NATIONAL MOCK BOARD EXAMINATION 2017

ADVANCED FINANCIAL ACCOUNTING AND REPORTING

CASE 1
1. Which of the following costs shall be considered as both prime costs and conversion costs?
a. Supervisory salaries for manufacturing plant
b. Property taxes on manufacturing plant
c. Costs of direct materials used un production
d. Employee benefits earned by machine operators in producing the firm’s product

2. When a contract outcome cannot be estimated reliably, which action should be taken relative to
recognizing revenue?

A. Recognize contract revenue and costs by reference to the stage of completion of the contract at
the balance sheet date.
B. Recognize revenue only when it becomes possible to foresee the outcome of the contract.
C. Recognize revenue only to the extent of costs incurred that it is probable will be
recoverable.
D. None of the above

3. When treating exchange differences, what is included in income for the period?
A. Gains or losses arising when monetary items are settled at amounts different from their carrying
value
B. Differences arising when monetary items held at the year-end are retranslated at the closing rate
C. Exchange differences arising from the translation of a foreign operation previously classified in
equity
D. A and B
E. B and C

4. Which of the following examples of disclosures are required under IAS 27 (Revised)?

A. The entity has elected not to prepare consolidated financial statements. The entity measures its
investments in subsidiaries at fair value. The fair value was determined in accordance with its
quoted price in the London Stock exchange at 31 December 20X1 of 400.
B. The entity has elected not to prepare consolidated financial statements. The entity measures its
investments in subsidiaries at cost. The summarized financial information for the joint venture
is as follows: currents assets – 100; non-current assets – 400; current liabilities – 300, non-
current liabilities – 200; revenue – 1,200.
C. The entity has elected not to prepare consolidated financial statements. The entity measures its
investments in subsidiaries at fair value. The amount of the transactions with its Subsidiary B is
1,300. Trade receivables from Subsidiary B are 200. The borrowings from Subsidiary B amount
to 1,100.
D. The entity has elected not to prepare consolidated financial statements. The entity
measures its investments in subsidiaries and joint ventures at cost. The entity has two
subsidiaries (ABC and DEF) and one joint venture (JHG). The subsidiaries are wholly
owned whereas the joint venture is owned at 50%. The activities of the subsidiaries and
joint venture are real estate.

5. To which financial statements is IAS 29 applied?

A. The primary statements of any entity that reports in the currency of a hyperinflationary
economy
B. The interim statements of any entity that reports in the currency of a hyperinflationary economy
C. The cash flow statements of any entity that reports in the currency of a hyperinflationary
economy
D. The balance sheet of the parent entity that owns an entity located within a hyperinflationary
economy

6. PFRS 3 – Business Combinations does not apply to which of the following?

I. Formation of a joint arrangement.
II. Combination of entities or businesses under common control.
III. Acquisition of an asset or a group of assets that constitute a business.
IV. Acquisition by an investment entity of an investment in a subsidiary
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 V. Not-for-profit organizations.
a. I, II and III only b. I, II and IV only c. I, II, III and V only d. I, II, III, IV and V

7. Franchise fees received upon contract signing shall be recognized as income by the franchisor when
the following conditions are met, EXCEPT:
A. Substantial performance required under the contract is done
B. Period of refund for any amount received under the contract has expired
C. Franchise operations have earned considerable income to defray franchising expenses
D. Collectability of any promissory note arising from the franchise agreement is reasonably assured

8. Under PFRS 10, what factor/s should an investor consider in assessing whether it has de facto
control over an entity?
a. Voting patterns at future shareholders meetings
b. Size of the investor’s holding of voting rights relative to the size of dispersion of other vote
holders
c. Non-voting rights held by the investor or other vote holder
d. All of the above.

9. When will the average process costing method produce the same cost of goods manufactured as the
FIFO process costing method?
a. When materials are added 100% at the end of the process.
b. When materials are added 100% at the beginning of the process.
c. When the beg. WIP inventory and ending WIP are equal.
d. When there is no beg. WIP inventory.

