Advanced Financial Accounting and Reporting

Solution in Problem Solving

1. Fair Market Value of Land and Building contributed by B P1,500,000

Less: Mortgage Payable to be assumed by ABC Partnership (300,000)
Capital Credit of B in ABC Partnership P1,200,000
Divided by B’s Capital Interest Ratio /60%
Total Agreed Capitalization of ABC Partnership (1) (B) P2,000,000

2. Capital Credit of A in ABC Partnership (Proceeds from sale of equipment) (2) (C) P 300,000

3. Fair Market Value of Land and Building contributed by B P1,500,000

Less: Mortgage Payable to be assumed by ABC Partnership (300,000)
Capital Credit of B in ABC Partnership (3) (D) P1,200,000

4. Total Agreed Capitalization of ABC Partnership P2,000,000

Less: Total Capital Credit of A and B (P300,000 + P1,200,000) 1,500,000
Cash to be contributed by C in ABC Partnership (4) (A) P 500,000

5. January 1, 2021 B’s Capital Balance (P1,000,000 x 10%) P 100,000

Add: B’s additional investment during 2021 500,000
Less: B’s drawings at the end of 2021 (300,000)
Less: B’s capital balance on December 31, 2021 (200,000)
B’s Share in Net Loss for the year ended December 31, 2021 (P 100,000)
Divided by B’s interest in profit or loss /20%
Net loss of ABC Partnership for the year ended December 31, 2021(5) (A) (P 500,000)

6. January 1, 2021 A’s Capital Balance (P1,000,000 x 50%) P 500,000

Add: A’s additional investment during 2021 200,000
Less: A’s Share in Net Loss during 2021 (P500,000 x 30%) (150,000)
December 31, 2021 Capital Balance of A (6) (C) P 550,000

7. January 1, 2021 C’s Capital Balance (P1,000,000 x 40%) P 400,000

Less: C’s Share in Net Loss during 2021 (P500,000 x 50%) (250,000)
Less: C’s drawings at the end of 2021 (100,000)
December 31, 2021 Capital Balance of C (7) (B) P 50,000

8. December 31, 2018 C’s Capital Balance P 320,000

Add: C’s drawings at the end of 2018 400,000
Less: C’s additional investment during 2018 (300,000)
Less: C’s capital balance on January 1, 2018 (200,000)
C’s share in partnership profit for the year ended December 31, 2018 (8) (D) P 220,000

9. C’s share in profit for the year 2018 P 220,000

Less: Interest on original capital contribution of C (200,000 x 10%) (20,000)
C’s share in the remaining profit after interest, salary and bonus P 200,000
Multiply by number of partners x 3
Remaining profit after interest, salary and bonus P 600,000
Divided by 80% / 80%
Net profit after salary and interest but before bonus to managing partner P 750,000
Add: Total interest and salary (100,000 + 200,000) 300,000
Partnership profit for the year ended December 31, 2018 (9) (C) P1,050,000

10. Partnership profit for the year ended December 31, 2018 P1,050,000
Less: Total interest and salary (100,000 + 200,000) (300,000)
Net profit after salary and interest but before bonus to managing partner P 750,000
Multiply by Bonus percentage x 20%
Bonus to A as managing partner (10) (B) P 150,000
11 January 1, 2018 A’s capital balance P 300,000
Add: Additional investment of A during 2018 500,000
Less: Drawings of A during 2018 (200,000)
Add: A’s share in partnership profit during 2018 (30,000+160,000+150,000+200,000) 540,000
December 31, 2018 A’s capital balance (11) (A) P1,140,000

12 January 1, 2018 B’s capital balance P 500,000

Add: Additional investment of B during 2018 200,000
Less: Drawings of B during 2018 (100,000)
Add: B’s share in partnership profit during 2018 (50,000+40,000+200,000) 290,000
December 31, 2018 B’s capital balance (12) (C) P 890,000

13. Capital Balance of B before the admission of D P 800,000

Less: Capital to be transferred to D (P800,000 x 40%) ( 320,000)
Capital Balance of B after the admission of D (13) (B) P 480,000

14. Capital Balance of A before the retirement of C P 500,000

Add: Share of A in asset revaluation (P150,000/60%x10%) 25,000
Capital Balance of A after the retirement of C (14) (D) P 525,000

15. Capital Balance of B before the retirement of C P 300,000

Add: Share of B from Bonus given by C (P20,000 x 4/5) 16,000
Capital Balance of B after the retirement of C (15) (C) P 316,000

16. Capital Balance of C before the admission of D P 900,000

Add: Share of C in bonus given by D (P200,000 x 30%) 60,000
Capital Balance of C after the admission of D (16) (A) P 960,000

17. Capital Balance of B before the admission of D P 700,000

Add: Share of B in Asset Revaluation (P1,000,000 x 60%) 600,000
Capital Balance of B after the admission of D (17) (B) P1,300,000

18. Total contributed capital of all partners (P3,000,000 + P500,000) P3,500,000

Less: Total agreed capitalization of new partnership 3,000,000
Asset impairment to be shared by old partners only P 500,000

Share of A in asset impairment (P500,000 x 50%) (18) (D) P 250,000

19. Contributed capital by D to the new partnership P 500,000

Less: Capital credit to D in the new partnership (P3,000,000 x 10%) 300,000
Bonus given by D to the existing partners (19) (A) P 200,000

20. Capital credit of D to the new partnership (P3,000,000 x 10%) (20) (B) P 300,000

21. Capital Balance of C before the admission of D P 700,000

Less: C’s share in asset impairment (P500,000 x 40%) (200,000)
Add: C’s share in bonus given by D (P200,000 x 40%) 80,000
Capital Balance of C after the admission of D (21) (A) P 580,000

