ADVANCED FINANCIAL ACCOUNTING AND REPORTING (AFAR)

FINAL PREBOARD EXAMINATION

MAY 2022 CPALE

Direction. Choose the letter corresponding to the best answer for each of the questions provided below. This
examination consists of 70 items and the exam is good for three (3) hours. Good luck!

1. In the absence of partnership profit sharing agreement, how shall the partnership profit be distributed to the
partners?
a. Equally
b. Pro-rata based on the beginning capital balances
c. Pro-rata based on the original capital contributions
d. Pro-rata based on the ending capital balances

2. When property other than cash is invested in a partnership, at what amount should the non-cash property be
credited to the contributing partner’s capital account?
a. Contributing partner’s tax basis
b. Contributing partner’s original cost
c. Assessed valuation for property tax purposes
d. Fair value at the date of contribution

3. On January 1, 2022, A, B and C formed ABC Partnership with original capital contributions of P600,000,
P1,000,000 and P400,000. A is appointed as the managing partner.

During 2022, A, B and C made additional investments of P1,000,000, P400,000 and P600,000, respectively. At
the end of 2022, A, B and C made drawings of P400,000, P200,000 and P800,000, respectively. At the end of
2022, the partnership had a credit balance in the income summary account of P2,100,000.

The profit or loss agreement of the partners is as follows:

• 10% interest on original capital contribution of the partners.
• Quarterly salary of P80,000 and P20,000 for A and B, respectively.
• Bonus to A which is equivalent to 20% of net income after interest and salary to all partners.
• Remainder is to be distributed equally among the partners.

What is A’s share in partnership profit for 2022?

a. P380,000
b. P680,000
c. P1,080,000
d. P400,000

Use the following information for the next two (2) questions:

The capital balances of partners Q,R, S are the following before liquidation: P87,000, P95,500, P106,250 respectively.
The partnership has a loan from partner Q in the amount of P8,000; loan to partner R in the amount of P4,500;
advances to partner S in the amount of P6,500. The partners’ profit and loss ratio is 25:40:35 respectively.

4. If in the first installment the total cash paid to partners is P57,000, how much did partner S receive?
a. 0
b. 19,396
c. 13,854
d. 20,125
5. If partner Q received the full priority amount in the first instalment and partner S received P12,396 in the
second installment, how much is received by partner Q as of the second instalment?
a. 12,604
b. 8,854
c. 23,750
d. 32,604

6. Partially secured creditors are

a. Creditors that have a lien on specific assets, whose estimated realizable value equals or exceeds the
amount of liability
b. Creditors that have a lien on specific assets, whose estimated realizable value is less than the amount of
liability
c. Creditors that have no lien on any specific assets but the claims rank ahead of the other unsecured
liabilities in order of payment
d. Creditors that have no lien on specific assets

Use the following information for the next two (2) questions:

ABC Corporation retails merchandise through its home office store and through a branch store in a distant city.
Separate ledgers are maintained by the home office and the branch. The branch store purchase merchandise from
the home office (at 120% of home office cost), as well as from outside suppliers.

Selected information from the December 31, 2022 trial balances of the home office and branch is as follows:

Home Office Branch

Sales P240,000 P120,000
Shipments to branch 32,000 -
Purchases 140,000 22,000
Inventory, January 1, 2022 80,000 60,000
Shipments from home office - 38,400
Expenses 56,000 24,000
Branch inventory allowance 14,400 -

Additional information:

• The entire difference between the shipment account is due to the practice of billing and the branch at cost plus
20%.
• The December 31, 2022 inventories are P80,000 and P40,000 for the home office and the branch respectively.
The branch purchased 16% of its ending inventory from outside suppliers.
• Branch beginning and ending inventories include merchandise acquired from the home office as well as from
outside suppliers.

7. Determine the overvaluation of Cost of Goods Sold

a. P8,800
b. P5,600
c. P14,400
d. P8,800

8. Determine the adjusted branch Net Income

a. P100,400
b. P21,200
c. P30,000
d. P24,400
9. 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

Use the following information for the next two questions:

On January 1, 2022, MM entered into a consignment arrangement with WW. The consignment arrangement
provides that WW is entitled to 5% commission based on sales. MM manufactured 100 boxes of product at
manufacturing cost of P400,000 On July 1, 2022, MM shipped through a common carrier 30 boxes of consigned
goods to WW. The common carrier collected the freight amounting to P6,000 from WW.

