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ADVANCED FINANCIAL ACCOUNTING AND REPORTING (AFAR)

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REO CPA REVIEW

ADVANCED FINANCIAL ACCOUNTING AND REPORTING
FINAL PREBOARDS – OCTOBER 2024 BATCH

1. Which statement is not a characteristic of a partnership?

A. A partnership has a juridical personality separate and distinct from each of the
partners.
B. The formation of partnership requires formalities as in a corporation.
C. Any change in the agreement of the partners terminates the partnership contract.
D. Generally, each partner may be held personally liable for all the dents of the
partnership and all of his business and personal properties may be used for the
settlement of partnership liabilities.

2. In the absence of profit agreement, how shall the profits of the partnership be
distributed to capitalist partners assuming there is no industrial partner?
A. It shall be divided in accordance with the loss agreement ratio.
B. It shall be divided in accordance with capital contribution ratio.
C. It shall be divided equally.
D. It shall be forfeited in favor of the state.

3. On January 1, 20x1, Hilux and Dmax were partners with capital balances of

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₱1,500,000 and ₱1,150,000 respectively. The profit and loss agreement of the
partners included the following:

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• Monthly salaries of ₱30,000 and ₱25,000 respectively for Hilux and Dmax
• 6% interest based on their January 1, 20x1 capital balances
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• Remainder to be shared equally

At the end of 20x1, the partnership generated a net income of ₱500,000.

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Compute the share of Partner Dmax in the net income

A. ₱250,000
PA

B. ₱227,500
C. ₱217,000
D. ₱209,500
C

4. At the time of liquidation of general partnership, which of the following credits

shall be settled first by the liquidating partner?
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A. Those advances made by the partners to the partnership

B. Those claims of the partners regarding their capital contribution
C. Those liabilities of the partnership to third persons
D. Those claims of the partners regarding their share in partnership profit
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Use the following data to answer the next two questions:

A and B are partners sharing profits and losses in the ratio of 60% and 40%,
respectively. The partnership’s balance sheet on August 30, 20x1 follows:

Cash ₱9,720 Accounts payable ₱15,480

Other assets 102,960 A, capital 64,800
B, capital 32,400
Total ₱112,680 Total ₱112,680

At this date, C was admitted as a partner for a consideration of ₱35,100 cash for a
30% interest in capital and in profits.

5. Assume C is admitted by purchase of 30% each of the original partners’ interest,

determine how the ₱35,100 will be apportioned to A and B, respectively
A. A, ₱32,850 and B, ₱15,900
B. A, ₱32,450 and B ₱16,300
C. A, ₱23,004 and B ₱12,096
D. A, ₱32,950 and B, ₱15,800

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ADVANCED FINANCIAL ACCOUNTING AND REPORTING (AFAR)

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6. Assume C is admitted by investing the ₱35,100 to the partnership, determine the

effects of any bonus over the capital balances of the original partners
A. A, (₱9,900) and B, (₱14,850)
B. A, ₱9,000 and B, ₱14,850
C. A, (₱14,850) and B, (₱9,900)
D. A, (₱2,754) and B (₱1,836)

7. The partner’s maximum loss absorbable is determined:

A. By adding the remaining non-cash assets and cash withheld for possible loss
B. By adding cash withheld for possible loss and remaining unpaid liabilities.
C. By dividing capital interest balance by his profit or loss ratio
D. By dividing total interest balance by his profit and loss ratio

8. Alan, Binay and Cayetano are in the process of liquidating their partnership. Since
it may take several months to convert the other assets into cash, the partners
agree to distribute all available cash immediately, except for ₱12,000 that is set
aside for contingent expenses. The Statement of Financial Position and profit and
loss sharing percentages are as follows:

Cash ₱ 500,000 Accounts Payable ₱ 225,000

Non-cash assets 225,000 Alan, capital (20%) 168,000

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Binay, capital (30%) 270,000
Cayetano, capital (50%) 62,000
Total ₱ 725,000 Total
ie ₱ 725,000
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How much cash should Alan receive?
A. ₱81,000
B. ₱98,000
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C. ₱168,000
D. ₱202,500
PA

9. On June 30, 20x1, The Romina, Siony, and Tonyo Partnership had the following fiscal
year-end Statement of Financial Position.

Cash ₱ 48,000 Accounts Payable ₱ 84,000

C

Accounts Receivable 72,000 Loan from Tonyo 60,000

Merchandise Inventory 168,000 Romina, Capital (20%) 168,000
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Fixed Assets, net 144,000 Siony, Capital (20%) 120,000

Loan to Romina 72,000 Tonyo, Capital (60%) 72,000
₱ 504,000 ₱ 504,000
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The partners dissolved the partnership on July 1, 20x1 and began the liquidation
process. During October the following events occurred:
a. Accounts receivables of ₱36,000 were collected
b. All the merchandise inventory was sold for ₱48,000.
c. Cash withheld for anticipated expenses amount to ₱24,000

Compute the amount of cash Siony would receive in the first distribution
A. ₱24,000
B. ₱14,400
C. ₱4,800
D. ₱0

10. On December 31, 20x0, ABC Partnership’s Statement of Financial Position shows that
Aghon, Butchoy and Carina have capital balances of ₱400,000, ₱300,000 and ₱100,000
with profit or loss ratio of 1:4:5. On January 1, 20x1, Carina retired from the
partnership and received ₱80,000. At the time of Carina’s retirement, an asset of
the partnership is overvalued.

