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Baguio Davao
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ADVANCED FINANCIAL ACCOUNTING & REPORTING MAY 2023 BATCH

FIRST PRE-BOARD EXAMINATION FEB 12, 2023; 330-630PM

INSTRUCTIONS: Select the correct answer for each of the following questions. Mark only one answer
for each item by SHADING the corresponding letter of your choice on the answer sheet provided.
STRICTLY NO ERASURES ALLOWED. Use Pencil No. 2 only.

Items 1 to 3 are based on the following:

On May 1, 2022, the business assets of CLYDES Corner and MACY’S Bakeshop appear below:

CLYDES Corner MACY’S Bakeshop

Cash P 11,000 P 22,354
Accounts receivable 234,536 567,890
Inventories 120,035 260,102
Land 603,000
Building 428,267
Furniture and fixtures 50,345 34,789
Other assets 2,000 3,600
Total P 1,020,916 P 1,317,002
Accounts payable P 178,940 P 243,650
Notes payable 200,000 345,000
CLYDES Corner, capital 641,976
MACY’S Bakeshop, capital 728,352
Total P 1,020,916 P 1,317,002

CLYDES Corner and MACY’S Bakeshop agreed to form a partnership contributing their respective
assets and equities subject to the following adjustments:
A) Accounts receivable of P20,000 in CLYDES Corner’s books and P35,000 in MACY’S
Bakeshop’s books are uncollectible.
B) Inventories of P5,500 and P6,700 are worthless in CLYDES Corner’s and MACY’S
Bakeshop’s respective books.
C) Other assets of P2,000 and P3,600 in CLYDES Corner’s and MACY’S Bakeshop’s
respective books are to be written off.

1. The capital accounts of the partners after the adjustments will be

A. CLYDES Corner P613,576; MACY’S Bakeshop P683,350
B. CLYDES Corner P614,476; MACY’S Bakeshop P683,052
C. CLYDES Corner P615,942; MACY’S Bakeshop P717,894
D. Other amount

2. BECKY offered to join for a 20% interest in the firm. How much cash should BECKY contribute?
A. P324,382 B. P337,487 C. P344,237 D. Other amount

3. After BECKY’s admission, the profit and loss sharing ratio was agreed to be 40:40:20 based on capital
credits. How much should the cash settlement be between CLYDES Corner and MACY’S Bakeshop?
A. P34,288 B. P32,930 C. P32,272 D. Other amount

4. MORAINE Corp. acquired 70% of the voting common stock of LOUISE Co. at the time when LOUISE
Corp.’s book values and fair values were equal. Separate income of MORAINE and LOUISE Co. for
2023 are as follows:
MORAINE Corp LOUISE Co.
Sales 700,000 400,000
COGS 400,000 200,000
OPEX 120,000 100,000
Separate Income 180,000 100,000
CRC-ACE/AFAR: First Pre-board Examinations – May 2023 batch Page 2

Intercompany sales from MORAINE to LOUISE for 2022 and 2023 summarized as follows:
Selling Unsold at year end
Cost Price
Intercompany sales – 2022 250,000 390,000 40%
Intercompany sales – 2023 175,000 275,000 50%

The consolidated income statement will show COGS of:

A. 350,000 B. 319,000 C. 340,000 D. Other amount

5. On January 1, 2022 John Corp. purchased 80% of the outstanding shares of Adams Corp. by paying
P 320,000 with an allocated excess of 20,000 attributable entirely to undervalued equipment with
remaining life of 10 years. On January 1, 2021 Adams Company had P 150,000 of capital stock and
P 300,000 of retained earnings. Also on the same date, John Corp. had P 1,000,000 of capital stock
and P 700,000 of retained earnings.

During the year, John sold merchandise to Adams for P 60,000 and in turn, purchased P 40,000
from Adams. Intercompany sales of merchandise were made at the following gross profit rates:

Sales made by John 25% based on cost

Sales made by Adams 20%

On December 31, 2021, 30% of all intercompany sales remains in the ending inventory of the
purchasing affiliate.

The beginning inventory of John includes P 2,500 worth of merchandise acquired from Adams on
which Adams reported a profit of P 1,000. While, the beginning inventory of Adams also includes P
3,000 of merchandise acquired from at 35% mark up.

The net income from own operations and dividends for 2021 using the cost method were as follows:
Net Income Dividends
John 100,000 60,000
Adams 30,000 10,000

The NCINIS for 2023 should be

A. 5,320 B. 5,720 C. 5,160 D. Other amount

6. On December 1, 2022, the ACE Company established an agency in Laguna, sending its merchandise
samples costing P 15,750 and a working fund of P 9,000 to be maintained on the imprest basis.
During the month of December, the agency transmitted to the home office sales orders which were
billed at P 64,380 of which 20,400 was collected. A home office disbursement chargeable to the sales
agency is the acquisition of furniture and fixtures for Laguna, P 25,000 to be depreciated at 24% per
annum. The agency paid expenses of P 3,815 and received replenishment thereof from the office.
On December 31, 2022, the agency samples were valued at P 10,075. It was estimated that the
gross profit of goods shipped to bill agency sales orders average 25% of cost.