For the year ended December 3 l, 2022, WW sold on cash 20 boxes of consigned goods to final consumers at MM's
predetermined price of P6,000 per box.

10. What is the net income to be reported by MM for the period ended December 31, 2022?
a. P36,000
b. P28,000
c. P30,000
d. P34,000

11. What is the net remittance to be made by WW to MM as of December 31, 2022?

a. P108,000
b. P110,000
c. P114,000
d. P120,000

12. When translating the financial statements of an entity from its functional currency to its selected presentation
currency, which of the following translation measurement is incorrect?
a. Assets and liabilities are translated at the closing rate at the date of statement of financial position
b. Income and expenses are translated at (1) exchange rates at the date of the 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
d. Retained earnings are translated using the average rate during the period

13. Which of the following transactions by a national government agency will require journal entry to its accounting
book?
a. Receipt of appropriation from the department of budget and management
b. Receipt of allotment from the department of budget and management
c. Receipt of notice of cash allocation from the department of budget and management
d. Entering into a contract with a supplier for the acquisition of office supplies

14. All of the following are classified as financing activities of a nonprofit organization, except
a. Cash contribution to be permanently invested
b. Cash dividend and interest to be used for the acquisition of computer equipment
c. Cash contribution restricted by donor for faculty development
d. Cash contribution from a donor who stipulated that the money be spent in accordance with the decision
of the governing board
15. ABC Hospital, a private not-for-profit hospital, earned P250,000 of gift shop revenues and spent P50,000 on
research during the year ended December 31, 2022. The P50,000 spent on research was part of a P75,000
contribution received during December of 2021 from a donor who stipulated that the donation be used for
medical research. Assume none of the gift shop revenues were spent in 2022. For the year ended December
31, 2022, what was the increase in unrestricted net assets from the events occurring during 2022?
a. P300,000
b. P200,000
c. P250,000
d. P275,000

Use the following information for the next two (2) 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, 2022 follows:

Cash P9,720 Accounts payable P15,480

Other assets 102,960 A, capital 64,800
B, capital 32,400
Total P112,680 Total P112,680

At this date, C was admitted as a partner for a consideration of P35,100 cash for a 30% interest in capital and in
profits.

16. Assume C is admitted by purchase of 30% each of the original partners’ interest, determine how the P35,100
will be apportioned to A and B, respectively
a. A, P32,850 and B, P15,900
b. A, P32,450 and B P16,300
c. A, P23,004 and B P12,096
d. A, P32,950 and B, P15,800

17. Assume C is admitted by investing the P35,100 to the partnership, determine the effects of any bonus over the
capital balances of the original partners
a. A, P(9,900) and B, P(14,850)
b. A, P9,000 and B, P14,850
c. A, P(14,850) and B, P(9,900)
d. A, P(2,754) and B P(1,836)
Use the following information for the next three (3) questions:

ABC Foundation, a private not-for-profit organization which aims to provide financial support and improve the
welfare of the less fortunate, received the following contributions in 2022:

I. Php2,500,000 from donors who stipulated that the money not be spent until 2023.
II. Php6,000,000 from donors who stipulated that the contributions be used for the acquisition of specific
farming equipment. The stipulated piece of farming equipment was purchased in 2022 for Php5,000,000.
III. Shares valued at Php8,000,000 which are stipulated to be sold, with the proceeds to be used to purchase
various medicines and supplies. The shares were sold in 2022 for Php8,000,000. Medicines and supplies were
purchased in 2023.
IV. Shares valued at Php4,000,000 which are to be retained, with the dividends used to support current
operations. Dividend income from the shares amounted to Php250,000 for the year.
V. Php3,000,000 from donors for use in the regular operations of ABC Foundation. Php1,000,000 was used to
pay for ABC Foundation’s expenses during the year.

