National Federation of Junior Philippine Institute of Accountants

In partnership with
R.G. Manabat & Co. |KPMG
Professional Review and Training Center | PRTC

National Mock Board

Examination 2016
-End of Examination-
Thank you for taking the
NFJPIA National Mock Board Examination! Subject:
ADVANCED FINANCIAL ACCOUNTING
AND REPORTING

Page 24 Page 1
INSTRUCTIONS: Select the best answer for each of the following ques- Work in Process, February 1:
tions. ALL questions are compulsory and MUST be attempted. Mark Transferred in P - P 456,720
only one answer for each item on the answer sheet provided. Strictly NO Materials P 216,000 P 343,800
ERASURES ALLOWED. Erasures will render your examination answer sheet Conversion costs P 156,000 P 449,160
INVALID. Use PENCIL NO. 2 only. GOD BLESS! Current costs:
Transferred in P - P ?
Use the following information for the next four items (1-4)
Materials P3,168,000 P1,344,000
Lucifer Company acquires a 40% ownership interest in Heaven and Earth Conversion costs P4,942,080 P2,052,000
partnership at a cost of P300,000,000 and incurs acquisition related cost
P5,000,000. The said partnership constitutes a business and is considered 65. Total costs transferred to Department 2 and the amount of WIP, end
joint operation (Joint Operation Heaven and Earth) in accordance with in Department 1
PFRS 11 Joint Arrangements. The contractual arrangement between the
parties establishes that Lucifer has rights to the assets and obligations for A) P6,818,880; P633,600
the liabilities that relate to the joint operation in proportion to its owner- B) P7,135,680; P878,880
ship interest. C) P6,763,680; P1,267,200
The following are the assets and liabilities of the Joint Operation: D) P7,135,680; P1,267,200

Acquisition date Acquisition date Acquisition date 66. Total costs transferred to the Storeroom and the amount of WIP, end
carrying values amounts re- fair values for in Department 2
for the entire net quired by the the entire net P10,359,600; P932,400
assets appropriate assets
standard for the P10,359,600; P1,160,400
entire net assets P10,533,840; P1,160,400
Property, plant 250,000,000 270,000,000 270,000,000 P10,533,840; P932,400
and equipment
Intangible assets 100,000,000 125,000,000 125,000,000
(excluding good- 67. Job order costing would be an appropriate system to account for the
will) manufacture of
Accounts receiv- 230,000,000 210,000,000 210,000,000 A) Aircraft B) Matches C) Zippers D) Cardboard boxes
able 68. Factory worker fringe benefit costs are usually charged to
Inventory 160,000,000 175,000,000 175,000,000 A)WIP inventory B) Direct labor C) Admin. Expenses D)Facto ry
overhead
Retirement bene- (30,000,000) (30,000,000)
fit obligations 69. Which of the following is usually prepared daily by employees for
each job worked on?
Accounts Paya- (120,000,000) (120,000,000) (120,000,000)
ble A) Job time tickets B) Time card C) Punch card D) Cost control
card
Deferred tax lia- (60,000,000)
bility 70.State the proper order of partnership liquidation.
I. Outside creditors
1. Lucifer, as a new partner, must apply the principles of what standard/s II. Owners interests
for the acquisition of the said interest in a joint operation that constitutes III. Inside creditors
a business? A) I, II, III C) II, I, III
B) I, III, II D) III, I, II
A)PAS 28 B)PFRS 3 C)PFRS 11 D)PAS 28, PFRS 3 and 11

Page 2 Page 23
 2016, to sell 1,000,000 baht on April 30, 2017 at the forward rate.
2. The net amount that Lucifer recognize on its own financial statements
11/1/2016 12/31/16 4/30/17
A)P236,000,000 B)P228,000,000 C)P194,000,000 D) P0
Spot rate (baht) P1.190 P1.180 P1.210 3. The amount of goodwill that Lucifer must recognized on its own financial
statements, if any
Forward rate (baht) 1.199 1.187 1.210
A)P0 B)P69,000,000 C)P64,000,000 D)P72,000,000