10. Group A has acquired the following. Which of the following acquisitions are business combinations
under IFRS 3?
A. Land and a vacant building from Company B. No processes, other assets or employees are
acquired. Group A does not enter into any of the contracts of Company B.
B. An operating hotel, the hotel’s employees, the franchise agreement, inventory, reservations
system and all “back office” operations.
C. All of the outstanding shares in Biotech D, a development stage company that has a license for
a product candidate. Phase I clinical trials are currently being performed by Biotech D
employees. Biotech D’s administrative and accounting functions are performed by a contract
employee.
a. All three acquisitions are business combinations under PFRS 3.
b. A and B acquisitions are business combinations under PFRS 3.
c. A and C acquisitions are business combinations under PFRS 3.
d. B and C acquisitions are business combinations under PFRS 3.

11. Amounts that have been billed by the contractor but are not paid by the customer until the
satisfaction of conditions specified in the contract for the payment of such amounts, or until defects
have been rectified.
a. Advances b. Incentives c. Retentions d. Progress billings

12. HFR Ltd. has a 12% holding in the shares of ABC Ltd. In addition, HFR has, through one of its
subsidiaries, an option to buy 13% more shares in ABC. Although the exercise price is in the money,
HFR does not have the intention and the financial ability to exercise this option.
a. A subsidiary b. An c. A join d. None of these
associate arrangement categories

13. In reporting a company that is to be liquidated, assets are shown at

a. Book value b. Historical c. NRV d. Present value using effective
cost rate

14. Under PFRS 15 (effective January 1, 2018), revenue from contracts with customers
a. Is recognized when the customer receive the right to receive consideration
b. Is recognized even if the contract is wholly unperformed
c. Can be recognized even when a contract is still pending
d. Cannot be recognized until a contract exists

15. Entity A acquired Entity B. On the acquisition date, Entity B had an operating lease as a lessee with
a remaining period of two years out of the original four years. Due to significant changes in the
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 market, Entity B is paying less than what you would expect to currently pay for a similar lease. The
value of the existing lease based on the current terms is 10,000 and that of a lease based on relative
market terms is 13,000. How should Entity A account for this?
a. Entity A should disregard this, as this is an operating lease of Entity B and no asset or liability is
recognized related to operating leases.
b. Entity A determines whether the terms of each operating lease in which Entity B is the lessee are
favorable or unfavorable. Entity A should account for the difference between the value of the
existing lease terms and the market terms in profit or loss.
c. Entity A determines whether the terms of each operating lease in which Entity B is the
lessee are favorable or unfavorable. Entity A should recognize an intangible asset separate
from goodwill for the favorable portion of the operating lease relative to market terms.
d. None of the above.

16. A partner’s drawing account is, in substance,

a. A capital account
b. A contra-capital account
c. A salary expense account
d. A loan account (a loan from the partnership)

17. Build Company recorded the following costs relating to the project of constructing a factory for a
client: project manager costs of 1,000, costs of 1,500 to destroy an existing old factory building,
costs of 500 to restore an old factory building, attributable insurance costs of 200, non-reimbursable
general administration costs of 200, selling costs of 150, and reimbursable development costs of
200. Which of the following cost elements should not be included in the contract costs according to
IAS 11 Construction Contracts?
a. Costs relating to the destruction of an existing old factory building of 1,500 and restoration of an
old factory building of 500
b. Attributable insurance costs of 200 and general administration costs of 200
c. Costs relating to the destruction of an existing old factory building of 1,500, restoration of
an old factory building of 500, and general administration costs of 200
d. General administration costs of 200 and selling costs of 150
e. General administration costs of 200, selling costs of 150, and reimbursable development costs of
200