18. The net change in unrestricted net assets for the year ended 2022 is
a. P7,000,000
b. P7,250,000
c. P8,000,000
d. P8,250,000

19. The journal entry to record ABC Foundation’s initial receipt of temporarily restricted contributions includes a
credit to Temporarily Restricted Revenue for
a. P6,500,000
b. P10,500,000
c. P14,500,000
d. P16,500,000

20. The net cash flow from investing activities for the year ended 2022 is
a. (P5,000,000)
b. P3,000,000
c. P5,000,000
d. P8,000,000

Use the following information for the next two (2) questions:

On January 1,2022, the Department of Public Works and Highways (DPWH) received a P10,000,000 appropriation
from the national government for the acquisition of machinery. On February 1, 2022, DPWH received the allotment
from the Department of Budget and Management. On March 1, 2022, DPWN entered into a contract with CAT Inc.
for the acquisition of the machinery with a price of P8,000,000.

On April 1, 2022, DPWH received the Notice of Cash Allocation from Department of Budget and Management net of
1% withholding tax for income tax of supplier and 5% withholding of Final Tax on VAT of supplier.

21. What is the journal entry on March 1, 2022?

a. No entry but just posting to appropriate RAPAL
b. No entry but just posting to appropriate RAPAL and to RAOD
c. No entry but just posting of ORS (Obligation Request and Status) to appropriate RAOD
d. Debit Machinery P8,000,000 and credit Accounts Payable P8,000,000

22. Using the same data, what is the journal entry on April 1, 2022?
 a. Debit Cash-MDS, Regular P7,520,000 and Credit Subsidy Income from National Government P7,520,000
b. Debit Machinery P8,000,000 and Credit Accounts Payable P8,000,000
c. Debit Accounts Payable P8,000,000 and Credit Due to BIR P480,000 and Cash-MDS, Regular P7,520,000
d. Debit Due to BIR P480,000 and Credit Subsidy Income from National Government P480,000

Use the following information for the next two (2) questions:

RC Corp. had provided the following information for the transactions that occurred during September 2022. The
company uses the JIT costing system:

• Raw materials costing P750,000 were purchased.

• All materials costing P550,000 were used in production.
• Direct Labor costs of P600,000 were incurred.
• Actual factory overhead costs amounted to P1,250,000.
• Applied conversion costs totaled P2,300,000. This includes the direct labor cost.
• All units are completed and immediately sold.

23. Determine the unadjusted cost of goods sold for the month of September:
a. P2,600,000
b. P2,400,000
c. P2,850,000
d. P3,450,000

24. Using the preceding information, what is the over or under applied conversion costs?
a. P1,050,000 over
b. P300,000 under
c. P450,000 over
d. P450,000 under

25. Which statement is incorrect concerning an acquirer?

a. In a business combination effected by transferring cash or other assets, the acquirer is usually the entity
that transfers the cash or other assets
b. In a business combination effected by issuing equity interest, the acquirer is usually the entity that
issues the equity interest
c. The acquirer is usually the combining entity whose relative size is significantly greater than that of the
combining entity or entities
d. If a new entity is formed to issue equity interests to effect a business combination, the new entity
formed is necessarily the acquirer

26. 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 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
Use the following information for the next four (4) questions:

On October 12, 2022, ABC Corp. obtained a noncancelable sales order from a Thailand firm for a custom-made
machine. The contract price was 100,000 baht. On October 12, 2022 ABC Corp. entered into a forward contract to
sell 100,000 baht in 100 days at the forward rate of P3.15. The machine was delivered on December 11, 2022 and
collection on January 20, 2023.