22. Capital Balance of B before liquidation (P 650,000)

Add: Payable to B 1,000,000
Capital Balance of B after the right of offset P 350,000
Less: Share of B in Total Loss on Liquidation ((500,000+100,000) x 10%) 60,000
Capital Balance of B after loss on liquidation but before absorption of A’s insolvency P 290,000
Less: Share of B in A’s debit capital balance (P160,000 x 1/4) (40,000)
Cash received by B at the end of partnership liquidation (22) (A) P 250,000
23. Capital Balance of C before liquidation P 350,000
Add: Payable to C 100,000
Capital Balance of C after the right of offset P 450,000
Less: Share of C in Total Loss on Liquidation ((500,000+100,000) x 30%) 180,000
Capital Balance of C after loss on liquidation but before absorption of A’s insolvency P 270,000
Less: Share of C in A’s debit capital balance (P160,000 x 3/4) (120,000)
Cash received by C at the end of partnership liquidation (23) (B) P 150,000

24. Capital Balance of B before liquidation P 300,000

Less: Share in presumed total loss in liquidation (P70,000/10% x 40%) 280,000
Cash received by B at the end of partnership liquidation (24) (D) P 20,000

25. Cash received by partners at the end of liquidation ((P80,000 (A) + P20,000 (B)) P 100,000
Add: Cash paid for liquidation expenses 50,000
Add: Cash paid for total liabilities 1,500,000
Less: Cash balance before the start of liquidation (1,200,000)
Net proceeds from the sale of noncash assets (25) (A) P 450,000

26. Capital Balance of C before liquidation P 400,000

Less: Share of C in Total Loss in Liquidation during January (P500,000* x 20%)
(100,000)
Capital Balance of C after loss on liquidation but before absorption of A’s insolvency P 300,000
Less: Share of C in A’s debit balance (P150,000 x 2/5) (60,000)
Cash received by C at the end of partnership liquidation (26) (B) P 240,000

Cash balance before start of liquidation P1,600,000

Add: Net proceeds from sale of noncash asset during January (P1,000,000 + P100,000) 1,100,000
Less: Cash paid for liquidation expenses during January (50,000)
Less: Cash paid for liabilities to third person during January (P2,000,000 x 20%) (400,000)
Less: Cash withheld for unpaid liabilities to third person (P2,000,000 x 80%) (1,600,000)
Less: Cash withheld for estimated future liquidating expenses (150,000)
Cash available for distribution to partners P 500,000
Less: Total capital of all partners (100,000+500,000+400,000) (1,000,000)
Total loss on liquidation for the first month of installment P 500,000*

27. Estimated future liquidating expenses on January 31, 2021 P 150,000

Add: Book value of remaining noncash assets on January 31, 2021 400,000
Maximum possible loss on January 31, 2021 P 550,000
B’s share in maximum possible loss (P550,000 x 30%) (27) (D) P 165,000

28. Cash withheld for future liquidating expenses P 150,000

Add: Cash withheld for remaining unpaid liabilities to third persons (P2,000,000 x 80%) 1,600,000
Total cash withheld on January 31, 2021 (28) (C) P1,750,000

29. Capital Balance of A on January 31, 2021 P 100,000

Add: Share of A in total loss in liquidation during February (P50,000* x 50%) (25,000)
Cash received by A on February 28, 2021 during final liquidation (29) (A) P 75,000

Cash balance on January 31, 2021 P1,750,000

Add: Net proceeds from sale of noncash asset during January (P400,000 - P100,000) 300,000
Less: Cash paid for liquidation expenses during February (100,000)
Less: Cash paid for liabilities to third person during February (1,500,000)
Cash available for final distribution to partners P 450,000
Less: Total capital of all partners (100,000+240,000+160,000) (500,000)
Total loss on liquidation for the first month of installment P 50,000*

30. Amount received by holder of note payable (NRV of Inventory) (30) (C) P 250,000
Note: Only the net realizable value of collateral inventory will be received since there is no available net
free asset.

31 Amount received by holder of mortgage payable (Fair value of Land) (31) (D) P 100,000
Note: The mortgage payable will be fully collected because it is fully secured credit.
32. Cash P 100,000
Add: Free assets from fully secured mortgage payable (P120,000 – P100,000) 20,000
Total Free assets for unsecured credits with priority P 120,000
Amount received by employees for their salary (32) (B) P 120,000
Note: Since only P120,000 free assets are available, it must all be given to employees who are preferred
over the government.

33. Amount received by national government for income taxes (33) (D) None
Note: Since only P120,000 free assets are available, it must all be given to employees for their salaries
which are preferred over the claims of the government for income taxes.

34. Amount received by partially secured loans payable P 340,000

Less: Fair value of collateral – machinery (300,000)
Recovered amount from the unsecured portion of partially secured loans payable P 40,000
Divided by unsecured portion of partially secured loans payable (P400,000 – P300,000) /100,000
Recovery percentage on unsecured credits 40%

35. Amount received by holder of accounts payable (P100,000 x 40%) (34) (C) P 40,000

36. Accounts payable P 100,000

Add: Unsecured portion of partially secured loans payable (P400,000 – P300,000) 100,000
Total unsecured credits including unsecured portion of partially secured loans payable P 200,000
Multiply by recovery percentage of unsecured credits x 40%
Net free assets (35) (A) P 80,000

37. Net free assets P 80,000

Add: Liquidation expenses paid 600,000
Add: Salaries payable 200,000
Add: Income tax payable 300,000
Less: Cash (300,000)
Free assets from building used as collateral for fully secured mortgage payable P 880,000
Add: Book value of fully secured mortgage payable 500,000
Fair value of building used as collateral of mortgage payable (36) (B) P1,380,000

38. Land owned by Entity A P3,000,000

Add: Interest of Entity A on co-owned inventory (P1,000,000 x 60%) 600,000
Total assets to be reported by Entity A concerning its interest in Entity C (38) (C) P3,600,000

39. Notes payable owed by Entity B P 1,000,000

Add: Interest of Entity B on co-owed accounts payable (P2,000,000 x 40%) 800,000
Total liabilities to be reported by Entity B concerning its interest in Entity C (39) (A) P1,800,000