What is the capital balance of Butchoy after the retirement of Carina?

A. ₱284,000
B. ₱308,000
C. ₱316,000
D. ₱320,000

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11. At the time of corporate liquidation, the preferred stockholders were able to
receive the liquidation value of their shares but the common stockholders received
nothing. Which corporate creditors were fully paid in this scenario?
I. Fully secured creditors
II. Partially secured creditors
III. Unsecured creditors with priority
IV. Unsecured creditors without priority

A. I only
B. I and III only
C. I, II and III only
D. I, II, III and IV

12. In a “statement of affairs,”

A. Assets pledged with partially secured creditors are shown on the asset side of
the statement and as a deduction on the liability side of the statement.
B. Assets pledged with fully secured creditors are shown only on the liability side
of the statement.
C. Liabilities owed to fully secured creditors are shown only on the asset side of
the statement.
D. Liabilities owed to partially secured creditors are shown on the asset side of

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the balance sheet and as a deduction on the liability side of the statement.

Use the following data to answer the next two questions:

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Laos Na Inc. filed bankruptcy and has undergone liquidation. The receiver received
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the statement of financial position of the corporation and has the following
information prior to liquidation:
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Cash ₱600,000 Accounts payable ₱200,000

Accounts receivable 200,000 Salaries payable 400,000
Machinery 800,000 Taxes payable 600,000
PA

Building 2,400,000 Loan Payable 800,000

Mortgage payable 1,000,000
Share capital 1,600,000
C

Deficit (600,000)
Total ₱4,000,000 ₱4,000,000
EO

• The loan payable is secured by accounts receivable with estimated realizable

value of ₱120,000 and machinery with estimated realizable value of ₱480,000.
• The mortgage payable is secured by building.
• Liquidation expenses amounting to ₱1,200,000.
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• At the end of liquidation, the holder of loan payable recovered ₱680,000.

13. What is the estimated recoverable amount of the accounts payable?

A. ₱170,000
B. ₱120,000
C. ₱30,000
D. ₱80,000

14. What is the fair value of building?

A. ₱1,000,000
B. ₱2,760,000
C. ₱0
D. ₱2,360,000

15. Evaluate the following statements in accordance with PFRS 11 Joint Arrangements:
I. All parties involved must have equal ownership.
II. If the arrangement is not structured through a separate vehicle, it is always
classified as joint operation.

A. The first statement is true and the second statement is false.

B. The first statement is false and the second statement is true.
C. Both statements are true
D. Both statements are false

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16. When disclosing information about investments in associates, PAS 28 Investments

in Associates and Joint Ventures requires separate disclosure of which of the
following?
I. Shares in associates, in the statement of financial position
II. Share of profit or loss in associates, in the statement of profit or loss and
other comprehensive income
III. Share of any discontinuing operations, in the statement of changes in equity.
IV. Shares of changes recognized directly in the associate’s equity, in the statement
of changes in equity.
A. I, II, III, and IV
B. I, II, and IV only
C. II, III, and IV only
D. I, II, and III only

17. On January 1, 20x1, Naka-Alice Inc., a small and medium enterprise (SME), invested
₱4,350,000 cash in a joint venture for 50% interest with a transaction cost of
₱150,000. For the year ended December 31, 20x1, the joint venture reported a net
income of ₱1,800,000 and distributed cash dividend in the amount of ₱540,000. As of
December 31, 20x1, the fair value of the investment in joint venture is ₱5,100,000

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and the estimated cost of disposal is 15% of fair value. The value in use of the
investment is estimated at ₱4,950,000.

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Under PFRS for SMEs, what is the book value of the Investment in Joint Venture to
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be reported by Naka-Alice Inc. as of December 31, 20x1, if the SME elects to use
(1) the equity method, (2) the cost method, and (3) the fair value method,
respectively?
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Equity Fair value

Cost method
method method
A. ₱4,800,000 ₱4,500,000 ₱4,950,000
PA

B. ₱4,950,000 ₱4,500,000 ₱5,100,000

C. ₱4,800,000 ₱4,200,000 ₱5,100,000
D. ₱4,950,000 ₱4,200,000 ₱4,950,000
C

18. On January 1, 20x1, Alice in the Wonderland Co. entered into a joint arrangement
classified as a joint venture. For an investment of ₱2,000,000, Alice in the
EO

Wonderland Co. obtained 30% interest in Apollo the Impossible Mission Joint
Venture, Inc. During the year, Apollo the Impossible Mission Joint Venture, Inc.
reported profit of ₱4,000,000 and other comprehensive income of ₱800,000, i.e., a
total comprehensive income of ₱4,800,000. Apollo the Impossible Mission Joint
Venture, Inc. declared dividends of ₱2,400,000. How much is the carrying amount of
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the investment in joint venture on December 31, 20x1?

A. ₱2,720,000
B. ₱2,000,000
C. ₱2,480,000
D. ₱4,160,000

19. Under PFRS 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.

20. Under PFRS 15, when shall the consignor recognize revenue from consignment sales
arrangement?
A. From the moment the consignee sells the goods to final consumers
B. From the moment the consignor delivers the goods to the consignee
C. From the moment of collection by the consignee of the proceeds of the sale from
final consumers
D. From the moment of remittance by the consignee to the consignor of the
collection from final consumers
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21. Cassandra Company consigned five hospital beds, with cost of ₱40,000 each, to Ong
Inc. which was to sell these goods for the account and risk of the former for a
commission of 15% of selling price. The Cassandra company paid trucking costs of
₱10,000 on the shipment. Correspondingly, Ong Inc. paid ₱16,000 on the freight of
the shipment.