62. The December 31, 2016 profit and loss statement, foreign exchange 4. The net increase (decrease) in the assets of Lucifer, if any
gain or loss on forward contract amounted to:
A)P504,000,000 B)P547,000,000 C)P586,000,000 D) P0
A) P10,000 gain B) P10,000 loss C)P12,000 gain D)P12,000 loss
63. On April 30, 2017, foreign exchange gains or loss on forward contract Use the following information for the next three items (5-7)
amounted to (ignoring any discount reversal):
Barry and Oliver formed a partnership to practice law in the Philippines on
A)P23,000 gain B) P23,000 loss C) P30,000 gain D)P30,000 January 1, 2015. Their capital contributions were credited to their respec-
loss tive capital accounts as follows: Barry, Capital P600,000; Oliver, Capital
P1,000,000. During the year, the partnership has the following balances
before allocation of income:
64. The standard cost per unit of component part K-45 is P4. During the Debit Credit
month 6,000 units of K-45 were purchased at a total cost of P25,200. In Professional Fee Revenue P8,000,000
addition, 7,100 units of K-45 were used during the month; however, the Costs of services P3,550,000
standard quantity allowed for actual production is 6,900 units. The price Operating expenses 450,000
variance, if materials are recorded at actual cost (price):
A) P1,200 UF B) P1,420 UF C) P1,200 F D) P1,420 F Mr. Malcom, the partnerships accountant, journalized the following entries
below before allocating the net income to the respective partners:
Income tax expense 1,680,000
Use the following information for the next two items (65-66) Income tax payable 1,680,000
Kim Manufacturing Company applies process costing in the manufacture of
its best-seller product, glucolite. Manufacturing starts in Department 1 To record the income tax liability at 42% of the taxable income
where all materials are added at the start of the process. The good units Professional Fee Revenue 8,000,000
are then transferred to Department 2 where all the incremental materials Cost of services 3,550,000
needed for its completion are added after final inspection. In Department Operating expenses 450,000
1, units are inspected at the 100% stage of production while in Depart- Income tax expense 1,680,000
ment 2, inspection takes place when the units are 90% completed. De- Income summary 2,320,000
partment 1 uses FIFO costing while Department 2 uses the weighted aver- To close all the temporary accounts to the income summary account
age costing. The production data for the month of February show the fol-
lowing: Both partners have doubts on the competence of Mr. Malcom since she was
Department 1 Department 2 already old and is not anymore accomplishing the continuing professional
UNITS development. Thus, both partners decided to consult Mr. Damien Dark, dat-
ed December 28, 2015, to help them in accounting for income tax and allo-
Units in process, February 1, 2014 8,000 4,000 cation of their net income for the period for a fee of P10,000. Mr. Damien
Work completed 1/5 4/5 Dark, on his report dated December 31, 2015, noted the following:
Units in process, February 28 12,000 7,000
The income tax rate applicable to partnership in the Philippines is the same
Work to be completed /3 2/7 income tax rate applicable to Domestic Corporation, which is 30% of taxable
Started in process during February 60,000 income.
Normal spoilage (4% of units started in process) 1,000
Revenue for income tax purposes for the type of services the partnership is
Abnormal spoilage (25% of normal spoilage) 500
rendering is taxable only when actually collected. Of the total amount of Pro-

Page 22 Page 3
fessional Fee Revenue, P150,000 is still yet to be collected.
Keith Urbans income shown does not include any dividend income from
Operating expenses includes provision for bad debt amounting to P250,000,
Mimi. Keith Urbans accumulated profits balance at the date of acquisition
which is considered to be non-deductible expense for income tax purposes.
was P 5,958,500.
Based on the above information and based on the judgment of both part-
57. On December 31, 2015, determine the consolidated accumulated prof-
ners, determine the following:
its attributable to parent.
5. Net income for allocation purposes
A) P 8,821,300 B) P 8,970,050 C)P 8,993,850 D)P 9,017,650
A)P2,800,000 B)P2,763,000 C)P2,793,000 D)P3,990,000
58. On December 31, 2014, determine the amount of net income attributa-
ble to parent.
6. Share in the net income of Barry
A) P 2,149,650 B) P 2,159,850 C) P 1,776,500 D) P 1,786,700
A) P1,050,000 B)P1,036,125 C)P1,047,375 D)P1,496,250
59. Assume that Mimi has outstanding 6% P 100 par value cumulative pref-
7. Ending capital of Oliver erence shares with an aggregate value of P 1,000,000 that are classified
A) P3,493,750 B)P2,745,625 C)P2,726,875 D)P2,750,000 as equity and are held by non-controlling interests. What is the income
attributable to parent on December 31, 2014
A) P 1,721,500 B) P 1,716,500 C) P 1,731,700 D)P 1,744,700
8. The capital balances of partners Beauty and Bestie before admission of
Bebe-Love are P50,000 and P55,000, respectively. Bebe-Love invested a
certain amount for 25% interest in the partnership. As a result of her ad-
mission she received a bonus of P3,750. How much did Bebe-Love invest 60. Public Broadcasting Station should recognize contributed services on its
for her 25% interest in the partnership? statement of activities if which of the following conditions is (are) met?

A)P33,750 B)P30,000 C) P35,000 D)P25,000 I. The contributed services create or enhance nonfinancial assets
II. The contributed services require specialized skills, are provided by indi-
Use the following information for the next two items (9-10) viduals possessing those skills, and would typically need to be pur-
Michaela, Wes, and Connor formed a partnership on January 1, 2013, chased if not provided by donation.
agreeing to distribute profits and losses in the ratio of original capitals. A)I only B) I and II C)I or II D)None
Original investments were 625,000,
250,000 and 125,000 respectively. Earnings of the firm and drawings by 61. On December 20, 2015, United Appeal, a voluntary health and welfare
each partner for the period 2013-2015 follows: organization, received a donation of computer equipment valued at
P25,000 from a local computer retailer. The equipment is expected to have
Drawings a useful life of 3 years. The donor placed no restrictions how long the com-
puter equipment was to be used and United has an accounting policy
Net income Michaela Wes Connor which does not imply a time restriction on gifts of long-lived assets. On
(loss) Uniteds statement of activities prepared for the year ended December 31,
2013 Php440,000 Php150,00 Php78,000 Php52,000 2015, the donation of computer equipments should be reported:
0
2014 185,000 150,000 78,000 52,000 A) As an increase in temporary restricted net assets
B) Only in the notes to the financial statements
2015 (105,000) 100,000 52,000 52,000 C) As an increase in unrestricted net assets
D) As either an increase in temporary restricted net assets or as an
At the beginning of 2016, Michaela and Wes agreed to permit Connor to increase in unrestricted net assets.
withdraw from the partnership. Since the books for the partnership had
never been audited, the partners agreed to an audit in arriving at the set- Use the following information for the next two items (62-63)
tlement amount. In withdrawing, Connor was allowed to take certain furni-
ture and was charged 15,000, although the book value was On November 1, 2016, Creamline Dairy Corp. concluded that the Thailand
45,000; the balance of Connor interest was paid in cash. baht would weaken during the next six moths because of the coup that
transpired recently. In hopes of reporting a gain, Creamline
The following items were revealed in the course of the audit. entered into a foreign exchange forward for speculation on November 1,