10/12/22 12/11/22 12/31/22 1/20/23

Spot rate (baht) P 3.20 P 3.00 P 3.09 P 2.97
Forward rate (baht) 3.15 2.98 3.08

27. On the December 11, 2022 profit and loss statement, the foreign exchange gain or loss on the hedging item
amounted to
a. P17,000 loss
b. P17,000 gain
c. P20,000 loss
d. P20,000 gain

28. On the December 11, 2022 profit and loss statement, the foreign exchange gain or loss on the hedging
instrument amounted to
a. P17,000 loss
b. P17,000 gain
c. P20,000 loss
d. P20,000 gain

29. The December 31, 2022 Accounts receivable amounted to

a. P298,000
b. P300,000
c. P309,000
d. P320,000

30. On January 20, 2023, the net foreign exchange gain or loss amounted to
a. P 0
b. P2,000 net gain
c. P1,000 net gain
d. P1,000 net loss

31. The goal of the consolidation process is for

a. Asset acquisitions and 100% stock acquisitions to result in the same balance sheet
b. Goodwill to appear on the balance sheet of the consolidated entity
c. The assets of the noncontrolling interest to be predominately displayed on the balance sheet
d. The investment in the subsidiary to be properly valued on the consolidated balance sheet
Use the following information for the next two (2) questions:

The following balance sheets were prepared for ABC Corp. and XYZ Co. on January 1, 2022, just before they entered
into a business combination.
ABC Corp. XYZ Co.
Cash P 210,000 P 5,000
Accounts Receivable 75,000 20,000
Merchandise Inventory 200,000 50,000
Building and Equipment 400,000 100,000
Accumulated Depreciation (100,000) (25,000)
Goodwill ____- 50,000
Total Assets P 785,000 P 200,000

Accounts Payable P 125,000 P 70,000

Bonds Payable 200,000 30,000
Common Stock
P30 par value 210,000
P20 par value 50,000
Additional paid-in capital 50,000 10,000
Retained Earnings 200,000 40,000
Total Liabilities and Equity P 785,000 P 200,000

On that date, the fair market value of XYZ’s inventories and building and equipment were P78,000 and 124,000
respectively, while bonds payable has a fair value of P42,000. The fair values of all other asset and liabilities of XYZ
(except for goodwill) were equal to their book values.

ABC Corp. acquired the net assets of XYZ Co. by issuing 2,500 shares of its P30 par value common stock (current fair
value P36 per share) and purchase price in cash amounting to P12,000. Contingent consideration that is
determinable (probable and reasonably estimated) amounted to P2,000 (discounted value).

Additional cash payment made by ABC Corp. in completing the acquisition were: legal fee for contract of business
combination, P8,000; audit and other due diligence costs, P11,000; printing costs of stock certificates, P6,000;
finder’s fee, P7,000; indirect costs, P5,000.

32. As a result of the business combination, the amount of total assets in the books of ABC Company
a. P1,013,000
b. P963,000
c. P967,000
d. P1,000,000

33. As a result of the business combination, the amount of retained earnings in the books of ABC Company
a. P195,000
b. P193,000
c. P230,000
d. P180,000

34. In the separate financial statement of the parent company, which of the following statements concerning the
different accounting treatment for investment in subsidiary is correct?
 a. Under equity method, cash or property dividend received shall be recognized as dividend income by the
parent
b. Under cost method, the transaction cost directly attributable to acquisition of the investment shall be
expensed as incurred
c. Under fair value model, the parent company shall recognize share in net income from the subsidiary
d. Regardless of the method, the investment in subsidiary account shall be presented as noncurrent asset
in the parent’s separate statement of financial position
Use the following information for the next five (5) questions:

P Corporation purchased 80% of the outstanding voting stock of S Corporation for P2,500,000 on Jan. 1, 2022. The
non-controlling interest is measured at fair value. S’s stockholders’ equity on this date consisted of the following:

Capital stock - P10 par P1,000,000

Additional paid-in capital 600,000
Retained earnings December 31, 2021 400,000
Total stockholders’ equity P2,000,000

The excess of the consideration transferred and NCI over the net assets of S was allocated 20% to undervalued
inventory (sold in 2022), 30% to a depreciable plant asset with a remaining use life of ten years, and 50% to
unidentifiable intangible asset.

