by A is P85,000
b. The total increase in capital of B after admission of C is P75,000

Mobile : 0927 283 8234
Telephone : (043) 723 8412
c. The share of A in the revaluation of asset is P225,000

d. The total amount of revaluation is P300,000
14. A and B are partners having capital balances of P300,000 and P360,000,
respectively. They agree to share profits and losses in the ratio of 50:50. They admit
C as a new partner to a 1/3 interest in capital and profits with an investment of
P390,000. If the partners agree to revalue the assets before admitting C into the
partnership.
a. Revaluation amount is P90,000
b. C capital will be P350,000
c. Total capital will be P1,050,000
d. B capital will be P420,000
15. A, B and C agree to liquidate the partnership. On December 31, 20x2, the following
data are available:
A B C
Capital 200,000 160,000 600,000
Drawing 120,000 80,000 40,000
The partnership was unable to collect on trade receivables and was forced to liquidate.
Operating profit in the year 20x2 amounted to P144,000 which was all exhausted
including the partnership assets. Unsettled creditor’s claim at December 31, 20x2
totaled P168,000. B and C have substantial private resources by A has no personal
assets. The partners share profits and losses equally.
How much is the loss on liquidation?

a. P1,032,000 c. P720,000
b. P960,000 d. P868,000
16. The final distribution to C was:

a. P324,000 c. P156,000
b. P168,000 d. P216,000

Statement 1: There is always loss on realization when noncash assets are converted
into cash during liquidation process.
Statement 2: In the liquidation process, the noncash assets are sold only to outside
parties but never to any of the partners.
18. A, B and C decided to liquidate the partnership. Their capital balance and profit and
loss ratio are as follows:
Capital P%L
A 100,000 40%
B 120,000 30%
C 40,000 30%
The net income on that year amounted to P88,000. Also, on this date, cash and
liabilities are P80,000 and P180,000, respectively.

Mobile : 0927 283 8234
Telephone : (043) 723 8412
How much is the cash realized from the sale of noncash assets in order for A to
receive P110,400.
a. P374,000 c. P354,000
b. P392,000 d. P386,000
19. The joint operation account reflects the transactions of the joint arrangement as
recorded by B:
Year 20x1 JONT OPERATION
Oct. 1 Merchandise - C 85,000 204,000 Nov. 10 Cash sales - A
10 Merchandise - B 70,000 42,000 Dec. 1 Cash Sales - A
15 Freight paid - A 2,000 12,100 Dec. 5 Merchandise - C
Nov. 20 Advertising - A 1,500
30 Purchases - A 35,000
Dec. 10 Selling expenses - A 4,000
The operators agree to share profits and losses to A , B and C in the ratio of 5:3:2,
respectively.
The total profit from joint operation amounted to:
a. P121,200 c. P246,000
b. P181,800 d. P60,600
20. The final settlement to C will be:

a. P97,120 c. P76,080
b. P85,020 d. P60,600
21. Which of the following scenarios indicates that the arrangement is a consignment
arrangement?
A. The entity is able to request for the return of the product subject to approval
of the other party.
B. The other party has an unconditional obligation to pay for the product.
C. The product is controlled by the entity until a specified event occurs.
D. All of the above indicates a consignment arrangement.
22. If there are significant changes in the entity’s expected timing of transfer to the
customer of goods or services, the amortization of costs to fulfill a contract shall
be:
A. accounted for as a correction of a prior period error
B. accounted for as a change in accounting policy
C. accounted for as a change in accounting estimate
D. ignored
23. In case the partnership assets are insufficient to settle outstanding partnership
claims,
A. the partnership must continue operating until such a time that the
partnership assets will be enough to cover all outstanding partnership claims
B. all unsecured creditors will receive a pro-rata settlement

Mobile : 0927 283 8234
Telephone : (043) 723 8412
C. the individual partners shall contribute additional assets to cover their

respective capital deficiencies, notwithstanding their individual financial
condition
D. the individual partners shall contribute additional assets to cover their
respective capital deficiencies, to the extent that their personal assets exceed
their personal liabilities
24. Which of the following is not a liability that has priority in corporate liquidation?
A. salaries payable to employees
B. taxes due to the government
C. preference dividends in arrears
D. liquidation and administrative related costs
25. A license such as a franchise is considered not distinct from other promised
goods or services in the contract if:
A. it is a license that forms a component of tangible good and that is integral to
the functionality of the good
B. it is a license that the customer can benefit on its own
C. both A and B
D. neither A nor B
Amounts related to the statement of affairs of Resigning Company as of April 30, 2021
follow:
Assets pledged for fully secured liabilities P 80,000
Assets pledged for partially secured liabilities 50,000
Free assets 272,000
Fully secured liabilities 60,000
Partially secured liabilities 80,000
Unsecured liabilities with priority 40,000
Unsecured liabilities without priority 330,000
26. What is the expected amount recoverable by partially secured creditors in the
event of liquidation?
A. P56,000
B. P70,400
C. P80,000
D. P71,000
27. How much is the estimated estate deficit?