On the last day of the year, Ong Inc. reported that it sold three of the computers:
two for cash at ₱75,000 each and one on credit at ₱90,000 of which 25% was
collected as downpayment. Ong Inc. remitted all cash due.

The amount remitted by Ong Inc. is:

A. ₱67,500
B. ₱120,500
C. ₱172,500
D. ₱88,000

22. On January 1, 20x1, Pogo Co. entered into a franchise agreement with Sogo Co. which
required the latter to pay a non-refundable upfront fee of ₱1,600,000 at the signing
of the contract and on-going payment of royalty equal to 5% of the sales of the
franchisee. On the date of the signing of the contract, the franchisee paid the non-
refundable upfront fee. As part of the franchise agreement, the franchisor shall

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render the following performance obligations which are considered separate and
distinct from one another.

Performance Obligation
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Selling Price
Training ten personnel of the franchisee ₱200,000
Construction of the franchisee’s building and landscape 800,000
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Delivery of one thousand units of raw materials to the 600,000

franchisee
Allowing the franchisee to use the franchisor’s trademark 400,000
PA

and tradename for a term of 10 years starting Jan. 1, 20x1

At the end of 20x1, the accounting department of Pogo Co. found out that they were
C

able to train 7 out of 10 personnel of Sogo Co. In addition, the percentage of

completion of the construction of the franchisee’s building and landscape was
estimated by the engineer and architect at 90% although the building was fully
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completed because the landscape was not yet started. Delivery of 600 units of raw
materials were also accomplished by Pogo Co. For the year ended, December 31, 20x1,
Pogo Co. reported sales revenue amounting to ₱200,000 because it already started
operations upon the construction of the building on October 1, 20x1.
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What is the total franchise fee revenue to be reported by Pogo Co. for the year
ended December 31, 20x1?
A. ₱1,018,000
B. ₱1,270,000
C. ₱976,000
D. ₱1,064,000

23. Let-Gou Company operates an agency in Bamban. During the year, transactions related
to the agency are provided as follows:

Collections from customers ₱1,680,000

Disbursements:
Purchases 1,200,000
Salaries 250,000
Rent 60,000
Supplies 30,000
Other expenses 20,000

The books also presented the following items in relation to the agency:

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January 1 December 31
Accounts
₱200,000 ₱350,000
receivable
Accounts payable 100,000 180,000
Inventories 180,000 240,000
Unused supplies 15,000 20,000

How much is the net income of the agency for the year?
A. ₱195,000
B. (₱255,000)
C. ₱255,000
D. ₱0

Use the following data to answer the next two questions:

In 20x1, Destruct Co. enters into a fixed-price construction contract with a
customer. At contract inception, Destruct Co. assesses its performance obligations
in the contract and concludes that it has a single performance obligation that is
satisfied over time. Destruct Co. determines that the measure of progress that best
depicts its performance on the contract is the input method based on costs
incurred.

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Information on the contract follows:
20x1 20x2
Cumulative contract costs incurred
Cumulative profits recognized
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₱2,250,000 ₱4,800,000
750,000 1,200,000
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Progress billings 2,400,000 3,600,000
Collections on progress billings 2,000,000 4,000,000
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The contract is completed in 20x2.

24. What amount of revenue is recognized in 20x2?

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A. ₱2,800,000
B. ₱3,000,000
C. ₱4,800,000
D. ₱6,000,000
C

25. How much is the transaction price in the contract?

EO

A. ₱5,000,000
B. ₱6,000,000
C. ₱7,000,000
D. ₱9,000,000
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26. State the correct sequence of the following steps of revenue recognition under PFRS
15.
I. Determine the transaction price
II. Recognize revenue when (or as) the entity satisfies a performance obligation
III. Identify the performance obligations in the contract
IV. Allocate the transaction price to the performance obligations in the contract
V. Identify the contract with the customer

A. V, IV, II, I, III

B. V, I, IV, III, II
C. V, III, I, IV, II
D. V, I, III, IV, II

27. Contract liability is a company’s obligation to transfer goods or services to a

customer for which the company has received consideration from the customer. An
example of a contract liability is
A. Prepaid subscription
B. Mortgage payable
C. Unearned magazine subscription
D. Service revenue

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28. On December 31, 20x1, Karim’s Sinampay authorized an entity to operate as a

franchisee for an initial franchise fee of ₱6,800,000. An amount of ₱1,800,000 was
received upon signing of the contract, and the balance is to be paid by a
noninterest-bearing note, due in five equal annual installments beginning December
31, 20x2. The prevailing market rate is 12%. The present value of an ordinary
annuity of 1 for 5 years at 12% is 3.60. The down payment is nonrefundable and
represents a fair measure of the services already performed. However, with regards
to the balance, substantial future services are still required.