40. Sales revenue reported by Entity C P5,000,000

Less: Unsold inventory of Entity A coming from Entity C (P1,000,000 x 70%) (700,000)
Less: Unsold inventory of Entity B coming from Entity C (P2,000,000 x 40%) (800,000)
Sales revenue to third persons P3,500,000

Sales revenue to be reported by Entity A (P3,500,000 x 60%) (40) (B) P2,100,000

41. Sales revenue to be reported by Entity B (P3,500,000 x 40%) (41) (D) P1,400,000

42. Initial Measurement of Investment in Entity C (Entity A’s book) on January 1, 2021 P 1,000,000
Add: 2021’s Share in net income of Entity C (Joint Venture) (P200,000 x 40%) 80,000
Less: 2021’s Dividend received from Entity C (P100,000 x 40%) 40,000
December 31, 2021 Book Value of Investment in Entity C (Equity Method) (42) (B) P1,040,000

43. Initial Measurement of Investment in Entity C (Entity B’s book) on January 1, 2021 P 1,500,000
Add: 2021’s Share in net income of Entity C (Joint Venture) (P200,000 x 60%) 120,000
Less: 2021’s Dividend received from Entity C (P100,000 x 60%) (60,000)
December 31, 2021 Book Value of Investment in Entity C (Entity B’s book) P 1,560,000
Possible share in net loss for year 2022 for Entity B (P3,000,000 x 60%) (P1,800,000)
Maximum investment loss is the book value of Investment account (43) (A) P1,560,000
44. Possible share in net income for year 2023 for Entity A (P5,000,000 x 40%) P2,000,000
Less: Unrecognized share in net loss for year 2022 for Entity A
(P3,000,000 x 40%) – (P1,040,000) (160,000)
Investment income for year 2023 for Entity A (44) (D) P1,840,000

45. December 31, 2022 Book Value of Investment in Entity C (Entity B’s Book) P 0
Add: 2023’s share in net income (P5,000,000 x 60%) – P240,000 2,760,000
Less: 2023’s dividend received from Entity C (1,000,000 x 60%) (600,000)
December 31, 2023 Book Value of Investment in Entity C (B’s Book) (43) (D) P2,160,000

46. Unadjusted investment income of Entity A for year 2020 (P1,000,000 x 60%) P 600,000
Less: Unrealized gross profit in ending inventory of Entity A (P50,000 x 20% x 60%) (6,000)
Adjusted investment income of Entity A for year 2020 (46) (C) P 594,000

47. Initial measurement of Investment in Entity C (Entity B’s Book) P2,000,000

Add: Unadjusted investment income of Entity B for year 2020 (P1,000,000 x 40%) 400,000
Add: Unrealized loss on sale of machinery (P20,000 x 40%) 8,000
Less: Realized loss on sale of machinery (P20,000/2 x 6/12 x 40%) (6,000)
Less: 2020 dividend received from Entity C (P400,000 x 40%) (160,000)
December 31, 2020 Book Value of Investment in Entity C (B’s Book ) (47) (A) P2,242,000

48. Unadjusted investment loss for year 2021 (P500,000 x 40%) (P 200,000)
Add: Realized loss on sale of machinery (P20,000/2 x 40%) (4,000)
Adjusted investment loss of Entity B for year 2021 (48) (C) (P 204,000)

49. Initial measurement of Investment in Entity C (Entity A’s Book) P3,000,000

Add: 2020’s investment income 594,000
Less: 2020’s dividend received from Entity C (P400,000 x 60%) (240,000)
Less: Unadjusted investment loss of Entity A for year 2021 (P500,000 x 60%) (300,000)
Add: Realized gross profit on beginning inventory (P50,000 x 20% x 60%) 6,000
Less: 2021’s dividend received from Entity C (P100,000 x 60%) (60,000)
December 31, 2021 Book Value of Investment in Entity C (A’s Book) (49) (A) P3,000,000

50. Transaction costs – Expense as incurred under Fair Value Model (P 20,000)
Unrealized holding gain on changes in fair value (P560,000 – P500,000) 60,000
Dividend income (P30,000 x 50%) 15,000
Effect in net profit under Fair Value Model (50) (A) P 35,000

51. Initial measurement of Investment under Equity Method (P500,000 + P20,000) P 520,000
Add: Share in net income of Joint Venture (P100,000 x 50%) 50,000
Less: Dividend received from Joint Venture (P30,000 x 50%) (15,000)
Book value of Investment on December 31, 2020 under equity method (51) (D) P 555,000
Note: There is no impairment loss because fair value less cost to sell of P560,000 is higher than book
value.

52. Book value of Investment under Cost Method (Cost) (P200,000 + P10,000) (52) (A) P 210,000

53. Share in net income of joint venture (P50,000 x 50%) P 25,000

Impairment loss of Investment under equity method (P230,000 – P215,0000) ( 15,000)
Effect in net profit under Equity Method (53) (C) P 10,000

54. Unadjusted installment sales P 400,000

Add: Undervaluation of traded car (P150,000 – P50,000) 100,000
Adjusted installment sales P 500,000
Less: Cost of production of car (300,000)
Adjusted gross profit P 200,000
Divided by Adjusted installment sales /500,000
Adjusted gross profit rate based on sales (54) (D) 40%
55. Cash down payment (P400,000 x ¼) P 100,000
Fair value of traded used car 150,000
Collected annual installments on December 31, 2020 (P250,000/5) 50,000
Total collections P 300,000
Multiply by gross profit rate x40%
Realized gross profit for the year ended December 31, 2020 (55) (B) P 120,000

56. Fair value of repossessed inventory P 110,000

Less: Unrecovered cost of defaulted installment receivable (P200,000 x 60%) (120,000)
Loss on Repossession (56) (C) (P 10,000)