Selected items in the trial balances of P Corp. and S Corp. on Dec. 31, 2022 are as follows:

P Corp. S Corp.
Investment in S P2,500,000
Other assets - net 3,850,000 P2,600,000
Capital stock, P10 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
Sales 4,000,000 1,000,000
Cost of sales 2,150,000 400,000
Expenses 1,000,000 200,000
Dividend income 160,000

35. The amount of goodwill in the consolidated balance sheet of as of Dec. 31, 2022 should be
a. P250,000
b. P562,500
c. P450,000
d. P200,000

36. Consolidated net income allocated to non-controlling interest in the consolidated income statement should
be reported at
a. P80,000
b. P28,250
c. P35,000
d. P73,250

37. The retained earnings in the consolidated balance sheet of P and Subsidiary on December 31, 2022 should be
reported at
a. P3,330,000
b. P2,463,000
c. P2,623,000
d. P2,963,000
38. The net income in the consolidated income statement of P and S for 2022 should be
a. P991,250
b. P1,216,250
c. P1,410,000
d. P1,025,000

39. The non-controlling interest in net assets in the consolidated balance sheet on December 31, 2022 should be:
a. P625,000
b. P585,000
c. P613,250
d. P653,250

Use the following information for the next two (2) questions:

ABC 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.
ABC uses weighted-average costing.

Data for the Assembly Department for June 2022 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)

Costs for June 2022:

Work in process, beginning inventory:
Direct materials P90,000
Conversion costs P135,000

Direct materials costs added during June P500,000

Conversion costs added during June P500,000

40. What is the direct materials cost per equivalent unit during June?
a. P561.90
b. P865.10
c. P789.50
d. P945.18

41. What amount of conversion costs are assigned to the ending Work-in-Process account for June?
a. P509,78.32
b. P70,555.50
c. P63,225.25
d. P90,074

42. According to IFRS 15, what is the accounting treatment of the transaction price when a contract with a
customer has multiple performance obligations?
a. The transaction price shall be recognized as revenue of the most important performance obligation
b. The transaction price shall be allocated equally to the different performance obligations
 c. The transaction price shall be recognized as revenue only at the end of completion of all performance
obligations
d. The transaction price shall be allocated to the different performance obligations by reference to their
relative standalone selling prices

43. The main difference between the FIFO and weighted average methods of process costing is
a. In the treatment of beginning Work in Process Inventory
b. In the treatment of current period production costs
c. In the treatment of lost units
d. In the treatment of ending Work in Process Inventory

44. 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

45. The following transactions occurred for the years ended December 31, 2022 and December 31, 2023 regarding
Entity A and its two subsidiaries, Entity B and Entity C:
• On January 1, 2022, Entity A acquired 75% of the outstanding common stock of Entity B. On this date, the
equipment on Entity B with remaining useful life of 5 years has a book value of P200,000 but its fair value
is estimated to be P250,000.
• On April 1, 2022, Entity A acquired 62% of the outstanding common stock of Entity C.
• It is the policy of Entity A to account all its investments in subsidiary using cost method in its separate
financial statements.
• On January 1, 2023, Entity B sold his undervalued equipment to Entity A at a price of P150,000.
• On April 1, 2023, Entity A resold the said equipment to Entity C at a price of P300,000.
• On July 1, 2023, Entity C resold the said equipment to a third party at a price of P180,000.

What is the consolidated gain on sale of equipment to be reported by Entity A in its consolidated income
statement for the year ended December 31, 2023?
a. 5,000
b. 25,000
c. 30,000
d. 40,000

46. On December 1, 2022, Canorous Co. granted a 5-year franchise right to Melodious, Inc. for an initial franchise
fee of P400,000 and a 10% sales-based royalty. The initial franchise fee is non-refundable and due upon signing
of the contract. At contract inception, Canorous determines that the nature of its promise to grant the license
is to provide the customer with the right to access Canorous’ intellectual property as it exists throughout the
license period.