18. Binfathi Group acquired an 80% interest in Entity B. The consideration for the 80% interest in Entity
B was P36,000 in shares in Binfathi and P12,000 in cash. To issue the shares, Binfathi incurred a
cost of P2,000 and incurred costs of P1,400 associated with legal fees and the valuation of Entity B.
The fair value of the net assets of Entity B amounted to P64,000. How should Binfathi account for
this acquisition?
a. Binfathi shall book a gain (negative goodwill) through profit or loss of 3,200 related to the
acquisition, recognize expenses of 1,400 and deduct from equity 2,000 relative to the cost of
issuing the shares.
b. Binfathi shall book goodwill as an asset of 200.
c. Binfathi shall book a gain (negative goodwill) through profit or loss of 1,200 and recognize the
costs of legal fees of 1,400 as expenses in profit or loss.
d. Binfathi shall book a gain (negative goodwill) though profit or loss of 3,200 and recognize
expenses of 3,400, relative to the costs of issuing shares, paying legal fees and performing the
valuation of Entity B, in profit or loss.

19. Under the cost recovery method of revenue recognition (assuming properly disclosed in the notes
to FS),
a. Income is recognized immediately
b. Income is recognized on a proportionate basis as the cash is received on the sale of the product
c. Income is recognized when the cash received from sale of the product is lower than the cost of
the product
d. Income is recognized when the cash received from sale of the product is higher than the
cost of the product

20. With which of the following disclosure requirements should an entity comply, according to IAS 11,
Construction Contracts (Select the incorrect item)?
a. The amount of contract revenue recognized as revenue in the period
b. The methods used to determine the stage of completion of contracts in progress
c. Advances received in cash at the balance sheet date, for each material contract
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 d. The methods used to determine the contract revenue recognized in the period

21. The “Home Office” ledger account in the accounting records of a branch is best described as:
a. An equity b. A revenue c. A liability d. A deferred income
account account account account

22. The consideration transferred in the business combination was P55,000. Transaction costs amount
to P1,000. The fair value of the acquiree’s net assets at the acquisition date was P63,000. The
acquirer has not yet decided whether to measure the 20% non-controlling interest (NCI) in the
acquiree at the NCI’s proportionate share of the fair value of the acquiree’s net assets, which is
P12,600, or at the NCI’s fair value, which is P13,000. Does the choice of measuring the NCI impact
the determination of goodwill at the acquisition date?
a. No, the accounting policy choice for NCI does not impact goodwill at the acquisition date.
b. Yes, it does. If the acquirer values the NCI at its proportionate share of the fair value of the
acquired business, the goodwill amounts to P4,600; if the acquirer values the NCI at its fair
value, then the goodwill amounts to P5,000.
c. Yes, it does. If the acquirer values the NCI at its proportionate share of the fair value of the
acquired business, the goodwill amounts to P5,600; if the acquirer values the NCI at its fair value,
then the goodwill amounts to P6,000.
d. No, it does not. However, the accounting policy choice for NCI impacts the fair value of the
acquiree’s net assets. If the acquirer values the NCI at its proportionate share of the fair value of
the acquired business, the acquiree’s net assets amount to P63,000; if the acquirer values the NCI
at its fair value, then the acquiree’s net assets amount to P63,400.

23. In partnership liquidation, the final cash distribution to the partners should be made in accordance
with
a. Partners’ profit and loss ratio
b. Balances of the partners’ capital accounts
c. Ratio of capital contributions by the partners
d. Ratio of capital contributions less withdrawals by the partners

24. Entity A had several business acquisitions during the reporting period and after the reporting period.
Entity A will disclose, among other information, the following:

 The name and a description of the acquiree

 The acquisition date
 The percentage of voting equity interests acquired
 The primary reasons for the business combination and a description of how the acquirer
obtained control of the acquiree

a. These disclosures shall be done for each business combination that occurred in the reporting
period only, but are not required for business combinations that occurred after the end of the
reporting period.
b. These disclosures shall be done for each material business combination that occurred both in the
reporting period and after the end of the reporting period, but before the financial statements are
authorized for issue. The information is disclosed in aggregate for individually immaterial
business combinations.
c. These disclosures are optional for each business combination that occurred both in the reporting
period and after the end of the reporting period, but before the financial statements are authorized
for issue.
d. These disclosures shall be done for each business combination that occurred both in the
reporting period and after the end of the reporting period, but before the financial
statements are authorized for issue.

