ACC 114 Auditing and Assurance: Specialized Industries

2nd PERIODIC EXAM

Name: _________________________________________ Class number: _________________

Section: _________ Schedule: ______________________ Date: _________________________

GENERAL DIRECTIONS
READ THIS PAGE BEFORE STARTING THE ASSESSMENT

This is a 6-paged multiple-choice (2PTS each) AND essay test and has a total score of forty (40)
points. You have eighty (80) Minutes to finish this examination.

All things unnecessary for the test must be put in front of LEARNING OBJECTIVE:
the testing area. Use BLACK or BLUE ink ballpen only. Write
all your answers on the designated answer sheet. Further, This assessment measures the
erasures are strictly NOT allowed and will invalidate your competence of the student in
answers. terms of his/her application of
knowledge and skills in the
You may NOT use smart phones or reference materials following topics:
during the testing session. Only the allowed calculators should 1. Audit of Consignment
be used.
Sales
Try to answer all questions. In general, if you have some 2. Audit of Installment
knowledge about a question, it is better to try to answer it. You Sales
will not be penalized for guessing. 3. Audit of Home Office,
Branch, and Agency
Be sure to allocate your time carefully so you can complete 4. Audit of Insurance
the entire test within the exam session. You may go back and
Contracts
review your answers at any time during the exam session.
5. Audit of Build-Operate-
Those who are caught cheating or doing acts not allowed Transfer (BOT)
during the exam shall be instructed to surrender their test Arrangements
papers and shall leave the testing room immediately. 6. Audit of Business
Subsequently, their papers shall be rated as ZERO. Combination
7. Audit of Separate
This concludes the instruction page.
Financial Statement
You may now begin answering.

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 ACC 114 Auditing and Assurance: Specialized Industries
2nd PERIODIC EXAM

Name: _________________________________________ Class number: _________________

Section: _________ Schedule: ______________________ Date: _________________________

1. On January 1, 20x1, ABC Co. acquired 75% interest in XYZ, Inc. for ₱2,500,000 cash. ABC Co.
incurred transaction costs of ₱250,000 for legal, accounting and consultancy fees in negotiating the
business combination. ABC Co. elected to measure NCI at the NCI’s proportionate share in XYZ,
Inc.’s identifiable net assets. The carrying amounts and fair values of XYZ’s assets and liabilities at
the acquisition date were as follows:

Assets Carrying amounts Fair values

Cash in bank 25,000 25,000
Accounts receivable 425,000 300,000
Inventory 1,300,000 875,000
Equipment – net 2,500,000 2,750,000
Goodwill 250,000 50,000
Total assets 4,500,000 4,000,000

Liabilities
Payables 1,000,000 1,000,000

How much is the goodwill (gain on a bargain purchase)?

a. 140,000 c. 278,500
b. 287,500 d. 264,500

2. On January 1, 20x1, HISTRIONAL Co. acquired all of the identifiable assets and assumed all of
the liabilities of THEATRICAL, Inc. by paying cash of ₱4,000,000. On this date, the identifiable assets
acquired and liabilities assumed have fair values of ₱6,400,000 and ₱3,600,000, respectively.

As of January 1, 20x1, HISTRIONAL holds a building and a patent which are being rented out to
THEATRICAL, Inc. under operating leases. HISTRIONAL has determined that the terms of the operating
lease on the patent compared with market terms are unfavorable. The fair value of the differential is
estimated at ₱80,000. How much is the goodwill (gain on bargain purchase)?
a. 1,080,000 b. 1,280,000 c. 1,120,000 d. 1,200,000

Use the following information for the next three questions:

On January 1, 20x1, CONJUNCTION Co., and UNION, Inc. entered into a business combination effected
through exchange of equity instruments. The combination resulted to CONJUNCTION obtaining 100%
interest in UNION. Both of the combining entities are publicly listed. As of this date, CONJUNCTION’s
shares have a quoted price of ₱400 per share. CONJUNCTION Co. recognized goodwill of ₱300,000 on

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 ACC 114 Auditing and Assurance: Specialized Industries
2nd PERIODIC EXAM

Name: _________________________________________ Class number: _________________

Section: _________ Schedule: ______________________ Date: _________________________

the business combination. No acquisition-related costs were incurred. Additional selected information at
acquisition date is shown below:
CONJUNCTION Co. Combined entity
(before acquisition) (after acquisition)
Share capital 2,400,000 2,800,000
Share premium 1,200,000 4,800,000
Totals 3,600,000 7,600,000

3. How many shares were issued by CONJUNCTION Co. in the business combination?
a. 40,000 b. 20,000 c. 12,000 d. 10,000

4. What is the par value per share of the shares issued?

a. 10 b. 40 c. 12 d. 32

5. What is the acquisition-date fair value of the net identifiable assets of UNION?
a. 3,700,000 b. 3,200,000 c. 2,800,000 d. 2,400,000

6. On January 1, 20x1, FORTITUDE Co. acquired 15% ownership interest in ENDURANCE, Inc. for
₱400,000. The investment was accounted for under PFRS 9. From 20x1 to the end of 20x3, FORTITUDE
recognized net fair value gains of ₱200,000.