How much is the net income of the agency for the month ended December 31, 2022?
A. P 2,886 B. P 12,876 C. P 3,386 D. Other amount

7. A home office ships inventory to its branch at 125% of cost. The required balance of the deferred profit
account is 78,750. During the year, the home office sent merchandise to the branch costing P 784,000.
At the start of the year, the branch’s balance sheet shows P 315,000 of inventory on hand that was
acquired from the home office.

By what amount is the COGS overstated

A. 259,000 B. 180,250 C. 196,000 D. Other amount
CRC-ACE/AFAR: First Pre-board Examinations – May 2023 batch Page 3

8. Andrew and Buren wish to acquire the partnership interest of their partner Calvin on July 10, 2023.
Partnership assets are to be used to acquire Calvin’s partnership interest. The balance sheet for the
ABC partnership on that date shows the following:

Cash P 74,000 Liabilities P 45,000

Receivables, net 36,000 Andrew, capital 120,000
Equipment, net 135,000 Buren, capital 60,000
Goodwill 30,000 Calvin, capital 50,000
P 275,000 P 275,000
Andrew, Buren and Calvin share earnings in the ratio of 3:2:1, respectively. Calvin wants to retire from
the partnership. If Calvin is paid P 54,000 and the bonus method is used, what is the capital account
balance of Andrew and Buren after the retirement of Calvin?

A. Andrew P 117,600; Buren, P 58,400

B. Andrew P 120,000; Buren, P 60,000
C. Andrew P 117,600; Buren, P 60,000
D. Other amount

9. On March 1, 2023, Desire and Anna decide to combine their business and form a partnership. The
balance sheets of Desire and Anna on March 1, 2023 before adjustments show the following:

Desire Anna
Cash P 9,000 P 3,750
Accounts receivable 18,500 13,500
Inventories 30,000 19,500
Furniture and fixtures (net) 30,000 9,000
Office equipment (net) 11,500 2,750
Prepaid expenses 6,375 3,000
P 105,375 P 51,500
Accounts payable P 45,750 P 18,000
Desire, capital 59,625
Anna, capital _________ 33,500
P 105,375 P 51,500

They agreed to provide 3% for doubtful accounts of their accounts receivables and found Anna’s
furniture and fixtures to be under depreciated by P 900.

If each partner’s share in equity is to be equal to the net assets invested, the capital accounts of
Desire and Anna respectively would be:
A. P 58,170 and P 33,095 C. P 59,070 and P 32,195
B. P 58,320 and P 32,495 D. Other amount

Items 10 and 11 are based on the following information:

Paul, Peter, and James are partners sharing profits on a 5:3:2 ratio. On January 1, 2023, Amanda
was admitted into the partnership with a 20% share in profits. The old partners continue to participate
in profits in their original ratios.

For the year 2023, the partnership book showed a net income of P 25,000. It was disclosed, however,
that the following errors were committed:

2022 2023
Accrued expenses not recorded at year-end P 1,200
Inventory overstated P 3,100
Purchases not recorded, for which goods have been
received and inventories 2,000
Income received in advance not adjusted 1,500
Unused supplies not taken up at year-end 900

10. The new profit and loss ratio of Paul, Peter, James and Amanda, respectively for 2023 is:
A. 40%; 25%; 15% and 20% C. 45%; 30%; 15%; and 20%
B. 40%; 24%; 16%; and 20% D. Other amount
CRC-ACE/AFAR: First Pre-board Examinations – May 2023 batch Page 4

11. The share of partner Paul in the 2023 corrected net income is:
A. P 9,400 B. 10,000 C. P 11,750 D. Other amount

Items 12 and 13 are based on the following information:

Lazaro, Simeon and Thomas are partners in textile distribution business, sharing profits and losses
equally. On December 31, 2020 the partnership capital and partners drawings were as follows:

Lazaro Simeon Thomas Total

Capital P 100,000 P 80,000 P 300,000 P 480,000
Drawing 60,000 40,000 20,000 120,000
The partnership was unable to collect on trade receivables and was forced to liquidate. Operating
profit in 2020 amounted to P 72,000 which was all exhausted including the partnership assets.
Unsettled creditors’ claims at December 31, 2020 totalled P 84,000. Simeon and Thomas have
substantial private resources but Lazaro has no personal assets.

12. Loss on liquidation was:

A. P 360,000 B. P 432,000 C. P 516,000 D. Other amount

13. Final cash distribution to Thomas was:

A. P 78,000 B. P 84,000 C. P 162,000 D. Other amount

14. Amaya and Benjamin are partners in an excavating business known as AB Builders. The partners are
considering a number of options regarding the partnership including the admission of a new partners
and a potential sale of the partnership. The following information has been prepared as a basis for
evaluating various alternatives.
Item Book Value Fair Value Tax Basis
Cash and cash equivalents P 20,000 P 20,000 P 20,000
Accounts receivable 85,000 72,000 92,000
Inventory 42,000 30,000 50,000
Prepaid and other current assets 18,000 15,000 18,000
Property, plant and equipment (net) 358,000 300,000 320,000
Total Assets P 523,000 P 437,000 P 500,000

Accounts payable P 54,000 P 54,000 P 54,000

Other current liabilities 29,000 35,000 29,000
Notes/loans payable 240,000 240,000 240,000
Amaya, capital 120,000
Benjamin 80,000
Total liabilities and capital P 523,000
The partners currently share profits and losses 60% and 40%, respectively, for Amaya and
Benjamin. As agreed any adjustment in assets is recognized.