Page 4 Page 21
 SCENE Inc. On this date, the identifiable assets acquired and liabilities as-
End of End of End of
sumed have fair values of P6,400,000 and P3,600,000, respectively. 2013 2014 2015
SMUTTY incurred the following acquisition-related costs: legal fees,
Understatement of accrued ex- Php4,000 Php5,000 Php6,500
P40,000, due diligence costs, P400,000; and general and administrative penses
costs of maintaining an internal acquisition, P80,000.
Understatement of accrued rev- 2,500 1,000 1,500
enue
As consideration, SMUTTY transferred 8,000 of its own shares with par Overstatement of inventories 15,000 20,000 20,000
value and fair value per share of P400 and P500, respectively, to OB- Understatement of depreciation
SCENEs former owners. Costs of registering and listing the shares expense on assets still held 1,500 3,500 2,000
(previously issued and newly issued) amounted to P160,000 (P20,000 per-
tains to listing fees of previously issued shares).
ased on the foregoing and the result of your review, answer the following:
54. How much is the goodwill (gain on bargain purchase) on the business 9. The correcting journal entry to record the errors discovered include/s
combination?
A) debit to depreciation expense P2,000
A) P716,000 B) P556,000 C) P600,000 D) P1,200,000 B) credit to accumulated depreciation P2,000
55. How much is the total amount charged to profit or loss in relation to C) debit to inventories P20,000
the transaction above? D) debit to Connor, capital P4,000
E) both b and d
A) P520,000 B) P680,000 C) P540,000 D) P0
56. Ignoring the consideration and issue costs above, but instead, SMUTTY 10. The total amount Connor received as liquidation of his capital from the
issued bonds with face value and fair value of P4,000,000 before incurring partnership?
the transaction costs. Transaction Costs in issuing the bonds amounted to
P200,000. How much is the goodwill (gain on bargain purchase) on the A) P0 B)P11,250 C)P26,250 D)P15,000
business combination
A) P716,000 B) P556,000 C)P600,000 D) P1,200,000
Use the following information for the next four items (11-14)
On April 2, 2015, PURPOSE Company sold inventory costing P1,200,000 for
Use the following information for the next three items (57-59) P2,000,000. The terms of the sale provide that a 20% down payment shall
be made on date of sale and the balance collectible in four equal installments
On January 2, 2014, Keith Urban Corporation purchased 70% of the ordi- every December 31, starting December 31, 2015 as evidenced by a nonin-
nary shares of Mimi Company for P 4,675,000. At that date, Mimi Compa- terest bearing note for the said balance. The market rate with the same type
ny had P 4,887,500 of ordinary shares outstanding and accumulated prof- of financial instrument is 10% on April 2, 2015. The present value factor of
its of P 1,572,500. Mimis equipment with a remaining life of 5 years had a an ordinary annuity of 1 at 10% for four periods is 3.1699.
book value of P 2,380,000 and a fair value of P 2,550,000. Mimis remain- (Round off gross profit percentage into two decimal %)
ing assets had a book value equal to their fair values. All intangible assets
except goodwill are expected to have remaining lives of 10 years. Non- 11. If a non-PFRS revenue recognition method will be applied in recognizing
controlling interest shall be measured at fair value. PURPOSEs revenue, which of the following will be required to be disclosed
as part of the Companys policy?
The income and dividend figures for both Keith Urban and Mimi Company
are as follows: I. The fact that the Company will not be applying PFRS revenue recogni-
tion method.
Income Dividends
Keith Urban Corporation: 2014 P 1,572,500 P 425,000 II. The reasons why non-PFRS revenue recognition will provide more rele-
2015 1,785,000 510,000 vant and reliable information.
Income Dividends A)I only B)II only C)I and II D) None
Mimi Company: 2014 P 340,000 P 55,000
2015 569,500 127,500