What amount should be reported as deferred franchise revenue on December 31, 20x1?
A. ₱3,600,000
B. ₱5,400,000
C. ₱1,800,000
D. 0

29. Which of the following reconciling transactions will require a credit to the home
office account in Branch Apollo's books?
A. Credit memo received by Branch Apollo from the home office
B. Collection by Branch Apollo of Branch Alice's accounts receivable
C. Reshipment of goods received by Branch Apollo to Branch Alice
D. Payment of Branch Apollo of home office's accounts payable

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30. On the December 31, 20x1, the unadjusted balance of Investment in Bamban branch

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account is ₱165,920 in the home office’s book. The following data were found in
your examination of the books of the Home office and its Bamban branch.
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a) Transfer of fixed assets from Home Office amounting to ₱53,960 was not booked by
Bamban Branch.
b) ₱10,000 covering marketing expense of Davao branch was charged by Home Office to
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Bamban branch.
c) Bamban branch recorded a debit note on inventory transfers from Home Office of
₱75,000 twice.
PA

d) Home Office recorded cash transfer of ₱65,700 from Bamban branch as coming from
Indonesia branch.
e) Bamban branch reversed a previous debit memo from Bolinao branch amounting to
₱10,500. Home Office decided that this charge is appropriately Indonesia branch.
C

f) Bamban branch recorded a debit memo from Home Office of ₱4,650 at ₱4,560.
How much is the unadjusted balance of the Home Office account in Bamban branch’s
books as of December 31, 20x1?
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A. ₱92,336
B. ₱111,170
C. ₱98,230
D. ₱104,500
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31. Manso Pogi Company operates retail hobby shops from the main store and a branch
store. Merchandise is shipped from the main store and to the branch and billed to
the branch at an arbitrary 10% markup on cost. Trial balances of the main store and
branch as of December 31, 20x1 are as follows:
Main Branch
Store
Debits:
Cash ₱ 1,500 ₱ 1,000
Accounts receivable – net 200 -
Inventory, December 31, 20x0 3,500 2,500
Building – net 60,000 18,000
Equipment – net 30,000 12,000
Branch store 32,300 -
Purchases 240,000 11,000
Shipments from home office - 99,000
Other expenses 15,000 7,000
Total debits ₱ 382,500 ₱ 150,500

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Credits:
Accounts payable ₱ 15,000 ₱ 500
Unrealized inventory profit 9,200 -
Main Store - 30,000
Capital stock 50,000 -
Retained earnings 16,000 -
Sales 200,000 120,000
Shipments to branch 90,000 -
Profit from branch 2,300
Total credits ₱ 382,500 ₱ 150,500
Inventories on hand at December 31, 20x1 at the main store and branch are ₱3,000
and ₱1,800, respectively. The December 31, 20x0 branch inventory includes
merchandise purchased from outsiders of ₱300, and the December 31, 20x1 branch
inventory includes ₱150 of merchandise purchased from outsiders. The combined cost
of goods sold amounted to:
A. ₱261,200
B. ₱243,150
C. ₱252,200
D. ₱252,150

32. On January 1, 20x1, Local Farmers Wholesalers, Inc., created a separate branch in

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Baguio City by transferring to the branch cash of ₱40,000, inventory with a book
value of ₱120,000, and land with a book value of ₱150,000. At that time, the

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inventory had a fair value of ₱180,000, and the land was worth ₱190,000. The
transfers were recorded at fair value by both the home office and the branch.
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The branch purchases all its inventory from the home office. During 20x1, Local
Farmers Wholesalers purchased additional inventory for ₱200,000 and sold it to the
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branch for ₱280,000. Both the home office and the branch uses a FIFO cost flow
assumption for inventory.
PA

In 20x1, the branch decided not to build on the land transferred from the home
office and sold it for ₱165,000. An income statement prepared by the branch for
20x1 contained the following items:
C

Sales ₱ 450,000
Cost of goods sold ₱ 320,000
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Rent expense 40,000

Loss on sale of land 25,000 (385,000)
Contribution to Profits ₱ 65,000
Determine the correct net income of the branch as far as the home office is
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concerned.
A. ₱205,000
B. ₱105,000
C. ₱225,000
D. ₱180,000

33. An acquirer incurred acquisition costs related to the purchase of the net assets of
an acquiree. The acquisition costs should be
A. Allocated on a pro rata basis to the nonmonetary assets acquired.
B. Capitalized as part of goodwill and tested annually for impairment.
C. Capitalized as other asset and amortized over five years.
D. Expensed as incurred in the current period.

34. How should an entity account for the incomplete information in preparing the
financial statements immediately after the acquisition?
A. Do not record the uncertain items until complete information is available.
B. Record a contra account to the investment account for the amounts involved.
C. Record the uncertain items at the carrying amount of the acquiree.
D. Record the uncertain items at a provisional amount measured at the date of
acquisition.

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35. Which of the following items are both exempted from the recognition and measurement
principles of PFRS 3?
I. Asset held for sale
II. Employee benefits
III. Income taxes
IV. Indemnification assets
V. Share-based payment

A. I, II, III, IV and V

B. I, II and III only
C. II, III and IV only
D. II, III and V only

Use the following data to answer the next two questions:

Puno Co. acquired the net assets of Shot Co. by issuing 10,000 ordinary shares with
par value of ₱20 and bonds payable with face amount of ₱1,000,000. The bonds are
classified as financial liability at amortized cost.

At the time of acquisition, the ordinary shares are publicly quoted at ₱40 per
share. On the other hand, the bonds payable are trading at 110.
Puno Co. paid ₱20,000 share issuance costs and ₱40,000 bond issue costs. Puno Co.

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also paid ₱80,000 acquisition related costs and ₱60,000 indirect costs of business
combination.