25. Under the installment method of revenue recognition, when interest is charged, each cash collection
made after the sale is composed of:
a. Cost and profit
b. Cost and interest
c. Interest and profit
d. Cost, interest and profit

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26. Entity A acquired Entity B, which is a material business combination, during the reporting period.
Among the assets acquired, trade accounts receivable were provisionally accounted for at fair value
of 1,736. Which of the following information shall be provided additionally to the fair value amount
of the trade accounts receivable? Select all that apply.

I. Entity A does not need to disclose any further information.

II. Entity A must disclose that the fair value of the accounts receivable was determined
provisionally.
III. Entity A must disclose the nominal value of the accounts receivable.
IV. Entity A must disclose the amount of the contractual cash flows that it does not expect to collect.

a. I, II, III and IV b. I, II and III c. II, III and IV d. I and II only
only only
27. Which of the following is/are false?
I. When estimating the outcome of cost-plus contracts, it is necessary to be able to predict the total
costs, past and future, in order to assess the final profit, and also to make accurate assessments of
the stage of completion that has been reached at the balance sheet date.
II. In the case of a service provider, inventories (essentially their work in progress) should include
profit margins and non-attributable overheads.
a. I only b. II only c. I and II d. Both are True

28. In partnership liquidation, the final cash distribution to the partners should be made in accordance
with
a. Partners’ profit and loss ratio
b. Balances of the partners’ capital accounts
c. Ratio of capital contributions by the partners
d. Ratio of capital contributions less withdrawals by the partners

29. In preparing the combined financial statements of the home office and its various branches:
a. Both reciprocal and nonreciprocal accounts are combined
b. Both reciprocal and nonreciprocal accounts are eliminated
c. Reciprocal accounts are eliminated but nonreciprocal accounts are combined
d. Reciprocal accounts are combined but nonreciprocal accounts are eliminated

30. The goodwill resulting from the acquisition of Entity C by Entity B amounts to 50,000. Which
disclosures does Entity B provide relating to the goodwill? Select all that apply.

I. Entity B shall describe the factors that make up the goodwill to be recognized.
II. Entity B shall disclose the total amount of goodwill deductible for tax purposes.
III. Entity B shall disclose the amortization period of goodwill for tax purposes.

a. I, II and III b. I and II only c. I and III only d. I only

CASE 2
Queen Consolidated Inc.(QCI), a listed company, has 45 million shares on issue (QCI shares experience
high trade volumes) and operates in three (3) business segments: real estate business, airline operations
and finance business operating in the Philippines (nationwide) with an annual revenue of approximately
P120 million (M) and net assets (book value) of approximately P300 M. QCI has 4 directors, quarterly
reporting (as required for listed entities) and a December 31 annual year-end reporting date. On the
other hand, STAR LAB Inc. (SLI) is a listed company and has 600 million shares on issue (SLI shares
experience medium to high trade volumes). SLI operates in the Philippines in two business segments:
on-line real estate advertising and home loans. The home loans business operates in two geographic
locations within the country which are monitored separately for internal reporting purposes. SLI has
annual revenue of approximately P30 M and net assets (book value) of approximately P201 M with 3
directors and a year-end reporting date of June 30. Both QCI and SLI prepare PFRS compliant financial
statements.
On April 1, 2016, QCI agrees to issue 30 million ordinary shares as consideration for the acquisition of
100% of the issued shares of SLI. As a result, the existing shareholders of SLI will take a 40% ownership
interest in the combined entity. The published price of QCI’s ordinary shares as at that date is P28.50
per share. The published price of SLI’s ordinary shares as at that date is P1.50 per share.