Assume a new partner was admitted to the partnership with a 40% interest in capital in exchange
for a cash contribution of P 60,000. What would Benjamin’s capital balance as a result of this
transaction, assuming use of the bonus method?
A. P 40,320 B. P 45,600 C. P 50,400 D. Other amount

15. The balance sheet of Sacramento Company as of December 31, 2023 is as follows:
Assets Liabilities and Stockholders’ Equity
Cash P 175,000 Current liabilities P 250,000
Accounts receivable 250,000 Mortgage payable 450,000
Inventories 725,000 Common stock 200,000
Property, plant and equipment 950,000 Additional paid-in capital 400,000
__________ Retained earnings 800,000
Total Assets P 2,100,000 Total Liabilities and SHE P 2,100,000

On December 31, 2023 the Calgary Inc. bought all of the outstanding stock of Sacramento
Company for P 1,800,000 cash. On the date of purchase, the fair market value of Sacramento’s
inventories was P 675,000, while the fair value of Sacramento’s property, plant and equipment was
P 1,100,000. The fair values of all other assets and liabilities of Sacramento were equal to their
book values.
CRC-ACE/AFAR: First Pre-board Examinations – May 2023 batch Page 5

The consolidated balance sheet of Calgary and Sacramento, after the acquisition of Sacramento
should reflect goodwill in the amount of
A. P 300,000 B. P 400,000 C. P 500,000 D. Zero

16. Charlie, a private limited company has acquired 100% of Charles, a private limited company, on
January 1, 2023. The fair value of the purchases consideration was 10 million ordinary shares of
P 1 of Charlie, and the fair value of the net assets acquired was P 7 million. At the time of the
acquisition, the value of the ordinary shares of Charlie and the net assets of Charles were only
provisionally determined. The value of the shares of Charlie (P 11 million) and the net assets of
Charles (P 7.5 million) on January 1, 2023, were finally determined on November 30, 2023. However,
the directors of Charlie have seen the value of the company decline since January 1, 2023, and as
of February 1, 2022, wish to change the value of the purchase consideration to P 9 million.
What value should be placed on the purchase consideration and assets of Charles as at the date of
acquisition?

A. Purchase consideration P 10 million, net asset value P 7 million.

B. Purchase consideration P 11 million, net asset value P 7.5 million
C. Purchase consideration P 9 million, net asset value P 7.5 million.
D. Purchase consideration P 11 million, net asset value P 7 million.

17. The partnership of Gabriel, Carlos, Mia, and Alexa is being liquidated over the first few months of
2022. The trial balance at January 1, 2022 is as follows:
Debits Credits
Cash P 200,000
Accounts receivable 56,000
Inventory 142,000
Equipment – net 300,000
Land 150,000
Loan to Gabriel 20,000
Accounts payable P 400,000
Gabriel, capital – 20% 170,000
Carlos, capital – 10% 80,000
Mia, capital – 50% 140,000
Alexa, capital – 20% ________
78,000
P 868,000 P 868,000
Additional information:
1. The partners agree to retain P 20,000 cash on hand for contingencies and distribute the rest of the
available cash at the end of each month.
2. In January, half of the receivables were collected. Inventory that cost P 75,000 was liquidated for
P 45,000. The land was sold for P 250,000.
3. The accounts payable was liquidated.

How much will partner Gabriel receive for the month of January 2022?
A. P 65,333 B. P 68,000 C. P 81,000 D. P 103,000

Items 19 and 20 are based on the following:

Several years ago Daniela and Romina formed DR Partnership. The partnership agreement states that
each partner is to receive a salary of P10,000 per month and 5% interest on beginning-of-the-year
capital balances; any remainder would be divided between Daniela and Romina in the ratio 2:3,
respectively. The unadjusted trial balance of DR Partnership as of December 31, 2022, appears as
follows:
Debits Credits
Cash P 500,000 Accounts payable P 350,000
Accounts receivable 300,000 Notes payable 200,000
Inventory, January 1, 2022 400,000 Daniela, capital 750,000
Furniture & fixtures, net 150,000 Romina, capital 620,000
Building, net 300,000 Sales 800,000
Daniela, drawing 100,000
Romina, drawing 120,000
Purchases 600,000
Operating expenses 250,000
Total P2,720,000 Total P2,720,000
CRC-ACE/AFAR: First Pre-board Examinations – May 2023 batch Page 6

Additional information:
1. December 31, 2022, inventory was P550,000. 2022 purchases of P600,000 were recorded
using the periodic inventory method.
2. Depreciation for 2022 on furniture and fixtures and building is determined to be 10% and 20%
respectively, of net valuation.
3. On July 1, 2022, the partnership recorded a P100,000 additional capital contribution by Romina.
Daniela made no additional capital contributions during the year.