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12. In 2015, how much is the realized gross profit of PURPOSE Company as- Credits:
suming all the installments due were collected on time and the Company Accounts payable . . . . . . . . . . . . P 15,000 P 500
applied provisions of PAS 18 Revenue for its revenue recognition? Unrealized inventory profit . . . . . . . 9,200 -
Main Store . . . . . . . . . . . . . . . - 30,000
A)P0 B)P467,960 C)P497,451 D)P800,000 Capital stock . . . . . . . . . . . . . . 50,000 -
Retained earnings . . . . . . . . . . . . 16,000 -
13. In 2015 (after the collection of the first installment), how much is the Sales . . . . . . . . . . . . . . . . . . 200,000 120,000
realized gross profit of PURPOSE Company if the collectability of the install- Shipments to branch . . . . . . . . . . . 90,000 -
ments were not reasonably assured and the Company disclosed in its ac- Profit from branch . . . . . . . . . . . - 2,300
counting policy that for purposes of revenue recognition, the Company will Total credits . . . . . . . . . . . . . . P 382,500 P 150,500
apply installment sales method under US GAAP since it will provide more
reliable and relevant information to the users of the financial statements? 50. Inventories on hand at December 31, 2015 at the main store and
branch are P3,000 and P1,800, respectively. The December 31, 2014
A) P197,796 B)P205,959 C)P224,480 D) P272,000 branch inventory includes merchandise purchased from outsiders of P300,
and the December 31, 2015 branch inventory includes P150 of merchan-
14. Assume that the collectability of the installments were uncertain and the dise purchased from outsiders. The combined cost of goods sold amounted
Company disclosed in its accounting policy that for purposes of revenue to:
recognition, the Company will apply cost recovery method under US GAAP A) P261,200 B)P252,200 C) P243,150 D)P252,150
since it will provide more reliable and relevant information to the users of
the financial statements. How much is the total deferred interest income
after the collection of the 2016 installment as a result of the cost recovery 51. Colorado has a 10% holding in Darweesh Establishment. Each of the
application? seven other investors in Darweesh holds between 10% and 20% of its eq-
uity. The Darweesh Establishment owns a fleet of ships that is used by all
A)P95,097 B) P96,306 C) P191,403 D)P196,785 the investors to transport their own products around the world. The opera-
tion of Darweesh and of its fleet is the subject of a detailed agreement
among all the investors. Colorado has a director on the board of Darweesh
15. After Diana Equipment Corporations first year of operations, records but, in accordance with the agreement, the entity is directed by one of the
show the following information: other investors, who receives a fee for this service.
A) A subsidiary B)An associate
Installment sales P150,000
C) Probably a joint operation D) Probably a joint venture
Purchases 100,000
52. In the separate FS of a parent entity, investments in subsidiaries that
Inventory new merchandise, December 31, 2015 10,000 are not classified as held for sale should be accounted for
Installment accounts receivable, December 31, 2015 80,000 I. At cost
II. In accordance with IFRS 9
Additional information: III. Equity method
The accountant of Diana Equipment Corporation erroneously did not record A) I, II or III B)I and II only C)I and III only D)II and III only
an inventory received as trade-in from a customer.
The appraised value of the trade-in merchandise is P20,000. The related in- 53. For purposes of Separate financial statements, which of the following
stallment sale and installment accounts receivable were recorded at their items must not be capitalized as part of the investment in Subsidiary ac-
appropriate amounts of P80,000 and P70,000, respectively. count?
How much is the realized gross profit? I. Indirect cost of acquiring the subsidiary
A) P32,400 B) P35,000 C)P35,200 D)P36,000 II. Direct cost of acquiring the subsidiary
III. Share issue cost

Use the following information for the next two items (16-17) A)I, II and III B)I and II only C) I and III only D)II and III only
The Secret Circle Inc. uses installment method under US GAAP for its reve-
nue recognition and accounting for repossessions. On January 1, 2015, The
Secret Circle Inc. sold inventory costing P612,244 on installment sale to The Use the following information for the next three items (54-56)
Witches of the East End Co. for P960,000. The selling price will be payable On January 1, 2015, SMUTTY acquired the identifiable net asset of OB-