A. P98,000
B. P58,000
C. P108,000
D. P88,000
United Co. recognizes construction revenue and expenses using the percentage-of-
completion method. During 2020, a single long-term project was begun, which
continued through 2021. Information on the project follows:
2020 2021
Accounts receivable from construction contract P200,000 P600,000
Construction expenses 210,000 384,000
Construction in progress 244,000 728,000

Mobile : 0927 283 8234
Telephone : (043) 723 8412
Partial billings on contract to date 200,000 840,000
28. How much is the profit from the long-term construction contract in 2021?
A. P314,000
B. P100,000
C. P30,000
D. P484,000
29. How much is the contract asset or contract liability to be reported as of

December 31, 2021?
A. P68,000 contract asset
B. P68,000 contract liability
C. P112,000 contract asset
D. P112,000 contract liability
30. How much is the cash collected during 2021 from the project?
A. P0
B. P240,000
C. P40,000
D. P128,000
ROMINA and MAUREEN are partners engaged in a manufacturing business.

Transactions affecting the partners’ capital accounts in 2021 are as follows:
ROMINA MAUREEN
Debit Credit Debit Credit
Beg. Balance P250,000 P350,000
April 1 150,000 100,000
June 30 125,000 250,000
September 1 225,000 300,000
October 1 350,000 200,000
The income summary has a debit balance of P225,000.
Agreement between ROMINA and MAUREEN are as follows:

 Interest on average capital at 8%.
 Salaries of P125,000 and P175,000 are given to ROMINA and MAUREEN,
respectively.
 Bonus to MAUREEN at 25% of net income after deducting interest and salaries
but before deducting bonus.
 Balance is to be divided equally.
31. How much is the share of Romina in the partnership profit or loss?
A. P143,000 loss
B. P143,000 gain
C. P99,000 loss
D. P99,000 gain
32. How much is the net increase (decrease) in Maureen’s capital account during
2021?
A. P143,000 decrease

Mobile : 0927 283 8234
Telephone : (043) 723 8412
B. P168,000 increase
C. P150,000 increase
D. P80,500 decrease
Mermaid Inc. consigned 50 units of its brand-new inventory costing P40,000 per unit to
Merman Company. Merman paid freight of P1,000 per unit in connection with the
consignment agreement, to be deducted from the amount to be remitted to Mermaid.
Merman will sell the inventory for P60,000 per unit and will be entitled to a 10%
commission on such sale. Merman incurs expenses in relation to selling twenty units to
customers amounting to P8,000 which was reimbursable under the consignment
agreement.
33. How much is the revenue to be recognized by Mermaid?

A. P1,080,000
B. P3,000,000
C. P2,700,000
D. P1,200,000
34. How much is the revenue to be recognized by Merman?

A. P70,000
B. P120,000
C. P300,000
D. P250,000
35. How much is the net profit to be reported by Mermaid from the consignment
arrangement?
A. P230,000
B. P400,000
C. P260,000
D. P280,000
On January 1, 2021, Entities ACT and JTC formed a joint operation. They agreed to
share equally on all matters relating to the operation. The following (at their respective
book values) were contributed by the operators:
ACT JTC
Cash P 300,000 P 100,000
Inventory 800,000 200,000
Property, plant and equipment, net 2,500,000 1,200,000
Additional information:
a. The fair values of the inventories are P1,000,000 and P300,000, respectively for
ACT and JTC.
b. The fair value of the property, plant and equipment invested by ACT was
P100,000 higher than the book value while the property, plant and equipment
invested by JTC had a fair value of P1,500,000. Both have a remaining useful life
of ten years.