As of December 31, 2022, Canorous has no remaining obligation or intent to refund any of the cash received,
all the initial services necessary to setup the contract have been performed, and Melodious started operating
the franchised business. Melodious reported sales of P800,000 for 2022. How much revenue shall Canorous
recognize in 2022?
a. 480,000
b. 86,667
c. 80,000
d. 0
Use the following information for the next four questions:

Entity A owns majority of the outstanding ordinary shares of Entity B which is operating in United States of America
wherein the functional currency is the USD. However, the presentation currency of Entity B is the Philippine Peso
because that is the presentation currency of Entity A. For the year ended December 31, 2022, Entity B presented its
Statement of Financial Position in its functional currency of USD:

Current assets $10,000 Current liabilities $10,000

Noncurrent assets 40,000 Noncurrent liabilities 20,000
Ordinary share capital 5,000
Preference share capital 8,000
Retained earnings 7,000
Total Assets $50,000 Total Liabilities and Equity $50,000

• The ordinary shares are issued on January 1, 2021, while the preference shares are issued on July 1, 2021.
• B reported $1,000 net income during 2022 and declared dividends in the amount of $200 on December 1,
2022.
• The translated amount of retained earnings on December 31, 2021 is P300,000.

The following direct exchange rates are provided:

January 1, 2021 P50
July 1, 2021 52
December 31, 2021 53
December 1, 2022 51
December 31, 2022 55
Average rate 2022 54

47. What is the amount of net assets in US dollars on December 31, 2021?
a. $20,000
b. $19,200
c. $19,000
d. $20,200

48. What amount of translation gain as component of other comprehensive income should be presented in the
statement of comprehensive income for the year ended December 31, 2022?
a. P38,600
b. P90,200
c. P180,200
d. P141,800

49. What is the translated retained earnings balance on December 31, 2022?
a. P300,000
b. P335,800
c. P343,800
d. P385,000
50. What is the cumulative translation credit that should to be presented in the statement of financial position on
December 31, 2022?
a. P51,600
b. P90,200
c. P38,600
d. P141,800

51. The following discrepancies between the home office and its branch at the close of the business on June 30,
2022 were observed:
a. An allocation of advertising expense by the Home office, P500 was recorded twice by the branch.
b. A charge of P895 was made by the Home Office for freight on merchandise, but the amount was
recorded by Branch as P89.50.
c. A charge of P980 (furniture and fixture) on the Home Office books was taken up by the branch as P890.
d. A credit by the Home Office for P350 (merchandise allowances) was taken up by the Branch as P400.
e. The Home Office charged the Branch P425 for interest expense on open account which the Branch failed
to take up in full; instead, the Branch sent to the Home Office a wrong adjusting memo, reducing the
charge by P100 and set up a liability for the net amount.
f. The Home Office received P5,000 from the sale of a truck which it erroneously credited to the Branch;
the branch did not charge the Home Office therewith.
g. The Branch by mistake sent the Home office a debit note for P370 representing its proportion of a bill
for repairs of truck; the Home Office did not record it.
h. The Branch inadvertently received a copy of the Home Office entry dated July 19, 2022 correcting item
(f) and entered a credit in favor of the Home Office as of June 30, 2022.

On June 30, 2022, the unadjusted balance of the Investment in Branch account in the Home Office books showed
P175,520. At the beginning of the year, the interoffice accounts were in balance. How much are the unadjusted and
adjusted balances of the Home Office account?

Unadjusted Adjusted
a. P184,279.50 P186,000
b. P184,279.50 P180,520
c. P180,520 P184,279.50
a. P180,520 P180,020.00

Use the following information for the next four questions:

On January 1, 2022, ABC granted franchise to XYZ. The franchise agreement requires the franchisee to pay a non-
refundable initial franchise fee of P3,000,000 and sales-based royalty of 8% of the sales of the franchisee. The
franchisee paid P1,000,000 upon signing of the agreement and the balance payable in four equal annual installments
starting December 31, 2022. The franchisee's credit rating indicates that he can borrow money at 7% for a loan of
this type. The PV annuity factor for 4 periods at 7% is 3.3872.

In relation to the non-refundable initial franchise fee, the franchise agreement required the entity to render the
following distinct performance obligations:

• To construct the franchisee's stall with stand-alone selling price of P1,200,000.

• To deliver 40,000 units of raw materials to the franchisee with stand-alone selling price of P1,500,000.
• To allow the franchisee the access to the entity's tradename for a period of ten years starting January 1, 2022
with stand-alone selling price of P300,000.