18. Determine the share of partner Daniela on the net income of 2022.
A. (P21,100) B. (P19,100) C. P44,100 D. P 46,100

19. Determine the ending capital balance of partner Romina on December 31, 2022.
A. P478,900 B. P480,100 C. P521,100 D. P694,100

20. The following balance sheet is for a local partnership in which the partners have become very
unhappy with each other. To avoid further conflict, they have decided to cease operations and sell
all assets.
Cash P 40,000,000 Liabilities P 30,000,000
Land 130,000,000 Charles, capital 80,000,000
Building 120,000,000 Edgar, capital 30,000,000
Arthur, capital 60,000,000
____ JL, capital 90,000,000
P290,000,000 P290,000,000
Assume that profits and losses are allocated on a 1:3:4:2 basis, respectively. How much money must
be received from selling the land and building to assure that all partners receives cash?
A. More than P50,000,000 C. More than P150,000,000
B. More than P100,000,000 D. More than P250,000,000

Items 21 to 22 are based on the following:

The partnership of Martha, Eunice, and Rebecca has the following account balances:
Cash P 36,000 Liabilities P 17,000
Noncash assets 100,000 Martha, capital 69,000
Eunice, capital ( 8,000) deficit
Rebecca, capital 58,000
P136,000 P136,000
This partnership is in the process of being liquidated. Martha and Eunice are each entitled to 40
percent of all profits and losses with the remaining 20 percent to Rebecca.

21. What is the maximum amount that Eunice might have to contribute to this partnership because of the
deficit capital balance?
A. P 0 B. P8,000 C. P 40,000 D. P 48,000

22. How much is to be paid to Rebecca?

A. P0 B. P 6,333 C. P 9,500 D. P 19,000

23. If the noncash assets are sold for a total of P41,000, what is the minimum amount of cash that could
be received by Martha?
A. P 0 B. P 24,333 C. P 35,667 D. P 46,200

24. The partnership of Melanie, Alfred, and Love have asked you to assist it in winding up the affairs
of the business. You compile the following information.
A. The trial balance of the partnership on June 30, 2023, is:
Debit Credit
Cash P 12,000
Accounts receivable (net) 44,000
Inventory 28,000
Plant and equipment (net) 198,000
Loan to Melanie 24,000
Loan to Love 15,000
Accounts payable P 34,000
Melanie, capital 134,000
Alfred, capital 90,000
Love, capital 63,000
Total P321,000 P321,000
CRC-ACE/AFAR: First Pre-board Examinations – May 2023 batch Page 7

B. The partners share profits and losses as follows: Melanie, 50%; Alfred, 30%, and Love, 20%.
C. The partners decided to liquidate their partnership by instalments. Cash is distributed to the
partners at the end of each month. No interest on partners’ loans accrues during liquidation. A
summary of the July liquidation transactions follows:
P 33,000 collected on accounts receivable; balance is uncollectible.
P 20,000 received for the entire inventory.
P 2,000 liquidation expense paid.
P 34,000 paid to outside creditors.
P 16,000 cash retained in the business at the end of the month.

Determine the share of Alfred on the July cash distribution.

A. P0 B. P 8,000 C. P 18,000 D. P 52,800

25. ACE operates a branch in Dagupan City. Selected accounts taken from December 31, 2023 financial
statements of ACE and its branch follows.

Home Office Branch

Sales P 6,900,000 P 3,765,000
Shipments to Branch 1,750,000
Shipment from home office 2,187,500
Inventory, Jan 1 800,000 120,000
Inventory, December 31 640,000 250,000
Purchases 6,800,000 1,000,000
Allowance for overvaluation before adjustment 452,500
Expenses 356,000 250,000

The ending inventory of the branch includes P 120,000 purchased from outside suppliers. The
consolidated net income is:
A. P 1,791,500 B. P2,220,000 C. P 2,244,000 D. P2,218,000

26. Summary adjusted trial balance for the home office and branch of EMERALD Corporation at
December 31, 2020 are as follows:
Home office Branch
Debits:
Other assets P 530,000 P 165,000
Inventories, January 1, 2020` 50,000 45,000
Branch 200,000 -
Purchases 500,000 -
Shipments from home office - 240,000
Expenses 120,0000 50,000
Dividends 100,000 _______
Total debits P 1,500,000 P 500,000
Credits:
Other liabilities P 90,000 P 25,000
Capital stock 500,000 -
Retained earnings 100,000 -
Home office - 175,000
Unrealized profit in branch inventory/loading 10,000 -
Sales 537,500 300,000
Shipments to branch 200,000 -
Branch profit 62,500 ________
Total credits P 1,500,000 P 500,000

Additional information:
1. The home office ships merchandise to its branch at 120% of home office cost.
2. Inventories at December 31, 2020 are P 70,000 for the home office and P 60,000 for the
branch. The branch inventory is at transfer prices.