57. Selling price of repossessed car P 140,000

Less: Cost of such repossessed car (P110,000 + P10,000) (120,000)
Gross profit on sale of repossessed car (57) (B) P 20,000

58. Allocated revenue to construction of stall (P400,000 x 200,000/500,000) (58) (B) P 160,000

59. Revenue from delivery of raw materials

(P400,000 x 250,000/500,000) x 3,000/10,000 (59) (C) P 60,000

60. Revenue from use of entity’s trade name (P400,000 x 50,000/500,000)/10yrs (60) (B) P 4,000

61. Revenue from construction of franchisee’s stall (P400,000 x 200,000/500,000) P 160,000

Revenue from delivery of raw materials (P400,000 x 250,000/500,000) x 3,000/10,000 60,000
Revenue from the use of entity’s trade name (P400,000 x 50,000/500,000)/10 years 4,000
Revenue from contingent franchisee fee (P100,000 x 5%) 5,000
Total revenue for the year ended December 31, 2020 (58) (A) P 229,000

62. Cash downpayment P 200,000

Present value of note receivable 240,183
Initial franchise fee revenue P 440,183
Less: Direct cost of initial franchise fee 352,146
Gross profit under accrual basis (62) (D) P 88,037

63. Gross profit under accrual basis P 88,037

Add: Interest Income for year 2020 (P240,183 x 12%) 28,822
Add: Contingent franchise fee revenue (P50,000 x 8%) 4,000
Less: Indirect cost – Expense as incurred (22,009)
Net income under accrual basis (63) (A) P 98,850

64. Cash downpayment P 200,000

Present value of note receivable 240,183
Initial franchise fee revenue P 440,183
Less: Direct cost of initial franchise fee 352,146
Gross profit under accrual basis P 88,037
Divided by initial franchise fee revenue /440,183
Gross profit rate of initial franchise fee revenue 20%

Realized gross profit under installment method

((P200,000) + (P100,000-28,822)) x 20% gross profit rate (62) (B) P 54,236

65. Realized gross profit under installment method P 54,236

Add: Interest Income for year 2020 (P240,183 x 12%) 28,822
Add: Contingent franchise fee revenue (P50,000 x 8%) 4,000
Less: Indirect cost – Expense as incurred (22,009)
Net income under installment method (63) (C) P 65,049
66. Costs incurred to date as of December 31, 2021 P 440,000
Divided by total cost as of 2021 (P440,000+P660,000) /1,100,000
Percentage of completion as of 2021 40%
Construction revenue for year 2021 (P1,000,000 x 40%) (66) (B) P 400,000

67. Costs incurred to date as of December 31, 2022 (P440,000+P680,000) P 1,120,000

Divided by total cost as of 2022 (P440,000+P680,000+P280,000) / 1,400,000
Percentage of completion as of 2022 80%
Cumulative gross profit as 2022 (P1,500,000-P1,400,000) x 80% P 80,000
Less: Realized gross loss on 2021 (P1,000,000 – P1,100,000) (100,000)
Realized gross profit for year 2022 (67) (C) P 180,000

68. Contract price as of December 31, 2022 P 1,500,000

Multiply by percentage of completion as of December 31, 2022 x 80%
Construction in Progress on December 31, 2022 (68) (A) P 1,200,000

69. Final contract price P 1,300,000

Less: Actual total construction costs incurred (P440,000+P680,000+130,000) 1,250,000
Actual cumulative gross profit from construction P 50,000
Less: Cumulative gross profit as of 2022 (80,000)
Realized gross loss for the year ended December 31, 2023 (69) (B) P 30,000

70. Contract price as of 2019 P 1,000,000

Less: Total costs as of 2019 (P800,000+P250,000) (1,050,000)
Cumulative gross loss as of 2019 (P 50,000)
Less: Realized gross loss on 2018 ((P1,000,000) – (P360,000+P840,000)) ( 200,000)
Realized gross profit for year 2019 (70) (C) P 150,000

71. Contract price as of 2020 P 1,000,000

Less: Total costs as of 2020 (P870,000+P50,000) (920,000)
Estimated gross profit as of 2020 P 50,000
Cumulative gross profit as of 2020 under cost recovery method P 0
Less: Cumulative gross loss as of 2019 ( 50,000)
Realized gross profit for year 2020 (71) (C) P 50,000

72. Progress Billings as of December 31, 2020 (P1,000,000) x (30%+20%+40%) P 900,000

Less: Construction in Progress as of December 31, 2020 (Costs incurred to date) 870,000
Excess of Progress Billings over Construction in Progress on 12/31/2020 (72) (A) (P 30,000)

73. Cumulative billings as of December 31, 2020 (P1,000,000) x (30%+20%+40%) P 900,000

Less: Mobilization fee deductible from first billing (P1,000,000 x 5%) (50,000)
Less: Collection of receivables as of December 31, 2020 (120,000+450,000+180,000) (750,000)
Balance of Accounts Receivable on December 31, 2020 (73) (B) P 100,000

74. Sales revenue of the branch P 500,000

Less: Cost of sales of the branch (P30,000+P100,000+P250,000-50,000) (330,000)
Less: Operating expense of the branch (40,000)
Net income reported by the branch in its separate income statement (74) (A) P 130,000

75. Ending inventory of the home office at cost P 80,000

Ending inventory of the branch from outsider at cost (P50,000 x 26%) 13,000
Ending inventory of the branch from home office last year at cost (P50,000 x 24%) / 1.20 10,000
Ending inventory of the branch from home office this year at cost (P50,000 x 50%) / 1.25 20,000
Ending inventory of the entity combined statement of financial position (75) (D) P 123,000
76. Overstatement in beginning inventory from home office (P30,000 x 4/5) x 20/120 P 4,000
Add: Overstatement of shipment during the year (P250,000 – P200,000) 50,000
Unadjusted overvaluation of inventory from home office P 54,000
Less: Overstatement in ending inventory from home office (P50,000 x 24%) x 20/120 (2,000)
Less: Overstatement in ending inventory from home office (P50,000 x 50%) x 25/125 (5,000)
Overstatement of cost of sales (76) (D) P 47,000