Mobile : 0927 283 8234
Telephone : (043) 723 8412
36. How much is the share of ACT in the assets of the joint operation to be
presented in its separate statement of financial position?
A. P2,700,000
B. P2,900,000
C. P2,750,000
D. P2,550,000
37. How much is the property, plant and equipment, net - joint operation to be
presented in the separate statement of financial position of ACT as of December
31, 2021?
A. P1,665,000
B. P1,710,000
C. P1,845,000
D. P1,800,000
38. When the initial franchise fee is not paid in full and the collectability of the note
for the balance is reasonably assured, the method to be used by the franchisor
to recognize revenue from the initial franchise fee is:
a. Installment method
b. Gross Profit Method
c. Accrual Method
d. Cash Basis
39. According to IFRS 15, when should franchise revenue be recognized?

a. When operation commences
b. When the contract was signed
c. When the performance obligations are met
d. When the franchise fee is paid to the franchisor
40. Consignor Co. paid the in-transit insurance premium for consignment goods
shipped to Consignee Co. In addition, Consignor advanced part of the
commission that will be due when Consignee sells the goods. Should Consignor
include the in-transit insurance premium and the advanced commissions in
inventory costs?
Insurance Advanced
premium commission
a. Yes Yes
b. No No
c. Yes No
d. No Yes
41. On January 5, 2030, BenBen, Inc. signed an agreement granting Mr. Bennet a
franchise license for an initial franchise fee of P1,000,000 which was fully paid
when the contract was signed. Mr. Bennet commenced operations on July 1,2016
which cost BenBen Inc. P20,000 to perform its initial services. Mr. Bennet must
also pay BenBen Inc. a continuing franchise fee of 5% of its gross monthly sales.
Mr. Bennet reported gross sales from July 1 to December 31 2030 of P800,000.
On December 31, 2030, what is the net income from the franchise fees to be
reported by BenBen Inc.
a. 1,000,000

Mobile : 0927 283 8234
Telephone : (043) 723 8412
b. 980,000
c. 1,040,000
d. 1,020,000
AAA Inc. granted BBB a franchise on January 2, 2030. The agreement provided
an initial franchise fee of P2,000,000 payable as follows: P400,000 down
payment and the balance payable in four annual installments starting December
31, 2030. The prevailing interest rate for a similar note is 20% and the present
value of an annuity of 1 for 4 periods is P2.5887. The agreement also provides
for a continuing franchise fee of 5% of gross sales of the franchise payable 10
days the following month. The collectability of the note is reasonably assured.
The franchisee commenced operation on July 1,2030 and reported gross sales of
P4,000,000 from July to December 2030.
42. What is the total revenue from franchise fees to be reported by BBB for the year
ended December 31, 2030?
a. 2,200,000
b. 2,000,000
c. 1,635,480
d. 600,000
43. What is the other income related to the franchise agreement (not from franchise
fees) to be reported by BBB for the year ended December 31, 2030?
a. 0
b. 103,548
c. 320,000
d. 207,096
On January 1, 2030, an entity granted a franchise to a franchisee. The franchise

agreement required the franchisee to pay a nonrefundable upfront fee in the amount
of P400,000 and on-going payment of royalties equivalent to 5% of the sales of the
franchisee. The franchisee paid the nonrefundable upfront fee on January 1, 2030.
In relation to the nonrefundable upfront fee, the franchise agreement required the
entity to render the following performance obligations:
 To construct the franchisee’s stall with stand-alone selling price of P200,000.
 To deliver 10,000 units of raw materials to the franchisee with stand-alone

selling price of P250,000.
 To allow the franchisee to use the entity tradename for a period of 10 years
starting January 1, 2030 with stand-alone selling price of P50,000.
On June 30, 2030, the entity completed the construction of the franchisee’s stall. On
December 31, 2030, the entity was able to deliver 3,000 units of raw materials to the
franchisee. For the year ended December 31, 2030, the franchisee reported sales
revenue amounting to P100,000.
10 | P a g e RFERRER/RLACO/ ATANG/PDEJESUS
Mobile : 0927 283 8234
Telephone : (043) 723 8412
The entity had determined that the performance obligations are separate and distinct
from one another.
44. What is the amount of nonrefundable upfront fee to be allocated to the

construction of the franchisee’s stall?
a. 200,000
b. 160,000
c. 250,000
d. 120,000
45. What is the amount of revenue to be recognized in relation to the use of delivery
of raw materials for the year ended December 31, 2030?
a. 100,000
b. 200,000
c. 60,000
d. 75,000
46. What is the amount of revenue to be recognized in relation to the use of entity’s
tradename for the year ended December 31, 2030?
a. 5,000
b. 4,000
c. 50,000
d. 10,000
Philacor, Inc. consigned twelve refrigerators to Ocampo’s Emporium. The refrigerators