The combined net income of the home office and the branch amounted to:
A. P 370,000 B. P 200,000 C. P 132,500 D. P 170,000
CRC-ACE/AFAR: First Pre-board Examinations – May 2023 batch Page 8

27. As you begin to audit the books of the CLI Company, you notice a discrepancy between the balance
in the Investment in Branch (P136,020 Dr.) and the Home Office (P175,400 Cr.) accounts. The
following information is available:

1. The home office bills goods shipped to the branch at 150% of cost. At the beginning of the year,
branch inventory was stated at P75,000 after the annual physical count, and the home office
unrealized profit account had a credit balance of P5,000. You find that a shipment with a billed
value of P60,000 made toward the end of the prior year had not been recorded by the home
office.

2. On December 31 of the year under review, the branch mailed to the home office a check for
P25,000 and a notice that the branch had collected P4,380 on a home office account receivable.
These items had not been recorded by the home office.

3. The branch was opened during the preceding year and its operating loss of P42,800 for the
year was capitalized by the branch as a start-up costs by the following entry:
Start-up Cost (Intangible Asset) 42,800
Income Summary 42,800
The account is not being amortized by the branch, and no entry was made by the home office to
record the net loss.

How much must be the adjusted balance of reciprocal accounts?

A. P175,400 B. P192,600 C. P115,400 D. P132,600

28. Vanessa and Booz operate Musikeros Restaurant as a partnership. Their partnership agreement has
the following provisions for sharing profits and losses:

A. Income is distributed only as far as it is available.

B. Available income is to be distributed in the following sequence:

1. Vanessa, who is the chef, gets a salary of P50,000 a year; Booz, who is still learning, gets a
salary of P20,000.
2. Interest is imputed on the average capital balances at 15 percent.
3. Any remaining profits and losses are to be shared equally.

The average capital balances during the year were P40,000 for Vanessa and P100,000 for Booz. If
the partnership income for the year is P85,000, it should be distributed to the partners as follows:
A. Vanessa, P60,715; Booz, P24,285 C. Vanessa, P54,285; Booz, P30,715
B. Vanessa, P53,000; Booz, P32,000 D. Vanessa, P42,500; Booz, P42,500

29. A, B, C, and D are partners, sharing profits and losses 30%; 30%; 20%; 20%, respectively. After sale
of firm assets and payment of the available cash to the partnership creditors, a partnership trial
balance and the personal status of each partner are as follows:
Personal Status
Trial Balance Exclusive of Partnership Interest
Debit Credit Partner Asset Liabilities
Creditors P 20,000
A, capital 5,000 A P150,000 P100,000
B, capital 75,000 B 80,000 200,000
C, capital P 60,000 C 150,000 40,000
D, capital 40,000 D 60,000 80,000
P100,000 P100,000

Assuming that A pays the partnership creditors, how much B can still recover from the partnership?
A. P75,000 B. P54,000 C. P60,000 D. P0
CRC-ACE/AFAR: First Pre-board Examinations – May 2023 batch Page 9

30. The following information came from the books and records of CRC Corporation and its branch. The
balances are as of December 31, 2022, the second year of the corporation’s existence.

Home office Branch

Dr. (Cr.) Dr. (Cr.)
Sales P(400,000)
Expenses 137,500
Shipments to branch P(150,000)
Unrealized profit in branch inventory ( 32,500)

The branch purchases all of its merchandise from the home office. The home office ships this
merchandise at 120 percent of its cost. The ending inventory of the branch is P30,000 at the billed
price.
There are no shipments in transit between the home office and the branch.
The effect of the above information will be:
A. The total realized profit in branch inventory will be P32,500.
B. The net income reported by the branch is understated by P27,500.
C. The correct beginning inventory of the branch is P15,000.
D. The correct net income of the branch is P97,500.

31. Gerald, James, and Joshua have been partners throughout 2023. Their average balances and their
balances at the end of the year before closing the nominal accounts are as follows:
Partner Average Balances Balances, 12/31/2023
Gerald P 97,500 P 70,000
James 7,300 11,800
Joshua 4,250 1,700 *
*debit balance
The income for 2023 is P103,500 before charging partners’ salary allowances and before payment
of interest on average balances at the agreed rate of 4% per annum. Annual salary allocations are
P12,500 to Gerald, P8,750 to James, and P6,250 to Joshua. The balance of the profits is to be allocated
at the rate of 60% to Gerald, 10% to James, and 30% to Joshua.
The partners agreed that after credits and allocations have been made as indicated in the preceding
paragraph, the balances in the partners’ accounts will be proportionate to their residual profit-sharing
ratios. None of the partners is to invests additional cash nor withdraw cash. The partners agree to just
settle among themselves outside of the partnership.
The settlement among partners will involve:
A. Payment of Gerald to Joshua of P19,222.80. C. Payment of Joshua to Gerald of P9,645.80.
B. Payment of James to Joshua of P9,645.80. D. Payment of Joshua to James of P9,645.80.