Page 6 Page 19
 2015, the District 2 branch encountered an inventory shortage, and Dis- in twenty-four equal monthly installments beginning on January 1, 2015
trict 1 branch shipped the merchandise to the District 2 branch at a freight and every first of the month thereafter. The market rate on similar instru-
cost of P160 paid by District 1 branch. Shipping charges from the home ment is 6%.
office to the District 2 branch would have been P175.
After making three timely payments, The Witches of the East End Co. de-
46. The Capitol will record the P5,500 shipment to District 1, together with
faulted. Thus, The Secret Circle Inc. repossessed the inventory. On the
the P200 shipping charge, in a journal entry that includes the following:
date of repossession, it was estimated that the inventory has a fair value
A) Shipment from home office, P6,600 of P576,664. The Secret Circle Inc. spent P115,340 in reconditioning the
inventory before selling it to Charmed Company for P865,000, its cash
B) Shipments to District 1, P5,700 equivalent price payable within 9 months. The receivable related to the
C) Unrealized profit branch inventory, P1,100 resale was not discounted since interest is immaterial. Charmed Company
D) Investment in District 1, P5,700 made total payments of P346,000 on the resale within 2015. (Round off
gross profit percentage into two decimal %)
47. District 1 should record the transfer of the merchandise to District 2 by
either a debit or credit entry that includes the following:
16. How much is the gain (loss) on repossession?
A) Shipment from home office, P5,500
B) District 2, P6,975 A) (P 78,744) B) (P 75,652) C) P 36,596 D)P 39,688
C) Home Office, P6,960
D) Inventory, P5,6600
17. In The Secret Circle Inc.s Statement of Comprehensive Income, how
48. If merchandise is unsold at year end, the District 2 branch will invento- much will be the total realized gross profit for the year ended December
ry the merchandise at what amount? 31, 2015, before gain (loss) on repossession?
A) P6,000 B) P6,975 C) P6,760 D)P6,775
A) P 34,752 B) P 115,332 C) P 105,440 D) P 150,084
49. The loss on excessive freight charges on the inter-branch transfer
amounted to:
Use the following information for the next six items (18-23)
A) P200 B) P160 C) P175 D)P185
On June 1, 2015, Stiles Construction Corp. contracted to build an office
building for Scott Inc. for a total contract price of P60,900,000. Stiles Con-
50. LAST Company operates retail hobby shops from the main store and a struction Corp.s accounting policy for revenue and construction costs
branch store. Merchandise is shipped from the main store and to the recognition is to apply provisions of PAS 11- Construction Contracts. The
branch and billed to the branch at an arbitrary 10% markup. Trial balanc- Company is subject to 30% income tax rate and is taxable based on ac-
es of the main store and branch as of December 31, 2015 are as follows: counting profit.
Main Store Branch The estimated total costs of the contract are as follows:
Debits: (Please refer to the next page)

Cash . . . . . . . . . . . . . . . . . . P 1,500 P 1,000

Accounts receivable net . . . . . . . . 200 -
Inventory, December 31, 2014 . . . . . . 3,500 2,500
Building net . . . . . . . . . . . . . 60,000 18,000
Equipment net . . . . . . . . . . . . . 30,000 12,000
Branch store . . . . . . . . . . . . . . 32,300 -
Purchases . . . . . . . . . . . . . . . . 240,000 11,000
Shipments from home office . . . . . . . - 99,000
Other expenses . . . . . . . . . . . . . 15,000 7,000
Total debits . . . . . . . . . . . . . . P 382,500 P150,500

Page 18 Page 7
 P1,200 were unpaid on December 31, 2014; Cash received from custom-
Estimated costs of design and technical assis- ers on account, P40,000, after allowing cash discounts of P1,470; Cash
tance that are directly related to the contract P800,000 remitted to the home office during the year, P33,000. What is the income
Estimated costs of design and technical assis- or loss of the branch during 2014 insofar as the home office is concerned?
tance that are not directly related to a specific 200,000 A) P1,530 B) P3,530 C) P12,130 D) P13,600
contract (properly allocated)
Estimated costs of materials to be used in the 22,000,000
construction 45. On December 31, 2014, the following information has been collected by
BLT Companys office and branch for reconciling the branch and home of-
Estimated costs of construction labor 11,200,000 fice accounts. The home offices branch account balance as of December
31, 2014 is Php896,000.
Estimated costs of rectification and guarantee 1,200,000
work, including expected warranty
a. On December 27, 2014, the branch remitted cash of Php67,000 to the
Estimated administrative costs expected to be head office and debited accounts payable for this transaction. The cash
reimbursed in accordance with contractual 520,000 receipt was recorded by the head office as Php 6,700 twice, one on De-
agreement cember 29, 2014, and another on January 3, 2015.
Estimated insurance costs during construction 80,000 b. On December 26, 2014, the branch returned Php55,000 of limited
edition merchandise to the home office. The home office debited
Estimated construction overhead 4,000,000 Investment in Branch account when the merchandise was received
on December 30, 2014.
c. The home office allocated 20% of its general expenses to the
Estimated marketing costs for selling condo- 400,000 branch. The branch erroneously recorded the allocation of general
minium units expenses at 30%. The general expenses amounted to Php178,000.
Estimated total contract costs d. Branch store insurance premiums of Php25,750 were paid by the
40,400,000 home office. The branch recorded the insurance premium at
Php25,570.
e. An equipment costing the home office Php65,000 was transferred
to the branch. The branch recorded the equipment at Php6,500.
The following were the actual costs incurred by Stiles Construction Corp. f. Freight charge on merchandise made by the home office for
during the first year of the construction: Php6,890 was recorded in branchs books at Php8,690.
Costs of design and technical assistance that g. Home office credit memo representing a discount on merchandise
are directly related to the contract P400,000 for Php4,000 was recorded twice by the branch.
Costs of design and technical assistance that are not h. The home office failed to take up the Php23,000 debit memo from
directly related to a specific contract (properly allocated) 100,000 the branch representing the defective merchandise returned by the
Costs of materials to be used in the construction 12,000,000 branch.
Costs of construction labor 6,000,000 i. The home office erroneously recorded the branchs credit memo at
Admin. costs expected to be reimbursed in accordance Php35,985. The branch collected Php45,985 from the home offices
with contractual agreement 480,000 customers.
Admin. costs not expected to be reimbursed 120,000
Research and development costs for which reimbursement How much is the unadjusted balance of the home office account in the
is not specified in the contract 7,200,000 books of the branch as of December 31, 2014?
Insurance costs during construction 60,000 A)P712,700 B) P736,620 C) P716,620 D) P718,820
Construction overhead 960,000
Marketing costs for selling condominium units 800,000
Total contract costs incurred to date 28,120,000
Use the following information for the next four items (46-49)
Information related to budgeted and actual labor hours on the said con- The Capitol Inc. has two branches to which merchandise is transferred at
tract is shown below: cost plus 20%, plus freight charges. On November 30, 2015, home office
shipped merchandise that cost P5,500 to its District 1 branch, and the
P200 shipping charges was paid by the home office. On December 15,