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Before the date of acquisition, Puno Co. and Shot Co. reported the following data:
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Puno Co. Shot Co.
Current assets ₱2,000,000 ₱1,000,000
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Noncurrent assets 4,000,000 2,000,000

Current liabilities 400,000 800,000
Noncurrent
600,000 1,000,000
PA

liabilities
Ordinary shares 1,000,000 400,000
Share premium 2,400,000 600,000
Retained earnings 1,600,000 200,000
C

At the time of acquisition, the current assets of Puno Co. have fair value of
₱2,400,000 while the noncurrent assets of Shot Co. have fair value of ₱2,600,000.
EO

On the same date, the current liabilities of Shot Co. have fair value of ₱1,200,000
while the noncurrent liabilities of Puno Co. have fair value of ₱1,000,000.

36. What is the goodwill or gain on bargain purchase arising from a business
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combination?
A. ₱100,000 goodwill
B. ₱300,000 gain on bargain purchase
C. ₱240,000 goodwill
D. ₱140,000 gain on bargain purchase

37. What is Puno Co.’s amount of total liabilities after the business combination?
A. ₱4,480,000
B. ₱5,020,000
C. ₱4,640,000
D. ₱4,260,000

38. Under PFRS 3, contrary to PAS 37, what is the recognition principle of contingent
liability assumed in a business combination?
A. The acquirer shall recognize as of the acquisition date a contingent liability
assumed in a business combination if it is a present obligation that arises from
past events and its fair value can be measured reliably even only reasonably
possible
B. The acquirer shall recognize a contingent liability assumed in a business
combination at the acquisition date only if it is probable that an outflow of
resources embodying economic benefits will be required to settle the obligation
C. The acquirer shall recognize a contingent liability assumed in a business
combination at the acquisition date only if it is virtually certain that an
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outflow of resources embodying economic benefits will be required to settle the

obligation
D. The acquirer shall recognize a contingent liability assumed in a business
combination at the acquisition date only if it is remote that an outflow of
resources embodying economic benefits will be required to settle the obligation

39. In the separate financial statements, which of the following methods reports
dividend as part of investment income?
I. Cost method
II. Equity method
III. Fair value method

A. I and II only
B. II only
C. I, II and III
D. I and III only

40. An investor must apply the requirements of PAS 36 in determining whether it is

necessary to recognize any impairment loss in the investment in a subsidiary. How
is the impairment test carried out?
A. The goodwill is separated from the rest of the investment and is impairment

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tested individually.
B. The entire carrying amount of the investment is tested for impairment under PAS

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36 by comparing its recoverable amount with its carrying amount.
C. The carrying value of the investment should be compared with its market value.
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D. The recoverable amounts of all investments in subsidiary should be assessed
together to determine whether there has been an impairment on all investments.
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41. A parent company that uses the equity method in accounting for its investment in
subsidiary has neglected to adjust the investment balance for its share in the
subsidiary’s net income or net loss. The parent’s share in the net income of the
PA

subsidiary was ₱60,000 last year and ₱40,000 this year. If the subsidiary did not
declare any dividends during the year, which of the following statements is true?
A. The net income of the parent this year should be increased by ₱100,000.
B. The retained earnings of the parent should be increased by ₱100,000.
C

C. The net income of the parent this year should be increased by ₱40,000 and
retained earnings should be increased by ₱60,000.
EO

D. Any of the choices is true, depending on the company’s accounting policy.

42. On January 1, 20x1, Pangasinan Co. acquired 90% of outstanding ordinary shares of
Siquijor Co. at a price of ₱1,800,000. Pangasinan Co. paid ₱40,000 costs related to
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acquisition of shares. At the acquisition date, the net assets of Siquijor Co. were
reported at ₱1,900,000. All the assets of Siquijor Co. are properly valued except
for a machinery which is undervalued by ₱300,000. The machinery has a remaining
useful life of 5 years.

For the year ended December 31, 20x1, Siquijor Co. reported net income of ₱400,000
and declared dividends of ₱60,000. The fair value of Investment in Siquijor Co. on
December 31, 20x1 is ₱2,000,000 while the cost of disposal is 5% of fair value.
Pangasinan Co. voluntarily prepared its separate financial statements.

What amount should be reported as investment income for 20x1 if Pangasinan Co.
elected the cost method to account its Investment in Siquijor Co. in its separate
financial statements?
A. ₱14,000
B. ₱54,000
C. ₱360,000
D. ₱214,000

Use the following data to answer the next two questions:

Professional Corporation purchased 80% of the outstanding voting stock of
Skepticism Corporation for ₱2,500,000 on January 1, 20x1. The non-controlling
interest is measured at fair value. Skepticism’s stockholders’ equity on this date
consisted of the following:

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Capital stock - ₱10 par ₱1,000,000

Additional paid-in capital 600,000
Retained earnings December 31, 20x0 400,000
Total stockholders’ equity ₱2,000,000

The excess of the consideration transferred and NCI over the net assets of
Skepticism Corp. was allocated 20% to undervalued inventory (sold in 20x1), 30% to
a depreciable plant asset with a remaining use life of ten years, and 50% to
unidentifiable asset.