77. Total sales revenue (P1,000,000 + P500,000) P 1,500,000

Less: Combined cost of sales
Beginning inventory at cost (P50,000) + (P30,000-P4,000) P 76,000
Purchases from outsiders (P400,000 + P100,000) 500,000
Less: Ending inventory at cost (P80,000) + (P50,000-P7,000) (123,000) (453,000)
Gross profit P 1,047,000
Less: Operating expenses (P150,000+P40,000) (190,000)
Combined net income of the company for the current year (77) (B) P 857,000

78. Unadjusted balance of Home Office Account P 250,000

Less: IX. Transactions (P20,000 + P10,000) (30,000)
Adjusted balance of Home Office Account (78) (C) P 220,000

79. Unadjusted balance of Branch Account (79) (A) P 190,000

I. Transaction (20,000)
II. Transaction 10,000
III. Transaction (30,000)
IV. Transaction (40,000)
VI. Transaction 60,000
VII. Transaction (P20,000 + P30,000) 50,000
Adjusted balance of Branch Account P 220,000

80. Fair value of consideration transferred (10,000xP20) + (P500,000x1.10) P 750,000

Less: Fair value of Net Assets of acquiree (Entity B)
Book value of Net Assets of Entity B P 600,000
Add: Increase in NCA of Entity B (P1,300,000-P1,000,000 300,000
Less: Decrease in CL of Entity B (P600,000-P400,000) (200,000) (700,000)
Goodwill from business combination (80) (A) P 50,000

81. Direct cost of business combination P 40,000

Indirect cost of business combination 30,000
Total costs that shall be expensed as incurred (81) (B) P 70,000

82. Total assets of Entity A at book value (P1,000,000+P2,000,000) P 3,000,000

Add: Total assets of Entity B at fair value (P500,000+P1,300,000) 1,800,000
Add: Goodwill arising from business combination 50,000
Less: Cash paid for SIC, BIC, DC of BC, IC of BC (P10,000+P20,000+P40,000+P30,000) (100,000)
Total assets after the business combination (82) (C) P 4,750,000

83. Total liabilities of Entity A at book value (P200,000+P300,000) P 500,000

Add: Total liabilities of Entity B at fair value (P600,000+P500,000) 1,100,000
Add: Fair value of bonds payable issued (P500,000 x 1.10) 550,000
Less: Bond issue costs (20,000)
Total liabilities after the business combination (83) (D) P 2,130,000

84. Stockholders’ Equity of Entity A before business combination (P3,000,000-P500,000) P 2,500,000

Add: Fair value of ordinary shares issued (10,000 x P20) 200,000
Less: Stock issuance costs (10,000)
Less: Direct and indirect costs of business combination (P40,000+P30,000) (70,000)
Stockholders’ equity after the business combination (84) (D) P 2,620,000

Total assets after the business combination P 4,750,000

Less: Total liabilities after the business combination (2,130,000)
Stockholders’ equity after the business combination (84) (D) P 2,620,000
85. Presumed fair value of noncontrolling interest (P1,000,000/80% x 20%) P 250,000
Proportionate share of fair value of net assets of acquiree (P1,500,000x20%) (85) (B) P 300,000
Note: The proportionate share is higher that’s why it is the initial measurement.

86. Fair value of consideration transferred P 1,000,000

Add: Proportionate share of fair value of net assets of acquiree (NCI measurement) 300,000
Less: Fair value of the net assets of acquiree (P1,600,000-P60,000-P40,000) (1,500,000)
Gain on bargain purchase (Always partial for controlling interest only) (86) (D) (P 200,000)

87. Initial measurement of existing Investment on January 1, 2020 P 90,000

Add: Share in net income of associate for six months (P40,000 x 40%) 12,000
Book value of existing Investment on June 30, 2020 P 102,000
Less: Fair value of existing Investment (P4 x 30,000) (120,000)
Gain on remeasurement of existing investment as a result of step acquisition (87) (A) P 18,000

88. Fair value of consideration transferred for 60,000 ordinary shares P 240,000
Add: Fair value of existing investment or interest (30,000 shares x P4) 120,000
Add: Fair value of noncontrolling interests in net assets of acquiree 50,000
Less: Fair value of net assets of the acquiree (P400,000-P50,000+P30,000) (380,000)
Goodwill arising from businesss combination achieved in stages (88) (D) P 30,000

89. Net income reported by Entity B in its separate income statement P 150,000
Less: Amortization of undervaluation of machinery (P80,000/4 years) (20,000)
Add: Amortization of overvaluation of inventory (P10,000 x 60%) 6,000
Adjusted net income of Entity B P 136,000
Multiply by noncontrolling interest percentage of ownership x 30%
Noncontrolling interests in net income for year 2020 (89) (B) P 40,800

90. Initial measurement of noncontrolling interests in net assets (P320,000 x 30%) P 99,000
Add: Noncontrolling interests in net income 40,800
Less: Dividends declared by Entity B for NCI’s owners (P20,000 x 30%) (6,000)
Noncontrolling interests in net assets on December 31, 2020 (90) (D) P 133,800

91. Net income reported by Entity A in its separate income statement P 1,000,000
Add: Gain on bargain purchase (P210,000+P99,000-P330,000) 21,000
Less: Dividend income from Entity B (P20,000 x 70%) (14,000)
Add: Share in adjusted net income of Entity B (P136,000 x 70%) 95,200
Consolidated net income attributable to parent’s shareholders (91) (A) P 1,102,200

92. Retained earnings of Entity A on January 1, 2020 P 2,000,000

Add: Consolidated net income attributable to parent’s shareholders 1,102,200
Less: Dividends declared by Entity B during 2020 ( 150,000)
Consolidated retained earnings on December 31, 2020 (92) (C) P 2,952,200