On June 30, 2022, the entity completed the construction of the stall of the franchisee. As of December 31, 2022, the
entity was able to deliver 12,000 units of raw materials to the franchisee. For the year ended December 31, 2022,
the franchisee reported sales revenue amounting to P1,200,000.
52. How much is the transaction price to be allocated among the performance obligations?
a. P1,693,600
b. P2,693,600
c. P2,656,000
d. P1,656,000

53. How much of the transaction price will be allocated to the construction of the franchisee’s stall?
a. P269,360
b. P1,346,800
c. P1,077,440
d. P2,693,600

54. How much is the amount of revenue to be recognized related to the performance obligation to deliver raw
materials to the franchisee?
a. P269,360
b. P404,040
c. P1,077,440
d. P1,508,416

55. How much is the amount of revenue to be recognized related to the performance obligation to provide access
to the entity’s tradename?
a. P26,936
b. P30,000
c. P269,360
d. P300,000

56. On January 1, 2022, the partners of ABC Co. decided to liquidate their partnership on installment basis.
Distributions to partners shall be made as cash becomes available. The following information was made
available:
Dr. Cr.
Cash 80,000
Accounts receivable 240,000
Receivable from C 40,000
Inventory 480,000
Equipment 1,200,000
Accounts payable 120,000
Payable to B 80,000
A, Capital (20%) 400,000
A, Drawings 80,000
B, Capital (30%) 600,000
C, Capital (50%) 800,000
C, Drawings 120,000
Totals 2,120,000 2,120,000

During January, non-cash assets with carrying amount of P520,000 were sold for P240,000. The cost of
disposal was P80,000. All of the partners are personally insolvent. How much did B receive in the partial
settlement of his capital account?

a. 32,000
b. 140,000
c. 120,000
d. 0
57. On January 1, 2022, ABC Incorporated and DEF Incorporated organized XYZ Company under the provisions of
R.A. No. 11232 also known as Revised Corporation Code of the Philippines. ABC Incorporated and DEF
Incorporated invested P2,000,000 and P3,000,000, respectively, for 40% and 60% capital interest in common
stocks of XYZ Company. XYZ Company is established for the purpose of producing a chemical ingredient which
will be used as an important component of COVID-19 vaccine of the organizing entities. The decisions on
relevant activities of XYZ Company will require unanimous consent of ABC Incorporated and DEF Incorporated.
The organizing entities agreed that they will have rights to assets and obligations for the liabilities, relating to
XYZ Company. How DEF Incorporated accounted its investment in XYZ Company?
a. It shall be treated as a business combination under PFRS 3 to be accounted for using Acquisition Method
b. It shall be treated as a joint operation under PFRS 11 to be accounted for using the contractual
provisions of the joint arrangement
c. It shall be treated as an Investment in Associate under PAS 28 to be accounted for using Equity Method
d. It shall be treated as a joint venture under the PFRS 11 to be accounted for using Equity Method as
provided by PAS 28

58. When it is probable that total contract costs will exceed total contract revenue, how shall it be accounted for?
a. The expected loss shall be recognized as an expense immediately regardless of the certainty or
uncertainty of the outcome of a construction contract
b. The expected loss shall be recognized as an expense immediately only when the outcome of a
construction contract cannot be estimated reliably
c. The expected loss shall be recognized as an expense by reference to the state of completion of the
contract activity at the end of the reporting period when the outcome of a construction contract cannot
be estimated reliably
d. The expected loss shall be accounted for based on company's policy

59. On January 1, 2022, Patrimony Co. entered into a joint arrangement classified as a joint venture. For an
investment of P2,000,000, Patrimony Co. obtained 30% interest in Heritage Joint Venture, Inc. During the year,
Heritage Joint Venture, Inc. reported profit of P4,000,000 and other comprehensive income of P800,000, i.e.,
a total comprehensive income of P4,800,000. Heritage Joint Venture, Inc. declared dividends of P2,400,000.
How much is the carrying amount of the investment in joint venture on December 31, 2022?
a. 2,720,000
b. 2,000,000
c. 2,480,000
d. 4,160,000

60. Given the following information, how is goodwill from a business combination computed under PFRS 3?

A = Consideration transferred
B = Non-controlling interest in net assets of subsidiary
C = Previously held equity interest
D = Fair value of net identifiable assets of subsidiary
% = Percentage of ownership acquired by the parent in the subsidiary

a. A+B+C-D
b. (A+C) – (D x %)
c. A – (D x %)
d. (A+B) – [(D x %) – B]