Page 8 Page 17
39. Pecan pays P60,000,000 in cash to the former shareholders of South- Total direct labor hours to date 900 hours
ern. How much goodwill does it record?
A) P52M B) P53M C) P33M D) P17M Estimated direct labor hours 1,600 hours

40. Pecan pays P60M in cash to the former shareholders of Southern. Sub-
sequent information reveals that Southern has customer lists, not reported At the end of year one, Stiles Construction Corp. engage an independent
on its balance sheet, with a fair value of P3M at the date of acquisition. surveyor to assess the completion of the project. The independent survey-
This information was received during the measurement period. or has certified that at the period-end the contract is 55% complete and
that the company is entitled to apply for cumulative progress payments of
The entry to record the new information includes a credit of P3M to P31,820,250 (after a 5% retention). Stiles Construction Corp.'s best esti-
mate of the physical proportion of the work it has completed is that it is
A) intangible assets B) goodwill C) gain on acquisition D) APIC
60% complete.
41. Pecan pays P60,000,000 in cash to the former shareholders of South-
18. Assuming stage of completion is measured by the proportion that con-
ern. Assume the fair values of Southerns identifiable net assets are as
tract costs incurred for work performed to date bear to the estimated total
originally stated. Within the measurement period, additional information
contract costs, what is the POC as of the end of the 1st year?
on Southerns expected future performance at the date of acquisition re-
veals that the earnout had a fair value of P200,000 at the date of acquisi- A)42% B) 45% C) 50% D) 51%
tion.
The entry to record the new information includes a credit of P800,000 to
19. Assuming stage of completion is measured by surveys of work per-
A) intangible assets B) goodwill C) gain on acquisition D) earnings formed, what is the amount of revenue to be recognized as of the end of
the 1st year?
42. Pecan pays P60,000,000 in cash to the former shareholders of South-
ern. Assume the fair values of Southerns identifiable net assets are as A)P 31,820,250 B)P 30,450,000 C)P 33,495,000 D)P 36,540,000
originally stated. Subsequent increases in the demand for Southerns
products requires that the earnout be revalued to P1,800,000. The entry
to record the new information includes a debit of P800,000 to 20. Assuming stage of completion is measured by completion of a physical
proportion of the contract work, what is the balance of the Construction in
A)intangible assets B)goodwill progress account as of the end of the 1st year?
C)loss on contingency D) earnings conting. liab.
A)P 32,540,000 B) P 36,540,000 C)P 30,450,000 D)P 31,495,000
43. On April 1, 2015, the Toshiba Company established an agency in La- 21. Assuming stage of completion is measured by efforts-expended method
guna, sending its merchandise samples costing P82,500 and a working (input measure of POC), what is realized gross profit as of the end of the
fund of P65,000 to be maintained on the imprest basis. During the month 1st year?
of April, the agency transmitted to the home office sales orders that cost A)P 10,450,000 B)P 11,495,000 C)P 11,756,250 D) P
of P468,750. However, the home office was able to fill-up only 80% of the 12,540,000
orders. Total cash of P250,000 was collected from the customers. A home
office disbursement chargeable to the sales agency includes the acquisi- 22. Assuming the outcome of a construction contract cannot be estimated
tion of equipment for Laguna, P180,000 to be depreciated at 10% per an- reliably in year one and the company billed 30% of the contract price,
num. The agency paid expenses of P43,700 and received replenishment what is the net CIP (Progress Billings) at the end of year 1?
thereof from the home office. The agency samples are good until February
2016. It was estimated that the gross profit on goods shipped to bill agen- A) (P 18,270,000) B)P 9,850,000 C)P 2,650,000 D) P 1,730,000
cy sales orders averages 25%. Net income (loss) for the month ended
April 30, 2015 is
23. Assuming stage of completion is measured by the proportion that con-
A) (P19,200) B)P72,300 C) (P2,700) D)P55,800 tract costs incurred for work performed to date bear to the estimated total
contract costs, what is the profit contribution of this project as of the end
of the 1st year?
44. The Boom Company of Makati opened a branch at Cebu on January 1,
2014 to expand the market of its product. Merchandise shipped during A)P 10,450,000 B)P 2,330,000 C)P 2,730,000 D)P 1,631,000
2014 to the Cebu branch totaled P59,000, and this included a profit of
25% based on cost. At the end of the year, the inventory was P6,000 at
billed price. Sales on account, P72,500; Expenses, P16,500, of which