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On May 1, 2016, QCI acquires 100% of the issued capital of SLI in exchange for 30 million QCI shares.
The published price of QCI’s ordinary shares as at that date is P30 per share. The published price of
SLI’s ordinary shares as at that date is P1.50 per share.
QCI incurred legal fees and other due diligence costs as a result of the transaction totaling P15 M. QCI
also maintains an acquisitions department. QCI’s costing systems are well established and QCI is able
to determine the cost incurred by the acquisitions department for each acquisition undertaken. QCI’s
cost records indicate that the department’s costs associated with this transaction were P6 M. QCI also
incurred costs associated with the issue of shares totaling P3 M.
As a result of the transaction above, 2 directors of SLI have now taken up board positions with QCI.
There are now 6 directors in QCI.

Based on the above information and independent assumptions below, determine the following:
31. Assume that a newly formed company, ARROWverse Company, effected the business combination
between QCI and SLI by issuing shares to the owners of QCI and SLI in exchange for the issued
shares of those companies. Also, assume that as a result of the transaction, the existing directors of
QCI and two of the existing directors of SLI have taken up the board positions in ARROWverse
Company. Which entity would be adjudged the acquirer under PFRS 3?
a. QCI b. SLI c. ARROWverse d. Any of the
Co. choices

32. Assume that in order to effect the business combination, SLI issued shares to the owners of QCI in
exchange for the issued shares of QCI. Also assume that as a result of the transaction, the existing
four directors of QCI taken up board positions with SLI and that one of the directors of SLI has
resigned. There are now six directors in SLI. Which entity would be adjudged the acquirer under
PFRS 3?
a. QCI c. SLI since SLI initiated the combination
b. SLI d. SLI since SLI transferred
consideration

33. Which date would be adjudged the acquisition date under PFRS 3?
a. April 1, b. May 1, c. Either since it’s an accounting policy d. Not determinable
2016 2016 choice

34. Assume that on April 1, 2016, QCI agrees to issue 30 million ordinary shares as consideration for
the acquisition of 100% of the issued shares of SLI and the agreement states that control passes as
of the date of the agreement
(April 1, 2016). QCI issues the 30 million QCI shares on June 1, 2016. Which date would be
adjudged the acquisition date under PFRS 3?
a. April 1, b. May 1, c. June 1, d. A, B or C since it’s an acctg. policy
2016 2016 2016 choice

35. Assume that on May 1, 2016, QCI acquires 100% of the issued capital of SLI in exchange for 10
million QCI shares. In the agreement is a clause that states that the acquisition date is from March
1, 2016. Which date would be adjudged the acquisition date under PFRS 3?
a. 1- Mar- b. 1-Apr- c. 1-May- d. 1-Jun- e. Judgment between B
2016 2016 2016 2016 or C

36. Assume that On May 1 2016, QCI acquires 100% of the issued capital of SLI in exchange for 10
million QCI shares. However, as SLI operates in a strictly controlled environment, changes in
ownership need to be approved by the local government. The approval cannot be taken as a given
because the local government does not operate on a consistent basis. The local government approved
the transaction on July 1, 2016.
a. April 1, b. May 1, c. July 1, d. A, B or C since it’s an acctg. policy
2016 2016 2016 choice

CASE 3
Vex, general manager of AB Corporation, provided the following information for transactions that
occurred during August. The corporation uses JIT costing system:

 Raw materials purchased and requisitioned for product were ₱84,000.

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  Direct labor costs of ₱78,000 were incurred.
 Actual factory overhead costs amounted to ₱250,000.
 Applied conversion costs totaled ₱340,000. This included ₱78,000 of direct labor.
 All units were completed.