Use the following information for the next two (2) questions:

In 2022, Gorgeous Co. enters into a fixed-price construction contract with a customer. At contract inception,
Gorgeous Co. assesses its performance obligations in the contract and concludes that it has a single performance
obligation that is satisfied over time. Gorgeous Co. determines that the measure of progress that best depicts its
performance on the contract is input method based on costs incurred.
Information on the contract follows:
2022 2023
Cumulative contract costs incurred 2,250,000 4,800,000
Cumulative profits recognized 750,000 1,200,000
Progress billings 2,400,000 3,600,000
Collections on progress billings 2,000,000 4,000,000

The contract is completed in 2023.

61. What amount of revenue is recognized in 2023?

a. 2,800,000
b. 3,000,000
c. 4,800,000
d. 6,000,000

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

a. 5,000,000
b. 6,000,000
c. 7,000,000
d. 9,000,000

63. Remittances of collections to the National Treasury are recorded as a debit to which of the following accounts
a. Cash – Collecting Officers
b. Cash-Treasury/Agency Deposit, Regular
c. Cash-Modified Disbursement System (MDS), Regular
d. Subsidy from National Government

64. Clemency makes two products Y and Z. They are initially processed from the same materials and then after
split-off, further processed separately. Additional information is as follows:

Y Z Total
Final sales value P45,000 P 35,000 P 80,000
Sales value at split-off 32,000 28,000 60,000
Cost beyond split-off 5,000 6,000 11,000
Joint cost prior to split-off 18,000

Using the Approximated Net Realizable Value approach, how much is the joint cost assigned to Y and Z?
a. P9,918 and P8,082
b. P10,435 and P7,565
c. P9,600 and P8,400
d. P7,500 and P7,500

65. Pinoy Inc. manufactures products A, B, and C from a joint process. Additional information is as follows:

A B C Total
Units sold 2,000 1,000 500 3,500
Units on hand 2,000 1,000 500 3,500
Sales value at split-off ? ? 15,000 100,000
Joint cost 36,000 ? ? 60,000
Cost after split-off 7,000 5,000 3,000 ?
Sales value at final point 70,000 30,000 20,000

Assuming the joint cost are allocated using the relative sales value method, what joint costs were allocated to
product B and what is the sales value at split-off of A, respectively:
a. P16,000 and P63,000
 b. P14,286 and P63,000
c. P15,000 and P60,000
d. P12,000 and P60,000

Use the following information for the next three (3) questions:

ABC Company recently petitioned for bankruptcy and is now in the process of preparing a Statement of Affairs. The
carrying values and estimated fair values of the assets of ABC Company are as follows:

Carrying value Fair value

Cash P20,000 P20,000

Accounts receivable 45,000 30,000
Inventory 60,000 35,000
Land 75,000 70,000
Buildings (net) 180,000 100,000
Equipment (net) 170,000 80,000
P550,000 P335,000

Liabilities of ABC are as follows:

Accounts payable P60,000

Wages payable (all have priority) 10,000
Taxes payable 10,000
Notes payable (secured by receivable and inventory) 120,000
Interest on Notes Payable 6,000
Bonds Payable (secured by land and building) 150,000
Interest on Bonds Payable 7,000
Total P363,000

66. What is the total amount of unsecured creditors?

a. P93,000
b. P113,000
c. P121,000
d. P126,000

67. What is the net free assets?

a. P28,000
b. P93,000
c. P113,000
d. P121,000

68. What is the estimated recovery percentage?

a. 23%
b. 93%
c. 77%
 d. 68%

69. The primary issue in the accounting for construction contracts is

a. The determination of the percentage of completion and revenue to be recognized during the period
b. The allocation of contract revenue and contract costs to the accounting periods in which construction
work is performed
c. The determination of the rate at which physical performance has been made during the reporting period
and the future performance on which future revenues will be allocated
d. The allocation of costs of a long-lived asset to permit the proper matching of costs with revenues

70. 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