Selected items in the trial balances of Professional Corp. and Skepticism Corp. on
Dec. 31, 20x1 are as follows:

Profession Skepticism
al Corp. Corp.
Investment in Skepticism ₱2,500,000
Other assets - net 3,850,000 ₱2,600,000
Capital stock, ₱10 par 3,000,000 1,000,000
Additional paid-in capital 850,000 600,000
Retained earnings, beg 2,000,000 800,000
Dividends paid 500,000 200,000

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Sales 4,000,000 1,000,000
Cost of sales 2,150,000 400,000
Expenses
Dividend income
1,000,000
160,000
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200,000
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43. The amount of goodwill in the consolidated statement of financial position of as of
Dec. 31, 20x1 should be
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A. ₱250,000
B. ₱562,500
C. ₱450,000
PA

D. ₱200,000

44. The retained earnings in the consolidated statement of financial position on

December 31, 20x1 should be reported at
C

A. ₱3,330,000
B. ₱2,463,000
C. ₱2,623,000
EO

D. ₱2,963,000

45. Pastor Inc. acquired 75% outstanding ordinary shares of Shiminet Corp. Pastor
regularly sells inventory to Shiminet Corp with profit. The computation of non-
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controlling interest in net income will be:

A. (Net income of subsidiary + realized profit in beginning inventory –
unrealized profit in ending inventory) x 25%
B. (Net income of subsidiary – realized profit in beginning inventory +
unrealized profit in ending inventory) x 25%
C. (Net income of subsidiary + amortization of overvalued assets – amortization of
undervalued assets) x 25%
D. (Net income of subsidiary + amortization of overvalued assets – amortization of
undervalued assets + realized profit in beginning inventory – unrealized profit
in ending inventory) x 25%

46. On January 5, 20x1, Peter Corp. sold land for ₱1,500,000 to its 80% own subsidiary,
Simon Company. The land had a book value of ₱1,000,000. On August 20, 20x2, Simon
Company sold the land for ₱1,800,000 to outside party. Which of the following
statements is correct?
A. Consolidated working paper journal entry is required only if the land was held
for resale to in 20x2.
B. A consolidation working paper journal entry is required only if the subsidiary
was a wholly owned subsidiary.
C. No consolidation working paper journal entry is required in 20x1.
D. A consolidation working paper journal entry is necessary each year until the
land is sold to outside party.

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47. Penpen Corporation sold equipment with a remaining three-year useful life and a
book value of ₱14,500 to its 80% owned subsidiary, Sarapen Corporation, for ₱16,000
on January 2, 20x1. A consolidated working paper entry on December 31, 20x1 to
eliminate the unrealized profits from the intercompany sale of equipment will
include:
A. A debit to gain on sale of equipment of ₱1,000.
B. A debit to gain on sale of equipment of ₱1,500.
C. A credit to depreciation expense for ₱1,500.
D. A credit to machinery for ₱1,500.

48. A critical characteristic of a derivative is that the instrument

A. Derives its value from a related asset or liability
B. Derives its value from changes in value of a related asset or liability
C. Requires that the related asset or liability be sold or bought at settlement
D. Requires the holder of the derivative instrument to make a significant
investment

49. On December 12, 20x1, Derivatives Co. entered into a forward exchange contract to
purchase 200,000 units of a foreign currency in 90 days.

The contract was designated and qualified as a fair value hedge of a purchase of

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inventory made that day and payable in March 20x2. The relevant direct exchange
rates between the foreign currency and the dollar are as follows.

Forward Rate
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Spot Rate (for March
12, 20x2)
December 1, 20x1 $0.88 $0.90
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December 31, 20x1 0.98 0.93

At December 31, 20x1, what amount of foreign currency transaction net gain or loss
PA

should Derivatives Co. recognize in income as a result of its foreign currency

obligation and related hedge contract?
A. ₱20,000
B. ₱14,000
C

C. ₱6,000
D. ₱0
EO

50. Peyborabel Company sold merchandise for 105,000 pounds to a customer in London on
October 01, 20x1. Collection in British pounds was due on January 30, 20x2. On the
same date, Peyborabel entered into a 120-day forward contract to sell 105,000
pounds to a writer. Direct exchange rate for pound on different dates are as
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follows:

Oct. 1 Dec. 31 Jan. 30

Spot rate 52.6 52.1 51.8
30-day forward 50.2 52.3 50.4
60-day forward 52.2 52.4 53.1
90-day forward 51.7 52.1 52.5
120-day forward 52.5 52.5 53.3

Compute the fair value of the derivative instrument on December 31, 20x1?
A. ₱42,000 positive
B. ₱42,000 negative
C. ₱21,000 positive
D. ₱21,000 negative

51. Which of the following statements regarding Accounting for Foreign Currency
Transactions is FALSE?
A. If a sale on account by an Australian Company is made with a foreign company,
and the Australian Company has no foreign currency risk, then the Australian
Company has denominated the transaction in its local currency.
B. A Japanese importer that acquired merchandise from a firm in Thailand would be
exposed to a net exchange gain on the unpaid balance if the yen strengthened
relative to the baht and the foreign currency was the denominated currency.
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C. Exchange differences arising on the settlement of monetary items or on

translating monetary items at rates different from those at which they were
translated on initial recognition during the period or in previous financial
statements shall be recognised in profit or loss in the period in which they
arise.
D. Accounting exposure is the exposure to changes in exchange rates as a result of
a firm making export sales to a foreign customer or import purchase from a
foreign vendor.