93. Sales revenue reported by Entity A for year 2020 P 2,000,000

Add: Sales revenue reported by Entity B for year 2020 1,000,000
Less: Intercompany sales during 2020 (400,000)
Consolidated sales revenue for year 2020 (93) (A) P 2,600,000

94. Gross profit of Entity A for year 2020 (P2,000,000 – P1,200,000) P 800,000
Add: Gross profit of Entity B for year 2020 (P1,000,000 – P700,000) 300,000
Add: Realized Gross Profit on Beg.Inv.of Entity B ((P280,000x40/140) x ¼) 20,000
Less: Unrealized Gross Profit on End.Inv.of Entity A ((P400,000x30%) x 3/5) (72,000)
Consolidated gross profit year 2020 (94) (B) P 1,048,000

95. Net income reported by Entity B in its separate income statement P 200,000
Less: Unrealized gross profit on upstream sale ((P400,000x30%) x 3/5) (72,000)
Adjusted net income of Entity B P 128,000
Multiple by noncontrolling interest percentage x40%
Noncontrolling interest in net income (95) (C) P 51,200
96. Net income reported by Entity A in its separate income statement P 500,000
Less: Dividend income from Entity B (P50,000 x 60%) 30,000
Add: Realized gross profit on downstream sale ((P280,000x40/140) x 1/4) 20,000
Add: Share in adjusted net income of Entity B (P128,000 x 60%) 76,800
Consolidated net income attributable to parent’s shareholders (96) (D) P 626,800

97. Depreciation of White Machinery (P160,000/16 years) P 10,000

Depreciation of Black Machinery (P90,000/3 years) 30,000
Consolidated depreciation expense for year 2020 (97) (A) P 40,000

98. Book value of white machinery (P160,000 – P10,000 – P10,000) P 140,000

Book value of black machinery (P90,000 – P15,000) 75,000
Consolidated book value of machinery on December 31, 2020 (98) (B) P 215,000

99. Net income reported by Entity B in its separate income statement P 500,000
Add: Realized gain on upstream sale of land (P1,100,000 – P1,000,000) 100,000
Add: Unrealized loss on upstream sale of black machinery (P60,000 – P90,000) 30,000
Less: Realized loss on upstream sale (P30,000/3) x 6/12 (5,000)
Adjusted net income of Entity B for year 2020 P 625,000
Multiply by noncontrolling interest percentage x20%
Noncontrolling interest in net income for year 2020 (99) (C) P 125,000

100. Net income reported by Entity A in its separate income statement P 800,000
Less: Dividend income from Entity B (P150,000 x 80%) 120,000
Add: Realized gain on downstream sale of white machinery (P20,000/16 years) (1,250)
Add: Share in adjusted net income of Entity B (P625,000 x 80%) 500,000

101. Book value of Investment in Entity B at Cost Method on 12/31/2020 (101) (B) P 920,000
at historical cost consisting of acquisition price of P900,000 and transaction costs of P20,000.

102. Dividend income from Investment in Subsidiary (P30,000 x 30%) (102) (B) P 27,000
Note: Under Cost Method, the effect in profit or loss pertains to dividend income only.

103. Book value of Investment in Entity B at fair value model on 12/31/2020 (102) (C) P 1,000,000
Note: Under Cost Method, the Investment in Subsidiary in subsequently measured at fair value.

104. Transaction cost which is expense as incurred (P 20,000)

Dividend income from subsidiary (P30,000 x 30%) 27,000
Unrealized holding gain or loss on changes in fair value (P1,000,000 – P900,000) 100,000
Net effect in profit or loss under fair value model (104) (D) P 107,000

105. Initial measurement of investment under equity method (P900,000+P20,000) P 920,000

Add: Gain on bargain purchase (P1,100,000 x 90%) – (P920,000) 70,000
Add: Share in adjusted net income of Entity B (P200,000-P30,000) x 90% 153,000
Less: Dividend received from Entity B (P30,000 x 90%) (27,000)
Book value of Investment under Equity Method on December 31, 2020 P 1,116,000
Less: Impairment loss of Investment (P1,116,000) – (P1,000,000 – P50,000) (166,000)
Book value of Investment in Equity Method on 12/31/2020 after impairment (105) (B) P 950,000

106. Gain on Bargain Purchase (P1,100,000 x 90%) – (P920,000) P 70,000

Share in adjusted net income of Entity B (P200,000-P30,000) x 90% 153,000
Impairment loss of Investment (P1,116,000) – (P1,000,000 – P50,000) (166,000)
Net effect in profit or loss under equity method (106) (A) P 57,000

107. Permanently restricted net asset (107) (D) P 1,000,000

Note: Only the fund which is to be invested indefinitely is considered permanent or regular endowment
fund.
108. Remaining unspent dividend income for research (P150,000 – P50,000) P 100,000
Remaining unused fund for acquisition of service car (P300,000 – P100,000) 200,000
Temporarily restricted net asset (108) (B) P 300,000

109. Reclassification from temporarily restricted dividend income P 50,000

Reclassification from temporarily restricted service car fund 100,000
Fund subject to discretion of board of trustees 500,000
Add: Gain on sale of souvenir items (P150,000 – P100,000) 50,000
Less: Research expense (50,000)
Less: Depreciation expense of service car (P100,000/5) x 6/12 (10,000)
Unrestricted net asset (109) (A) P 640,000

110. Increase in temporarily restricted net asset during 2020 by (110) (A) P 100,000
Note: The receipt of the dividend income is classified as increase of temporarily restricted net assets
because it is restricted for acquisition of computer but none has been spent during 2020.