32. Roger, Mark, and Leandro intend to start a business together that will be organized as a partnership.
The partners are considering adopting one of the following two alternative profit-sharing agreements:
Agreement #1 Agreement #2
Salaries:
Roger P 70,000 P 29,200
Mark 30,000 30,000
Leandro
Bonus to Roger as a percentage of profit after the bonus 5% 15%
Interest on average capital 8 10
Estimated average capital balances:
Roger P 50,000 P 50,000
Mark 100,000 100,000
Leandro 150,000 150,000
Remaining profit percentage:
Roger 40% 50%
Mark 40 35
Leandro 20 15
Roger seeks your advice as to which agreement would be best for him to accept.
Calculate the level of income at which Roger is indifferent between the choices.
A. 210,545 B. P240,000 C. P254,673 D. P257,240
CRC-ACE/AFAR: First Pre-board Examinations – May 2023 batch Page 10

33. Partners R, E, and H share net income and losses in a 5:3:2 ratio, respectively. At the end of a very
unprofitable year, they decided to liquidate the partnership. The partners’ capital account balances
on this date were as follows: R P22,000; E P24,900 and H P15,000. The liabilities in the balance
sheet amounted to P30,000, including a loan of P10,000 form R. The cash balance was P6,000.

The partners plan to sell the noncash assets on a piece meal basis and to distribute cash as rapidly
as it becomes available. All three partners are personally solvent.

If R received a total of P20,000 as a result of the liquidation, what was the total amount realized by
the partnership on the sale of the non cash assets?
A. P61,900 B. P85,900 C. P73,900 D. P24,000

34. Belinda, Daniel and Lorna are partners in a business and share in its earnings at the respective rates
of 50%, 30%, and 20%. At the beginning of the new fiscal year, they admit Fidel who is to invest in
the firm sufficient cash funds to give him a one-third interest in the capital and in the earnings. The
following closing balance is taken from the old firm’s books:

Cash P 200,000 Accounts payable P 100,000

Marketable securities 150,000 Loans payable – bank 60,000
Accounts receivable 450,000 Belinda, capital 350,000
Daniel, capital 200,000
________ Lorna, capital __90,000
P 800,000 P800,000

The securities have a market value of P100,000, and an allowance of P50,000 is required to cover
bad debts. No other adjustment of the net assets is necessary, but the three old partners must among
themselves bring the balances in their capital accounts into agreement with their interest in the
earnings. The settlement among the old partners
A. Belinda will receive from Daniel, P30,000. C. Daniel pays Lorna, P8,000.
B Belinda will receive from Lorna, P38,000. D. Lorna pays Belinda, P30,000.

35. ACE and CRC formed a joint venture to purchase and sell a special type of merchandise. The
venturers agreed to contribute cash of P 270,000,000 each to be used in purchasing the
merchandise, and to share profits and losses equally. They also agreed that each shall record his
purchases, sales, and expenses in their own books.

Upon termination of the joint venture, the following data are made available:

ACE CRC
Joint venture P 234,000,000 Credit P 170,600,000 Debit
Inventory Taken 10,800,000 33,750,000
Expenses paid from Joint venture cash 5,400,000 9,900,000

How much cash is to be received by CRC in the final settlement?

A. P 267,950,000
B. P 280,325,000
C. P 290,225,000
D. P 323,975,000

36. During the liquidation, the assets of liquidated corporation resulted to net proceeds of P500,000.
Liquidation expense amounting to P30,000 has been paid at the start of liquidation from the net
proceeds of disposal of all assets. Before the liquidation, the following data are provided concerning
the financial position of the said financially distressed corporation:

➢ The corporation has total assets with book of P1,000,000 and deficiency amounting to
(P170,000)
➢ An investment property with book value of P250,000 and realizable value of P150,000
secured a loan payable amounting to P50,000
➢ Inventory with book value of P500,000 and realizable value of P50,000 secured a note
payable amounting to P100,000.
➢ Salaries payable and income tax payable amounted to P50,000 and 20,000,
respectively.
What is the amount received by partially secured creditor?
A. P40,000
B. P60,000
CRC-ACE/AFAR: First Pre-board Examinations – May 2023 batch Page 11

C. P70,000
D. P65,000

37. On January 1, 2021, D Corporation purchased 80% of the outstanding shares of C Company for
P19,000,000. The price includes a control premium amounting to P500,000. D Corporation also
incurred acquisition-related costs amounting to P45,000. C Corporation’s at this date is reported
Ordinary shares at 16,000,000 and retained earnings at P6,400,000. Moreover, C Company’s
equipment with a remaining life of 5 years had a book value of P9,000,000 and a fair value of
P10,520,000. C Company’s remaining assets had book values equal to their fair values. All
intangibles except goodwill are expected to have remaining lives of 8 years. The income and
dividend figures for both D Corporation and C Company are as follows: Net Income of D Corporation
for 2021 is 3,600,000; 2022 is 4,400,000. Net income of C Company for 2021 is P1,360,000; 2022
is P2,040,000. Dividends declared by D Corporation in 2021 is P880,000; 2022 is P1,560,000.
Dividends declared by C Company in 2021 is P280,000; 2022 is P520,000. D Corporation’s retained
earnings balance at date of acquisition is P13,800,000.