On January 1, 20x4, FORTITUDE acquired additional 60% ownership interest in ENDURANCE, Inc. for
₱3,200,000. As of this date, FORTITUDE has identified the following:
a. The previously held 15% interest has a fair value of ₱720,000.
b. ENDURANCE’s net identifiable assets have a fair value of ₱4,000,000.
c. FORTITUDE elected to measure non-controlling interests at the non-controlling interest’s
proportionate share of ENDURANCE’s identifiable net assets.

The previously held interest was initially classified as FVOCI. How much is the goodwill (gain on bargain
purchase)?
a. 200,000 b. 420,000 c. 920,000 d. 540,000

7. On January 1, 1990, Poe Corp. sold a machine for ₱900,000 to Saxe Corp., its wholly-owned
subsidiary. Poe paid ₱1,100,000 for this machine, which had accumulated depreciation of ₱250,000. Poe
estimated a ₱100,000 salvage value and depreciated the machine on the straight-line method over 20
years, a policy which Saxe continued. In Poe's December 31, 1990, consolidated balance sheet, this
machine should be included in cost and accumulated depreciation as:

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 ACC 114 Auditing and Assurance: Specialized Industries
2nd PERIODIC EXAM

Name: _________________________________________ Class number: _________________

Section: _________ Schedule: ______________________ Date: _________________________

Cost Accumulated depreciation

a. 1,100,000 300,000
b. 1,100,000 290,000
c. 900,000 40,000
d. 850,000 42,500

8. Zest Co. owns 100% of Cinn, Inc. On January 2, 1999, Zest sold equipment with an original cost
of ₱80,000 and a carrying amount of ₱48,000 to Cinn for ₱72,000. Zest had been depreciating the
equipment over a five-year period using straight-line depreciation with no residual value. Cinn is using
straight-line depreciation over three years with no residual value. In Zest's December 31, 1999,
consolidating worksheet, by what amount should depreciation expense be decreased?
a. ₱0
b. ₱8,000
c. ₱16,000
d. ₱24,000

Use the following information for the next six questions:

Owl Co. paid ₱150,000 for its 75% interest in Owlet Co. Owl elected to value NCI at fair value. Owlet’s
net identifiable assets approximated their fair values at acquisition date. The acquisition resulted in a
goodwill attributable to NCI of ₱10,000.

Since the acquisition date, Owlet has made accumulated profits of ₱200,000. There have been no
changes in Owlet’s share capital since acquisition date. The group determined that goodwill has been
impaired by ₱8,000.

A summary of the individual statements of financial positions of the entities as at the end of reporting
period is shown below:
Owl Co. Owlet Co.
Total assets 1,000,000 500,000

Total liabilities 200,000 120,000

Share capital 300,000 100,000
Retained earnings 500,000 280,000
Total liabilities and equity 1,000,000 500,000

9. How much is the fair value assigned to NCI at date of acquisition?

a. 112,000

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 ACC 114 Auditing and Assurance: Specialized Industries
2nd PERIODIC EXAM

Name: _________________________________________ Class number: _________________

Section: _________ Schedule: ______________________ Date: _________________________

b. 98,000
c. 76,000
d. 55,000

10. How much is the goodwill at the end of reporting period?

a. 17,000
b. 15,000
c. 13,000
d. 9,000

11. The Home Office in Barbie City bills its Ken branch for shipment of goods at 25% above cost. At the
close of the business on April 27, 2020, a fire gutted the branch warehouse and destroyed 70% of the
merchandise stock stored therein. Thereafter, the following data were gathered:
January 1 Inventory P672,000
Shipments from Home Office, January 1 through April 27 1,008,000
Net Sales, January 1 through April 27 1,428,000
Undamaged merchandise recovered are marked to sell for 378,000

11. What is the amount of inventory destroyed by fire per home office records at cost?
a. 178,500
b. 273,000
C. 441,000
d. 892,500

12. How much is the branch cost of goods sold?

a. 178,500
b. 273,000
c. 441,000
d. 892,500

13. How much is the overvaluation in branch Cost of Goods Sold?

a. 178,500
b. 273,000
c. 441,000
d. 892,500

14. How much is the branch net income as provided by GAAP?

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 ACC 114 Auditing and Assurance: Specialized Industries
2nd PERIODIC EXAM

Name: _________________________________________ Class number: _________________

Section: _________ Schedule: ______________________ Date: _________________________

a. 178,500
b. 273,000
c. 441,000
d. 892,500
29-31. Explain audit of installment and consignment sales.

32-34. Explain audit of insurance contracts,

35-37. Explain audit of BOT arrangements.

38-40. Explain audit of separate financial statements.

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 ACC 114 Auditing and Assurance: Specialized Industries
2nd PERIODIC EXAM

Name: _________________________________________ Class number: _________________

Section: _________ Schedule: ______________________ Date: _________________________

“Breathe. Let go. And remind yourself that this very moment is the only one you know you have
for sure.” — Oprah Winfrey

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