37. How much is the balance of Finished Goods account in August 31?
a. P412,000 b. P424,000 c. P412,000 credit d. P424,000 credit
debit debit
CASE 4
PBC Company’s Job 004 manufactured 13,750 units that were completed in February at unit costs
presented as follows:
Direct materials P300
Direct labor 270
Factory overhead (includes an allowance of P15
Spoiled work) 270

Final inspection of Job 004 disclosed 1,250 spoiled units, which were sold for P225,000.
38. What would be the unit cost of good units if the spoilage loss is attributable to exacting specifications
of Job 004?
a. P 840 b. P 889.50 c. P 825 d. P 862.50

39. What would be the unit cost of good units if the spoilage loss is attributable to internal failure?
a. P 840 b. P 889.50 c. P 825 d. P 862.50

CASE 5
On January 1, 2016, Bruno Co. acquired all of the identifiable assets and assumed all liabilities of Mars,
Inc. by paying P1,000,000. On this date, identifiable assets and liabilities assumed have fair value of
P1,600,000 and P900,000, respectively. Terms of the agreement are as follows: (a) 30% of the price
shall be paid on January 1, 2016; (b) the balance on December 31, 2017 (the prevailing market rate on
the same date is 12%). The acquirer shall also transfer its piece of land with book and fair value of
P500,000 and P300,000, respectively. Included in the liabilities assumed is an estimated liability for
deficiency taxes. The carrying amount and fair value of this provision amounted to P120,000 and
P97,500, respectively. The acquiree guarantees that this provision would only be settled for P90,000.

Based on the foregoing, determine the following:

40. The amount of indemnification asset to be recognized, if any
a. P30,000 b. P22,500 c. P7,500 d. P0

41. The net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed
measured in accordance with PFRS 3
a. P730,000 b. P722,500 c. P707,500 d. P700,000

CASE 6
CP, LK and TQ share profits in the ratio of 3:5:2. On April 30, LK opted to retire from the partnership.
The capital balances on this date follow:
CP P280,000
LK P350,000
TQ P320,000
42. Assuming LK sold her interest to TQ for P375,000, which of the following statements is false upon
retirement of LK?
a. LK’s personal assets will increase by P375,000.
b. The capital account of CP will not change.
c. TQ’s capital account in the partnership will increase by P670,000.
d. The total capital of the partnership after the retirement of LK is P950,000.

CASE 7

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The production data for Department 1 for August 2016 are as follows:
Actual units
WIP, August 1 (1/4 done as to conversion costs) 40,000
Started in August 296,000
Transferred out during August 244,000
Spoiled units 32,000

Cost of beginning work-in-process:

Materials ₱500,000
Conversion costs ₱60,000

Current costs:
Materials ₱2,960,000
Conversion costs ₱1,884,000

Unit costs:
Materials ₱10
Conversion costs ₱6

 Materials are added at the start of the process.

 Conversion costs are added evenly during the process.
 The company uses the FIFO method of costing.
 Inspection occurs, when production is 100% complete.
 Normal spoilage is 11% of good units transferred out during August.

What are the costs allocated to the following?

43. Next Department
a. P3,264,000 b. P4,456,000 c. P4,433,440 d. P3,944,000

44. In-process, end in Department 1

a. P1,370,560 b. P1,317,440 c. P888,000 d. Not
determinable

45. Period cost

a. P512,000 b. P82,000 c. P82,560 d. Not
determinable

CASE 8
BTS Company acquired all of the outstanding shares of BigBang Company by issuing its own P15 par
value ordinary shares totaling 46,667 shares at market price of P 15.70. BTS Company had the following
expenditures incurred:

Finder’s fee paid P 50,000

Pre-acquisition audit fee/accounting due diligence, 30% 40,000
was paid
General administrative costs 15,000
Legal fees for the combination paid 32,000
Audit and legal fees for SEC registration of share issue 46,000
Listing fees paid for the shares issued 10,000
Other share issuance costs paid (inclusive of any tax cost) 10,000
Other indirect costs paid 16,000
Documentary stamp tax (DST) paid on the original 3,500
issuance

46. The total amount debited to expense should be

a. P 153,000 b. P 163,000 c. P 176,333 d. P 179,833
CASE 9
CV and LX are partners with profit and loss of 80:20 and capital balances of P700,000 and P350,000,
respectively. TM is to be admitted into the partnership by purchasing a 30% interest in the capital, profit
and losses for P420,000. Assuming that no asset revaluation is to be made,
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47. Which of the following is true in the books of the partnership upon admission if TM?
a. Increase in assets in the amount of P420,000.
b. Credit capital accounts of the selling partners with total amount of P315,000
c. The entry upon admission will not affect the total capital of the partnership.
d. Decrease in capital account of the acquiring partner in the amount of P105,000.