cost P6,000 each and the consignor paid P720 for freight out. The consignee
subsequently rendered an account sales for five units sold at P7,700 each, and
deducted the following items from the selling price:
Commission (based on sales net of commission) 10%
Marketing expense (based on commission) 10%
Delivery and installation (on each unit sold) P 30
47. How much was the net profit of the consignor on the five refrigerators sold?
a. 3,815
b. 37,780
c. 4,200
d. 3,395
48. How much was the net remittance of the consignee on the five refrigerators sold?
a. 34,500
b. 33,780
c. 4,500
d. 4,200
Mobile : 0927 283 8234
Telephone : (043) 723 8412
CR Manufacturing Co. consigned to CE Trading Corp. twelve (12) Sony colored TV

sets which cost P9,000 each. Freight out was paid by the consignor in the amount of
P600. CE Trading sold eight (8) sets, rendered an account sales, and remitted the
amount of P82,600 after deducting the following from the selling price of the sets
sold:
Commission on selling price 12%
Selling expenses P1,200
Cost of antennae given free 1,400
Delivery and installation 2,800
49. The total selling price of the eight (8) sets sold by CE Trading Corp. is:
a. 100,000.0
b. 88,000.00
c. 98,560.00
d. 78,571.43
50. The net profit of CR Manufacturing Co. on the eight (8) sets sold by CE Trading
Corp. is:
a. 10,200.00
b. 18,000.00
c. 18,200.00
d. 18,000.00
Mobile : 0927 283 8234
Telephone : (043) 723 8412
AFAR First Preboard Examinations

iCARE Accountancy Review
st
1 Open Preboard Examination, Batch 3
1. B 41. D
2. D 42. C
3. A 43. D
4. B 44. B
5. D 45. C
6. B 46. B
7. C 47. C
8. C 48. A
9. B 49. A
10. A 50. A
11. C
12. C
13. B
14. D
15. A
16. C
17. D
18. D
19. D
20. B
21. C
22. C
23. D
24. C
25. A
26. D
27. C
28. B
29. D
30. B
31. A
32. B
33. D
34. B
35. C
36. C
37. D
38. C
39. C
40. C

Icare Afar First Preboard Examinations Batch 3

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No. 125 Brgy.

ADVANCED FINANCIAL ACCOUNTING & REPORTING

Assets Liabilities and Capital

The increase (decrease) in the capital interest of C after admission of D.

2. The amount of cash investment of D to acquire 1/5 interest in the partnership?

3. Which of the following statement is correct?

Statement 2: A debit to partner’s capital account is made whenever the partner

4. On January 1, 20x1, A and B formed a partnership the AB partnership. A and B

1|P a g e RFERRER/RLACO/ ATANG/PDEJESUS

How much is the capital interest of A and B after formation?

6. Which of the following statement is correct?

Statement 2: Temporary withdrawals of cash from the partnership are charged to

7. Which of the following statement is correct?

9. Which of the following statement is correct?

2|P a g e RFERRER/RLACO/ ATANG/PDEJESUS

10. Which of the following statement is correct?

11. A and B formed a partnership on March 1 , 20x1. A invested P250,000 and B

The share of A in the net income is:

12. Which of the following statement is correct?

Statement 2: Admission of new partner by investment in the partnership will

3|P a g e RFERRER/RLACO/ ATANG/PDEJESUS

c. The share of A in the revaluation of asset is P225,000

How much is the loss on liquidation?

16. The final distribution to C was:

17. Which of the following statement is correct?

4|P a g e RFERRER/RLACO/ ATANG/PDEJESUS

20. The final settlement to C will be:

5|P a g e RFERRER/RLACO/ ATANG/PDEJESUS

C. the individual partners shall contribute additional assets to cover their

27. How much is the estimated estate deficit?

6|P a g e RFERRER/RLACO/ ATANG/PDEJESUS

Partial billings on contract to date 200,000 840,000

29. How much is the contract asset or contract liability to be reported as of

ROMINA and MAUREEN are partners engaged in a manufacturing business.

The income summary has a debit balance of P225,000.

Agreement between ROMINA and MAUREEN are as follows:

7|P a g e RFERRER/RLACO/ ATANG/PDEJESUS

33. How much is the revenue to be recognized by Mermaid?

34. How much is the revenue to be recognized by Merman?

8|P a g e RFERRER/RLACO/ ATANG/PDEJESUS

39. According to IFRS 15, when should franchise revenue be recognized?

9|P a g e RFERRER/RLACO/ ATANG/PDEJESUS

On January 1, 2030, an entity granted a franchise to a franchisee. The franchise

 To deliver 10,000 units of raw materials to the franchisee with stand-alone

44. What is the amount of nonrefundable upfront fee to be allocated to the

Philacor, Inc. consigned twelve refrigerators to Ocampo’s Emporium. The refrigerators

CR Manufacturing Co. consigned to CE Trading Corp. twelve (12) Sony colored TV

AFAR First Preboard Examinations

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