What is the Consolidated profit for 2022?

A. 5,720,000
B. 5,856,000
C. 5,372,800
D. 5,752,000

38. Benz Company is contemplating the purchase of the net assets of Hanes Company for P800,000
cash. To complete the transaction, direct acquisition costs are P15,000. The balance sheet of Hanes
Company on the purchase date is as follows:
Hanes Company
Balance Sheet
December 31, 2022
Assets Liabilities & Equity
Current assets P 80,000 Liabilities P 100,000
Land 50,000 Common stock, P10 par 100,000
Building 450,000 Paid-in capital in excess of par 150,000
Accumulated depreciation ( 200,000) Retained earnings 230,000
Equipment 300,000
Accumulated depreciation ( 100,000) ________
Total P580,000 Total P 580,000

The following fair values were obtained for Hanes’s assets and liabilities:
Current assets P 100,000 Equipment P 275,000
Land 75,000 Liabilities 102,000
Building 300,000
Determine the goodwill that resulted from the business combination.
A. P167,000
B. P152,000
C. P335,000
D. none

39. The partnership of Park and Ride has the following provisions:
1. Park, who is primarily responsible for obtaining new clients, is to receivea 30% bonus on
revenues in excess of P200,000.
2. Ride, who is primarily responsible for administration, is to receive a 30% bonus on profits
in excess of 50% of revenues, as reflected in the general ledger.
3. All remaining profits or losses are to be divided equally.
Revenues for the year P280,000
Operating expenses 120,000
The share of partner Park in the net income should be:
A. P92,000 C. P 71,000
B. P89,000 D. P 57,000
CRC-ACE/AFAR: First Pre-board Examinations – May 2023 batch Page 12

40. Consolidated financial statements are prepared primarily to satisfy the needs of which of the following
users?
A. Non-controlling shareholders of the subsidiary
B. Bureau of Internal Revenue
C. Controlling shareholders of the subsidiary
D. Shareholders of the parent company

41. The partnership agreement for the partnership of Bernardo and Ricardo provided for salary
allowances of P450,000 to Bernardo and P350,000 to Ricardo, and the residual profit was allocated
equally. During 2020, Bernardo and Ricardo each withdraw cash equal to 80 percent of their salary
allowances. If during 2008, the partnership had profit in excess of P1,000,000 without regard to
salary allowances and withdrawals, Bernardo’s equity in the partnership would
A. Increase more than Ricardo’s
B. Increase the same as Ricardo’s
C. Decrease more than Ricardo’s
D. Decrease the same as Ricardo’s

42. Las Vegas retired from the partnership of Las Vegas, New York, and New Jersey. Las Vegas’s cash
settlement from the partnership was based on new goodwill determined at the date of retirement plus
the carrying amount of the other net assets. As a consequence of the settlement, the capital accounts
of New York and New Jersey were decreased. In accounting for Las Vegas’s withdrawal, the
partnership could have used the
Bonus Method Goodwill Method
A. No Yes
B. No No
C. Yes Yes
D. Yes No

43. Partners Lovelle and Carlo share income and loss equally after each has been credited in all
circumstances with annual salary allowances of P15,000 and P12,000, respectively. Under this
arrangement, Lovelle will benefit by P3,000 more than Carlo in which of the following circumstances?
A. Only is the partnership has earnings of P27,000 or more for the year.
B. Only if the partnership does not incur a loss for the year.
C. In all earnings or loss situations.
D. Only if the partnership has earnings of at least P3,000 for the year.

44. Melrose, Petersen, and Ronald are partners with capital balances of P50,000, P30,000, P20,000,
respectively. The partners share income and loss equally. For an investment of P50,000 cash,
Andersen is to be admitted as a partner with a one-fourth interest in capital and income. Based on
this information, the amount of Andersen’s investment can best be justified by which of the following?
A. Andersen will receive a bonus from the other partners upon her admission to the partnership.
B. Assets if the partnership were overvalued immediately prior to Andersen’s investment.
C. The books value of the partnership’s net assets was less than their fair value immediately
prior to Andersen’s investment.
D. Andersen is apparently bringing goodwill into the partnership, and her capital account will be
credited for the appropriate amount.

45. If L is the total capital of a partnership before the admission of a new partner, I is the total capital of
the partnership after the investment of a new partner, M is the amount of the new partner’s
investment, B is the amount of the capital credit to the new partner, then there is:
A. L bonus to the new partner if I = L + M and B < M.
B. Goodwill to the old partners if I > (L + M) and B = M.
C. Neither bonus nor goodwill if I = L – M and B > M.
D. Goodwill to the new partner if I > (L + M) and B < M.