52. Under PAS 21, what is the initial measurement of foreign currency denominated
transaction?
A. Both monetary and nonmonetary items are measured initially at transaction or
historical rate
B. Monetary items are measured at closing rate while nonmonetary items are measured
at transaction date
C. Monetary items are measured at transaction rate while nonmonetary items are
measured at closing rate
D. Both monetary and nonmonetary items are measured initially at closing rate

53. When translating the financial statements of an entity from its functional currency
to its selected presentation currency, which of the following translation

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measurement is incorrect?
A. Assets and liabilities are translated at the closing rate at the date of
statement of financial position
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B. Income and expenses are translated at (1) exchange rates at the date of the
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transaction or (2) Average rate for the period for practicality
C. Equity accounts other than retained earnings are translated at the date of
transaction resulting to that equity items
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D. Retained earnings are translated using the average rate during the period

54. On November 1, 20x1, an entity anticipated the purchase of equipment on January 31,
PA

20x2 at a price of $30,000. In order to hedge this highly probable forecasted

importation, the entity entered into a forward contract with a bank to purchase
$30,000. The entity is operating in Philippine economy where the functional
currency is Philippine peso. The relevant direct exchange rates are:
C

November 1, December January 31,

20x1 31, 20x1 20x2
EO

Spot rate ₱55 ₱54 ₱53

90-day forward rate 52 51 53
60-day forward rate 56 55 50
30-day forward rate 58 54 50
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What amount of unrealized holding gain or loss should be recognized as component of

other comprehensive income for the year ended December 31, 20x1?
A. ₱60,000 gain
B. ₱60,000 loss
C. ₱90,000 loss
D. ₱90,000 gain

55. Which account would be credited in recording a gift of medicine to a not-for-profit

hospital from a donor?
A. Patient service revenue - donation
B. Non-Operating Revenue
C. Drugs and Medicine – donation
D. Other Operating Revenue - donation

56. A nonprofit organization provided the following transactions during the first year
of operations:
• The nonprofit organization received ₱2,000,000 from a donor who stipulated that
it shall be invested indefinitely and the dividend from such investment shall be
used for research project of the organization. Dividend amounting to ₱200,000
was received from the investment during the year.

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• The nonprofit organization received ₱500,000 from a donor who stipulated that it
shall be used for the acquisition of computer equipment. No computer equipment
was acquired during the year.
• The nonprofit organization received ₱750,000 from a donor who stipulated that it
shall be used based on the discretion of the Board of Trustees of the nonprofit
organization. The nonprofit organization used ₱250,000 for the acquisition of a
service car with a useful of 5 years. The remaining ₱500,000 was designated by
the Board of Trustees for future fundraising projects.

What amount should be reported as net cash flows from financing activities by the
nonprofit organization for the year?
A. ₱2,700,000
B. ₱2,250,000
C. ₱3,700,000
D. ₱3,450,000

57. Resibabol, a government entity, had the following transactions during the period:
• Received Notice of Cash Allocation (NCA) amounting to ₱430,000.
• Earned total revenue of ₱40,000 from billings and collections of unbilled income.
• Incurred total expenses of ₱240,000.

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• Receipt of NCA for Tax Remittance Advice ₱37,000
• Remitted total taxes withheld of ₱37,000 to the BIR through Tax Remittance Advice
(TRA).
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• The “Cash-Modified Disbursement System (MDS), Regular” has an unused balance of
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₱52,000 at the end of the period.

How much is the surplus (deficit) for the period?

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A. ₱230,000
B. ₱215,000
C. ₱(200,000)
PA

D. ₱178,000
58. Which of the following transactions by a national government agency will require
journal entry to its accounting book?
C

A. Receipt of appropriation from the department of budget and management (DBM)

B. Receipt of allotment from the department of budget and management (DBM)
C. Receipt of notice of cash allocation from the department of budget and
EO

management (DBM)
D. Entering into a contract with a supplier for the acquisition of office supplies
59. When job-order costing is used, costs are accumulated per:
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A. Department
B. Branch
C. Item
D. Job
60. The principal difficulty with normal costing is that
A. The unit cost information is not received on a timely basis.
B. It can result in fluctuating per-unit overhead costs.
C. Estimated overhead and estimated activity are likely to differ from actual
overhead and actual costs, resulting in underapplied or overapplied overhead.
D. There is no difficulty associated with using normal costing.

Use the following data to answer the next two questions:

EUP Corporation’s costing system uses two cost categories, direct materials and
conversion costs. Direct materials are added at the beginning of the production
process. Conversion costs are allocated evenly throughout production. EUP uses
weighted-average costing.

Data for the Assembly Department for June 20x1 are:

Work in process, beginning inventory 250 units Direct materials (100% complete)
Conversion costs (50% complete)
Units started during June 800 units
Work in process, ending inventory: 150 units Direct materials (100% complete)
Conversion costs (75% complete)
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Costs for June 20x1:

Work in process, beginning inventory:
Direct materials ₱90,000
Conversion costs ₱135,000
Direct materials costs added during June ₱500,000
Conversion costs added during June ₱500,000

61. What is the direct materials cost per equivalent unit during June?
A. ₱561.90
B. ₱865.10
C. ₱789.50
D. ₱945.18

62. What amount of conversion costs are assigned to the ending Work-in-Process account
for June?
A. ₱509,78.32
B. ₱70,555.50
C. ₱63,225.25
D. ₱90,074

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63. Land Cruiser makes two products Z and X. They are initially processed from the same
materials and then after split-off, further processed separately. Additional
information is as follows:
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Z X Total
Final sales value ₱45,000 ₱35,000 ₱80,000
Sales value at split-off 32,000 28,000 60,000
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Cost beyond split-off 5,000 6,000 11,000