Page 16 Page 9
Bulgaria Company recognizes construction revenue and expenses using the
Current assets P 12,000,000
percentage of completion method. During 2013, a single long-term project
was begun which continued through 2015. Information on the project was Plant & equipment 150,000,000
as follows:
Total P 162,000,000
2013 2014 2015

Accounts receivable from con- 320,000

struction contract 100,00 300,000 Liabilities P 130,000,000
0
Construction expenses each ? Common stock, P1 par 400,000
year 105,00 192,000 Additional paid-in capital 23,800,000
0
Construction in progress 610,000 Retained earnings (10,000,000)
122,00 364,000
0 Treasury stock, 6,000 shares (400,000)
Partial billings on contract 500,000
100,00 420,000 Accumulated OCI 18,200,000
0
Gross profit recognized for the ? ? 20,000 Total P 162,000,000
year

Pecan Corporation is in the process of acquiring Southern. Its research re-

24. Compute the profit recognized from the long-term construction contract veals that Southerns current assets are carried at P2,000,000 more than
in 2013 and 2014 and construction expenses in 2015: book value, its plant & equipment is carried at P60,000,000 more than
2013 2014 2015 book value, and it has the following unreported intangibles:
A) 17,000 50,000 226,000
Fair value
B) 22,000 64,000 246,000
C) 17,000 50,000 364,000 Non-competition agreement P 8,000,000
D) 22,000 56,000 610,000
Skilled employees 4,000,000

25. A defense contractor (the entity) and the government (the customer) Business from prospective customers 16,000,000
agree in a contract that the defense contractor delivers twenty-five air-
crafts to the government. The original contract includes an option for the Order backlog 30,000,000
government to purchase additional five aircrafts; however, the price for
the delivery of these aircrafts is not determined yet and, hence, still needs
Pecan includes an earnings contingency, with a present value of
to be negotiated. Later, the government exercises its option for the pur-
P1,000,000, as part of the acquisition agreement.
chase of five additional aircrafts; the new contract is priced afresh. Due to
the effect of initial costs and of the learning curve, the profit margin on the 37. Pecan finances the acquisition with bonds. If Southerns shareholders
additional contract is much higher than the profit margin on the original are to receive P72 per share in cash on acquisition, how much cash must
contract. Pecan generate from the sale of bonds?
Given the information above, which of the following statements is (are) A)P14.4M B)P28.8M C)P28.368M D)P30.368M
true about the proper accounting of the new contract under Philippine Ac-
counting Standard (PAS) 11, Construction Contracts? 38. How much cash must Pecan generate from the sale of bonds, if it wants
to report P40,000,000 in goodwill?
I. The two contracts cannot be combined for accounting purposes because
the price for the aircrafts in the new contract was not negotiated with A)P47M P B)48.8M C)P438M D)P28M
regard to the original contract price.

Page 10 Page 15
 shareholders each hold 5 % of the voting rights of Entity H. None of II. The two contracts can be combined for accounting purposes because
the shareholders has contractual arrangements to consult any of the the price for the aircrafts in the new contract was negotiated with re-
others or make collective decisions.
gard to the original contract price.
A)I only B)II only C)I and II D)None
III. The purchase of additional five aircrafts by the government shall be
treated as a separate contract.
35. Determine which of the entities below is/are not subsidiary/ies of ABC IV. The construction of the additional asset shall be treated as a separate
Company. construction contract when (a) the asset differs significantly in design,
I. Entity M (a retailer): ABC has an interest of 40% in entity M. ABC technology or function from the asset or assets covered by the original
signed an agreement with the major shareholder whereby ABC is re- contract; and (b) the price of the asset is negotiated without regard to
sponsible for the financial and commercial operations of Entity M, while the original contract price.
the main shareholder is responsible for the marketing decisions and
human resources department. A)I and III B)I and IV C)II and III D)II and IV
II. Entity N: ABC has 41% of Entity N and has the right to veto any deci-
sion by the board of directors to sell a major subsidiary of Entity N.
A)I only B)II only C)I and II D) None 26. PRINCESS COMPANY filed a voluntary bankruptcy petition on August
15, 2013 and the statement of affairs reflect the following amounts:
36. Which of the following entities is/are not subsidiaries of EBC? BOOK CARRYING ESTIMATED
VALUE VALUE
I. EBC Ltd. has an interest of 52% in ABD Ltd. and signed an agreement
with the shareholder B, whereby B is responsible for the production and Pledged with fully P150,000 P185,000
commercial operations of ABD Ltd., while EBC is responsible for the secured creditors
marketing decisions and human resources department. Pledged with partially 90,000 60,000
II. EBC Ltd. has direct interest in 27% of Douro Wines. At the beginning of secured creditors
this year, EBC Ltd. entered into an agreement whereby it established Free Assets 210,000 160,000
an option to increase its holding with more than 24% of the equity in- 450,000 405,000
terests of Douro Wines. The exercise price of the call option is in the
money and it can be exercised at any moment. Liabilities
Liabilities with priority P 35,000
III. EBC Ltd. has 42% of GHT Ltd. and has the right to veto in the board of Fully secured creditors 130,000
directors with regard to the annual operating budget. Partially secured creditors 100,000
Unsecured creditors 270,000
A) I, II and III I only B)I only C)I and III only D)II and P 535,000
III only