111. Reclassification from temporarily restricted net asset to unrestricted net asset during 2021 P 20,000
Less: Depreciation expense of computer during 2021 (P20,000/5 years) (4,000)
Increase in unrestricted net asset during 2021 by (111) (C) P 16,000

112. Cash receipts from financing activities (P1,000,000 + P100,000) (112) (B) P 1,100,000
Note: All cash receipts with donor stipulation shall be classified in the Statement of Cash Flows as
financing activities.

113. Cash disbursements for investing activities (113) (C) P 20,000

Note: All cash disbursement for acquisition of non-current asset shall be classified in the Statement of
Cash Flows as investing activities.

114. D

115. C

116. A

117. A

118. A

119. Sales revenue at transaction rate ($1,500 x P39) (119) (A) P 58,500
Note: Nonmonetary item such as sales shall be translated at transaction rate.

120. Cost of sales at transaction rate ($1,000 x P42) (120) (B) P 42,000
Note: Nonmonetary item such as cost of sales shall be translated at transaction rate.

121. Book value of accounts receivable at closing rate ($1,500 x P45) (121) (C) P 67,500
Note: Monetary item such as accounts receivable shall be translated at closing rate.

122. Book value of accounts payable at closing rate ($1,000 x P47) (122) (D) P 47,000
Note: Monetary item such as accounts payable shall be translated at closing rate.

123. Foreign currency gain on Accounts receivable during 2020 ($1,500) x (P39-P45) P 9,000
Foreign currency loss Accounts payable during 2020 ($1,000) x (P42-P47) (5,000)
Net foreign currency gain during 2020 (123) (A) P 4,000

124. Foreign currency loss on Accounts receivable during 2021 ($1,500) x (P45-P42) (P 4,500)
Foreign currency gain on Accounts payable during 2021 ($1,000) x (P47-P46) 1,000
Net foreign currency loss during 2021 (124) (A) (P 3,500)
125. Net assets at December 31, 2019 rate ($19,200 x P43) P 825,600
Add: Net income during 2020 at average rate ($1,000 x P44) 44,000
Less: Dividends declared during 2020 at transaction rate ($200 x P41) (8,200)
Net assets at December 31, 2020 at rolled amount P 861,400
Less: Net assets at December 31, 2020 at Dec.31,2020 rate ($20,000 x 45) ( 900,000)
Translation gain during 2020 in OCI of SCI (125) (A) P 38,600

126. Retained earnings on December 31, 2019 at translated amount P 300,000

Add: Net income during 2020 at average rate ($1,000 x P44) 44,000
Less: Dividends declared during 2020 at transaction rate ($200 x P41) (8,200)
Retained earnings on December 31, 2020 at translated amount P 335,800

Total assets at closing rate on December 31, 2020 ($50,000 x P45) P2,250,000

Total liabilities at closing rate ($30,000 x P45) P1,350,000

Ordinary shares at transaction date ($5,000 x P40) 200,000
Preference shares at transaction rate ($8,000 x P42) 336,000
Retained earnings on December 31, 2020 at translated amount 335,800
Cumulative translation credit as of December 31, 2020 (126) (B) 28,200
Total liabilities and shareholders’ equity on December 31, 2020 P2,250,000

127. Cumulative translation credit as of December 31, 2020 P 28,200

Less: Translation gain during 2020 ( 38,600)
Cumulative translation debit as of December 31, 2019 (127) (C) (P 10,400)

128. Foreign currency gain on accounts payable on 2020 ($1,000) x (P45-P44) (128) (B) P 1,000

129. Forex gain on forward contract receivable on 2021 ($1,000) x (P45-P49) (129) (A) P 4,000

130. Book value of firm commitment liability ($2,000) x (P41-P46) (130) (B) P 10,000

131. Forex gain on forward contract payable ($2,000) x (P46-P44) (131) (A) P 4,000

132. Gain on OCI of SCI for year 2020 ($1,200) x (P42-P44) (132) (A) P 2,400

133. Loss on OCI of SCI for year 2021 ($1,200) x (P44-P43) (133) (B) (P 1,200)

134. Gain on OCI of SCI for year 2020 ($1,200) x (P42-P44) (132) (A) P 2,400
Loss on OCI of SCI for year 2021 ($1,200) x (P44-P43) (133) (B) (1,200)
Cumulative credit in OCI of SFP as of 12/31/2021 P 1,200
Less: Reclassification to Profit or Loss (P1,200/4years) x 11/12 (275)
Cumulative credit in OCI of SFP as of 12/31/2021 after reclassification (134) (C) P 925

135. Cost of Equipment ($1,200) x (P43) (135) (D) P 51,600

136. Gain on OCI of SCI for year 2020 ($1,000) x (P40-P44) (136) (A) P 4,000

137. Gain on P/L of SCI for year 2020 (P300-P500) (137) (B) P 200

138. Loss on OCI of SCI for year 2021 ($1,000) x (P44-P43) (138) (C) (P 1,000)

139. Gain on OCI of SCI for year 2020 ($1,000) x (P40-P44) P 4,000
Loss on OCI of SCI for year 2021 ($1,000) x (P44-P43) (1,000)
Cumulative translation credit as of December 31, 2021 P 3,000
Reclassification to Profit or Loss (P3,000 x 30%) (900)
Cumulative translation credit as of December 31, 2021 after reclassification (139) (D)P 2,100

140. Loss on P/L of SCI for year 2021 (P500-P0) (P 500)

Reclassification gain to profit or loss from OCI 900
Net effect in profit or loss for year 2021 (140) (D) P 400
141. Material Price Variance (P6-P5) x (400 units) (141) (D) P400 UF

142. Material Usage Variance (250 units – 300 units) x (P5) (142) (C) P250 F

143. Labor Rate Variance (P80-P100) x (30 hours) (143) (A) P600 F

144. Labor Efficiency Variance (30 hours – 20 hours) x (P100) (144) (B) P1,000 UF

145. Decrease in direct materials during the year P 500,000

Add: Labor cost during the year 400,000
Add: Actual factory overhead during the year 300,000
Total manufacturing costs during the year P 1,200,000
Increase in work in process during the year (200,000)
Costs of goods manufactured during the year (145) (B) P 1,000,000