46. The partnership of Eugene, Alfred and Jericho shared profits and losses equally. When Eugene
withdrew from the partnership, the partners agreed that there was unrecorded goodwill in the
partnership. Under the bonus method, the capital balances of Alfred and Jericho were
A. Not affected.
B. Each reduced by one-half of the total amount of the unrecorded goodwill.
C. Each reduced by one-third of the total amount of the unrecorded goodwill.
D. Each reduced by one-half of Eugene’s share of the total amount of the unrecorded goodwill.
CRC-ACE/AFAR: First Pre-board Examinations – May 2023 batch Page 13

47. If A is the total capital of a partnership before the admission of a new partner, M is the total capital of
the partnership after the admission of the new partner, I is the amount of the new partner’s
investment, and E is the amount of capital credited to the new partner, then there is
A. Goodwill to the new partner if M > (A + I) and E < I
B. Goodwill to the old partners if M = A + I and E > I
C. A bonus to the new partner if M = A + I and E > I
D. Neither bonus nor goodwill if M > (A + I) and E > I

48. In the preparation of a consolidated balance sheet, the elimination entry as to goodwill in the
consolidated working paper will be
A. A credit to the Investment account by P6,120.
B. A credit to the Investment account by P7,650.
C. A charge to the Investment account by P3,178.
D. A credit to the Plant and Equipment account by P6,120.

49. To complete the eliminating entries, the other accounts affected are the capital stock and retained
earnings of Sydney Co. in these amounts.
A B. C D.
Capital Stock P 8,265 10,000 P 6,470 P 8,000
Retained Earnings P 28,558 P 32,350.00 P 25,880 P 25,880

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

51. Under IFRS 10, the following are the essential elements of control of an investor (acquirer) over the
investee (acquiree), except
A. The investor has power over the investee which means that the investor has existing right that
give it the ability to direct the relevant activities of the investee.
B. The investor has exposure or rights to variable returns from its involvement with the investee.
C. The investor has the ability to use its power over the investee to affect the amount of the
investor’s return.
D. The investor has ownership of more than 50% of the ordinary shares of investee.

52. Under PFRS 3, which of the following statements concerning the accounting treatment of the different
types of costs incurred in relation to a business combination is correct?
A. Direct costs of business combination shall form part of the consideration given up for purposes
of computation of goodwill or gain on bargain purchase.
B. Transaction costs incurred for the issuance of bonds payable classified as financial liability at
fair value through profit or loss that forms part of consideration given up shall be amortized
over the term of the bonds using effective interest method.
C. Costs incurred for the issuance of stocks issued as consideration given up for business
combination shall be initially charged to share premium arising from issuance of the related
shares.
D. Listing fees incurred for registering the stocks of a corporation to stock exchange market shall
be capitalized as goodwill arising from business combination.

53. 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

54. If the branch receives credit memo from the home office, the branch shall record it in its separate
statement of financial position by
A. Increasing the investment in branch account
B. Decreasing the investment in branch account
C. Debiting the investment in branch account
D. Disclosure
CRC-ACE/AFAR: First Pre-board Examinations – May 2023 batch Page 14

55. Which of the following is a vertical combination?

A. A combination where the two entities are unrelated
B. A combination where the two entities are competitors in the same industry
C. A combination where the two entities have a potential buyer/seller
relationship
D. None of the above describes a vertical combination

56. Following the completion of a business combination in the form of a statutory consolidation, what is
the balance in the new corporation’s Retained Earnings account?
A. The acquirer Retained Earnings account balance
B. The acquiree Retained Earnings account balance
C. Zero
D. The sum of the acquirer and acquiree Retained Earnings account balances

57. Joint control is defined as

A. The power to participate in the financial and operating policy decisions of another entity.
B. The power to govern the financial and operating policies of another entity so as to obtain benefits
from its activities.
C. The contractually agreed sharing of control of an arrangement which exists only when decisions
about relevant activities require majority consent of the parties sharing control.
D. The contractually agreed sharing of control of an arrangement which exists only when decisions
about relevant activities require unanimous consent of the parties sharing control.

58. In the absence of other relevant data, when a new partner is admitted in an existing partnership
through the acquisition of capital interest of incumbent partners, which is always true?
A. The partnership shall recognize gain or loss as a result of the disposal of capital interest.
B. The total capital of the partnership will not change despite the admission of a new partner.
C. The total assets of the partnership will increase by the amount of the net proceeds of the
disposal of capital interest.
D. The partnership shall recognize goodwill arising from the admission of a new partner.

59. A partners retires from the partners and receives an amount higher than his capital balance at the
time of his retirement. Under Philippine GAAP, which of the following explanation is valid if the capital
balances of the remaining partners increase after such retirement?
A. Bonus has been given by the retiring partner to the remaining partners.
B. Asset revaluation has been recognized at the time of retirement.
C. Goodwill arising from the partner’s retirement has been recognized.
D. Bonus has been given by remaining partners to retiring partner.

60. What is the reason for the understatement in the branch’s reported net income in its separate income
statement as compared to the branch’s true net income reported in the entity’s combined income
statement?
A. Overstatement of the branch’s ending inventory coming from the home office
B. Overstatement of the branch’s reported shipments from the home office
C. Overstatement of the branch’s beginning inventory coming from the home office
D. Overstatement of the branch’s reported cost of sales for goods coming from home office

reh/cde