Use the following information for the next four items (37-40) How much cash will be available to pay the unsecured non-priority claims?
Southern Companys balance sheet is as follows: A)P 240,000 B)P 180,000 C)P 160,000 D)P 125,000
(Please refer to the next page)
27. On January 1, 2015, Jaqs Grill Inc. granted a franchise to Mr. Jigs to
sell Jaqs products. The franchise agreement provides the following terms:
Initial franchise fee in the amount of P15,000,000 payable at
P5,000,000 down-payment on January 1, 2015 and the balance paya-
ble in five equal annual installments every December 31. Mr. Jigs is-
sued a 5 year non-interest bearing note. The prevailing market rate for
the similar note is 10%.

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 Contingent franchise fees equal to 5% of the sales revenue to Mr. Jigs. 31. Determine which of following entities shall prepare consolidated finan-
cial statements in accordance with PFRS 10.
As of December 31, 2015, Jaqs Grill Inc. has not yet performed substan-
tially all material services or conditions required of the franchise con- I. Entity AAA Ltd. that has an immaterial participation of 90% in equity
tract. For the year ended December 31, 2015, Mr. Jigs reported sales interest of XYZ Ltd.
revenue in the amount of P1,000,000. II. Entity B ABC Group presents consolidated financial statements which
includes Entity B. Entity B is itself a parent because it has controlling
What is the amount of total income to be reported in the Statement of Fi- interests in 8 other entities. Entity B does not have equity traded in a
nancial Position of Jaqs Grill Inc. for the year ended December 31, 2015? regulated market but is waiting for the approval of listing its debt in the
A)P12,631,574 B)P808,157 C)P50,000 D)P0 Philippine Stock Exchange.

A)I only B)II only C)I and II D) None

Use the following information for the next two items (28-29) 32. Determine which of following entities shall not prepare consolidated
financial statements in accordance with PFRS 10.
Kendall Beiber Co. had the following transactions:
I. Entity C Ltd. that has an interest of 20% in equity shares of ACV Ltd.
On December 31, 2015, Kendall Beiber granted franchise right to Celina
Gomez, Inc. for a non-refundable initial franchise fee of P400,000, of II. Entity V, an investment entity, acquired an investment in a subsidiary
which 20% was collected upon signing of the contact and the re- (entity Y). Entity Y provides services that is related to Entity Vs invest-
maining 80% is represented by a note receivable in 4 equal annual ment activities
installments starting December 31, 2016. The prevailing market rate
of interest on December 31, 2015 is 12%. A)I only B)II only C)I and II D) None

There is significant uncertainty as to the collectability of the note. Hence, 33. Determine which of the following entities are not controlled by AAA En-
installment sales method is to be applied. tity according to PFRS 10. Indicate CONTROLLED or NOT CONTROLLED on
the space provided.
Direct cost amounting to P258,392 were incurred during January 2016.
I. Entity XXX. AAA has direct interest in 17% of Entity XXX. In addition,
Celina commenced operations on February 1, 2016. one of AAA's subsidiaries, KKK, which is 60% owned, has a holding of
45% of Entity XXX. ABC's effective share in RGH is 44% (17%+ 60% of
28. How much profit is recognized on the franchise in 2015?
45%).
A)P65,778 B)P55,326 C)P43,444 D)P0
II. Entity V. Entity V is listed in Lebanon Stock exchange. AAA has a direct
29. How much profit is recognized on the franchise in 2016? interest in 44% of Entity V; the rest is dispersed and none of the rest of
the shareholders has more than 2%.
A)P65,778 B)P55,326 C)P43,444 D)P34,446
III. Entity E. AAA has direct interest in 52% of Entity E. It signed a contrac-
tual arrangement with ALF Limited whereby both entities can appoint
30. Raymond Holding Inc., a sub-holding of the Lee Group, makes an offer two members each to the board of directors. The board of directors is
for all the equity shares of Gel Ltd. on July 1, 2014. The consideration for comprised of five members, one of whom is considered to be independ-
the offer is 50,000 shares in Raymond together with P10,000,000 cash. ent. The decisions over the relevant activities are taken in accordance
The offer is accepted on August 1, 2014. However, the offer is conditional with majority of votes in the board of directors.
upon receiving the approval of the competition authority which is obtained A)I only B)II only C)III only D)I and III only
on September 30, 2014. In the past, the competition authority has never
rejected the application for any merger or combination. The shares are
exchanged on August 10, 2014. What is the date of acquisition? 34. Determine which of the entities below is/are subsidiary/ies of ABC
Company.
A) July 1, 2014, the date of the offer
B) August 1, 2014, the date the offer has been accepted I. Entity G: ABC has direct interest in 23% of Entity G. In the beginning
C) August 10, 2014, the date the shares have been exchanged of this year, ABC entered into an agreement which included an option
D) September 30, 2014, the date of the approval by the competition to increase its holding by an additional 42% of the equity interests of
authority Entity G in 3 years time. The exercise price of the call option is deeply
out of the money.
II. Entity H. ABC holds 45 % of the voting rights of Entity H. Eleven other

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