Joint cost prior to split-off 18,000
PA

Using the Approximated Net Realizable Value approach, how much is the joint cost
assigned to Z and X?
A. ₱9,918 and ₱8,082
B. ₱10,435 and ₱7,565
C

C. ₱9,600 and ₱8,400

D. ₱7,500 and ₱7,500
EO

64. An entity had a cycle of 3 days, used a Raw and In Process Account (RIP) and
charged all conversion costs to cost of goods sold. At the end of each month, all
inventories were counted, conversion costs components were estimated and inventory
account balances were adjusted. Raw material cost is backflushed from Raw and in
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Process (RIP) Account to finished goods. The following information is provided for
the month of June:

Beginning Balance of RIP account, including ₱2,000 conversion

10,000
cost
Beginning Balance of finished goods account including ₱12,000
20,000
conversion cost
Raw materials received on credit 800,000
Direct labor cost 600,000
Factory overhead applied 1,000,000
Ending RIP inventory per physical count, including ₱14,000
40,000
conversion cost
Ending finished goods inventory per physical count, including
12,000
₱8,000 conversion cost

What is the amount of direct materials backflushed from RIP to finished goods?
A. ₱782,000
B. ₱808,000
C. ₱774,000
D. ₱790,000

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65. Avengers Corporation is a manufacturing company engaged in the production of a

single special product known as "Marvel". Production costs are accumulated with the
use of a job-order-cost system.

The following information is available as of June 1, 20x1:

Work-in process ₱ 10,710

Direct materials inventory 48,600

In analyzing the job-order cost sheets, the records disclosed that the compositions
of the working-process inventory on June 1, 20x1 were as follows:

Direct materials used ₱ 3,960

Direct labor (900 hours) 4,500
Factory overhead applied 2,250
₱ 10,710

The following manufacturing activity occurred during the month of June 20x1:

Purchased direct materials costing ₱60,000

Direct labor worked 9,900 hours at ₱5 per hour

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Factory overhead of ₱2.50 per direct labor hour was applied to production.

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At the end of June 20x1, the following information was gathered in connection with
the inventories:
ev
Inventory of work-in-process:
Direct materials used ₱ 12,960
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Direct labor (900 hours) 7,500

Factory overhead applied 3,750
24,210
PA

Inventory of direct materials ₱ 51,000

Compute the cost of goods manufactured:

C

A. ₱142,560
B. ₱118,350
C. ₱131,850
EO

D. ₱108,600

66. LECPA Company manufactures electric drills to the exacting specifications of

various customers. During April 20x1, Job 403 for the production of 1,100 drills
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was complete at the following costs per unit:

Direct materials ₱ 10
Direct labor 8
Applied factory overhead 12
Total ₱ 30

Final inspection of Job 403 disclosed 50 defective units and 100 spoiled units. The
detective drills were reworked at a total cost of ₱500, and the spoiled drills were
sold to a jobber for ₱1,500. What would be the unit cost of the good units produced
on Job 403?
A. ₱33
B. ₱32
C. ₱30
D. ₱29

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67. The Photocopying Department provides photocopy services for both Departments A and
B and has prepared its total budget using the following information for next year:

Fixed costs ₱ 100,000

Available capacity 4,000,000pages
Budgeted usage
Department A 1,200,000pages
Department B 2,400,000pages
Variable cost ₱ 0.03per page

Assume that the dual rate cost allocation method is used, and the allocation basis
is budgeted usage for fixed costs and actual usage for variable costs. How much
cost would be allocated to Department A during the year if actual usage for
Department A is 1,400,000 pages and actual usage for Department B is 2,100,000
pages?
A. ₱42,000
B. ₱72,000
C. ₱75,333
D. ₱82,000

68. Traditional overhead allocations result in which of the following situations?

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A. Overhead costs are assigned as period costs to manufacturing operations.
B. High-volume products are assigned too much overhead, and low-volume products are
assigned too little overhead.
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C. Low-volume products are assigned too much, and high-volume products are assigned
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too little overhead.
D. The resulting allocations cannot be used for financial reports.
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69. The Philippine Government and St. Lukes Inc. entered into a concession arrangement
for the construction and operation of Pro-poor Hospital for a period of 10 years.
On December 31, 20x1, the concession operator constructed the Hospital at cost of
PA

₱49M. The arrangement stipulates that St. Lukes Inc. will be paid a specified
amount that will enable it to recover the investment made provided that it has a
pre-determined minimum order of hospital beds operating and available. St. Lukes
has a guaranteed right to receive ₱8M every end of the year. The interpolated
C

effective interest rate is 10%. What is the book value of the infrastructure asset
on December 31, 20x2?
A. ₱44,100,000
EO

B. ₱41,000,000
C. ₱45,900,000
D. ₱45,100,000
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70. Under PFRS 17, when can the simplified Premium Allocation Approach (PAA) model be
used?
A. Only for general insurance
B. Any contract if result is expected to be materially similar to General
Measurement Model (GMM)
C. Only for contracts less than 1 year
D. For any contract regardless

Humble yourselves, therefore, under the mighty hand of God so that at the proper time
he may exalt you, casting all your anxieties on him, because he cares for you. (1
Peter 5:6-7)

☺ -- END OF FINAL PREBOARD -- ☺

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