146. Raw materials inventory beginning P 200,000

Add: Net purchases of raw materials 500,000
Less: Raw materials inventory ending (300,000)
Total raw materials used P 400,000
Less: Indirect materials used (P400,000 x ¼) (100,000)
Direct materials used P 300,000
Direct labor costs (P800,000 x 7/8) 700,000
Add: Applied Factory Overhead (P700,000 x 80%) 560,000
Total manufacturing costs (146) (A) P1,560,000

147. Total manufacturing costs P1,560,000

Add: Work in process inventory beginning 500,000
Less: Work in process inventory ending (200,000)
Total costs of goods manufactured (147) (B) P1,860,000

148. Indirect materials used (P400,000 x ¼) P 100,000

Indirect labor costs (P800,000 x 1/8) 100,000
Depreciation of factory assets 100,000
Utilities on the factory during the year 300,000
Actual factory overhead during the year P 600,000
Less: Applied factory overhead (P700,000 x 80%) (560,000)
Under application of factory overhead (148) (C) P 40,000

149. Total costs of goods manufactured (147) (B) P1,860,000

Add: Finished goods inventory beginning 600,000
Less: Finished goods inventory ending (300,000)
Unadjusted cost of goods sold before underapplication adjustment P2,160,000
Add: Underapplication of overhead (P40,000) x (2,160,000/2,660,000) 32,481
Adjusted cost of goods sold after adjustment for underapplication (149) (D) P2,192,481

150. Net realizable value of By-Product Del (P5-P0.80-P0.20) x 5,000 units (150) (D) P 20,000

151. Joint costs allocated to Product Alt using Physical Method

(P500,000 – P20,000) x (20,000/30,000) (151) (D) P 320,000

152. Joint costs allocated to Product Alt using Relative Sales Value Method
(P500,000 – P20,000) x (2,000,000/5,00,000) (152) (D) P 192,000

153. Direct materials purchased/used during the year P 100,000

Direct labor costs during the year 200,000
Standard factory overhead (P200,000 x 75%) 150,000
Less: Finished goods inventory ending (120,000)
Cost of goods sold under backflush costing (153) (C) P 330,000
154. Conversion cost in Beginning Raw and in Process account P 1,000
Conversion cost in Beginning Finished goods account 6,000
Conversion cost during the year 800,000
Less: Conversion cost in Ending Raw and In Process Account (7,000)
Less: Conversion cost in Ending Finished Goods account (4,000)
Conversion cost on cost of goods sold (154) (B) P 796,000

155. Raw materials in Beginning Raw and in Process Account P 4,000

Raw materials in credit 400,000
Less: Raw materials in Raw and in Process Ending Inventory (13,000)
Raw materials backflushed to finished goods (155) (A) P 391,000

156. Raw Materials in Beginning Finished goods account P 4,000

Raw Materials backflushed to finished goods 391,000
Less: Raw Materials in Ending Finished Goods account (2,000)
Raw materials backflushed to cost of goods sold (156) (C) P 393,000

157. Traditional Costing (7,000 hrs) x (1,000,000/10,000 hours) (157) (A) P 70,000

158. Activity Based Costing ((10,000kg x 2)+(3,000x 6)+(300 x 50)) (158) (A) P 53,000

159. – 162.
Beginning Work in Process Inventory in units 10,000 units
Add: Units started during the period 30,000 units
Less: Ending Work in Process Inventory in units (5,000 units)
Units completed during the period 35,000 units

Direct materials Conversion cost

Units completed 35,000 35,000 35,000
Ending Inventory 5,000 (5,000 x 10%) 500 (5,000 x 25%) 1,250
EUP under average costing 35,500 36,250
Total costs for average costing P103,000+P252,000 P107,500+P146,250
Divided by EUP under average costing 35,500 units 36,250 units
Cost per unit under average costing P10/unit (159) (A) P7/unit (160) (D)

Direct materials Conversion cost

Beginning inventory 10,000 (10,000 x 60%) 6,000 (10,000 x 30%) 3,000
US and Comp. 25,000 25,000 25,000
Ending Inventory 5,000 (5,000 x 10%) 500 (5,000 x 25%) 1,250
EUP under FIFO costing 31,500 29,250
Total costs for FIFO costing P252,000 P146,250
Divided by EUP under FIFO costing 31,500 units 29,250 units
Cost per unit under FIFO costing P8/unit (161) (C) P5/unit (162) (A)

163. – 167.

Beginning Work in Process Inventory in units 10,000 units

Add: Units started during the period 40,000 units
Less: Units completed during the year (38,000 units)
Less: Ending Work in Process Inventory in units (5,000 units)
Total spoilage in units 7,000 units
Less: Normal spoilage during the year (40,000 units x 10%) (4,000 units)
Abnormal spoilage in units (163) (C) 3,000 units

Direct materials Conversion cost

Units completed 38,000 38,000 38,000
Ending Inventory 5,000 (5,000 x 65%) 3,250 (5,000 x 80%) 4,000
Normal loss 4,000 (4,000 x 20%) 800 (4,000 x 45%) 1,800
Abnormal loss 3,000 (3,000 x 20%) 600 (3,000 x 45%) 1,350
EUP under average costing 42,650 (164) (A) 45,150 (165) (B)

Direct materials Conversion cost

Beginning inventory 10,000 (10,000 x 40%) 4,000 (10,000 x 35%) 3,500
US and Completed 28,000 28,000 28,000
Ending Inventory 5,000 (5,000 x 65%) 3,250 (5,000 x 80%) 4,000
Normal loss 4,000 (4,000 x 20%) 800 (4,000 x 45%) 1,800
Abnormal loss 3,000 (3,000 x 20%) 600 (3,000 x 45%) 1,350
EUP under FIFO costing 36,650 (166) (C) 38,650 (167) (D)