48. Assume this time, upon admission of TM, the equipment of the partnership is undervalued, which
of the following is false?
a. Increase in assets in the amount of P350,000.
b. The capital account of CV will be credited in the amount of P280,000 for his share in the adjustment
of the undervalued equipment.
c. The capital account of LX will be debited in the amount of P56,000 upon transfer of capital
to the new partner.
d. The capital account of CV will have a net decrease of P14,000 as a result of revaluation of asset and
admission of TM.

CASE 10
XXX Inc. sells automatic weapons costing P700,000 at a price of P1,200,000. Division Corp. buys a
dozen of automatic weapons on installment and trade in six of its old weapons at a trade-in value of
P300,000 each. XXX Inc. spends P25,000 to recondition the old guns and sells them for P315,000. XXX
Inc. expects a 10% gross profit from the sale of used guns.
49. What is the under-allowance granted by XXX Inc, on the trade-in transaction?
a. P249,000 b. P234,000 c. P99,000 d. P0

CASE 11
On December 31, 2016, the following figures were taken from the trial balances of Blackpink Company
and 2ne1 Co.:

Blackpink 2ne1
Current assets P 175,000 P 65,000
Noncurrent assets 725,000 425,000

Liabilities 65,000 35,000

Ordinary Share Capital, P20 par 550,000 300,000
Share Premium 35,000 25,000
Accumulated profits (losses) 250,000 130,000

On January 1, 2017, Blackpink issues 35,000 shares with a market value of P25/share for the net assets
of 2ne1. The book value reflects the fair value of the assets and liabilities, except that the noncurrent
assets of 2ne1 have fair value of
P630,000 and Blackpink discovered an error on its books that resulted into an overstated noncurrent
asset of P30,000. Contingent consideration payable after 2 years if profit target will be achieved, which
is determinable, have an expected value of P18,151. Applicable discount rate on this type of agreement
is 10%. Blackpink also paid for the share issuance costs worth P34,000 and other acquisition related
costs amounting to P19,000. Based on the foregoing, determine the following:
50. The amount of gain on bargain purchase recognized
a. P215,000 b. P233,151 c. P230,000 d. P0

51. Combined total assets after the merger

a. P1,742,000 b. P1,745,151 c. P1,775,151 d. P1,772,000

CASE 12
The company signed an P800,000 contract to build an environmentally friendly access trail to Morayta,
Manila. The project was expected to take approximately 3 years. The following information was
collected for each year of the project – Year 1, Year 2, and Year 3:

Cost Expected Support Additional Trail feet Additional

Expended additional cost timbers laid support constructed trail feet to be
during the to completion during the timbers to be during the constructed
Year year laid year
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 Year 1 P100,000 P450,000 150 850 3,000 15,200
Year 2 150,000 280,000 300 520 7,500 8,200
Year 3 250,000 -0- 500 -0- 8,000 -0-

Compute the amount of revenue to be recognized in Year 3, assume that the company employs
52. the efforts-expended method of estimating percentage of completion, if the company measures its
progress by the number of support timbers laid in the trail
a. P428,864 c. P428,864
b. P422,640 d. P350,800

53. an output measure, if the company measures its progress by the number of trail feet that have been
completed:
a. P428,864 c. P428,864
b. P422,640 d. P350,800

CASE 13
The Brooke Corporation has two branches, Branch P and Branch Q. The home office shipped P80,000
in merchandise to Branch P and prepaid the freight charges of P500. A short time thereafter, Branch P
was instructed to ship this merchandise to Branch Q at a prepaid freight cost of P700. Freight charges
for this merchandise normally cost P800 when shipped from the home office directly to Branch Q.
54. Compute the excess freight on transfers of merchandise:
a. P700 b. P800 c. P500 d. P400

CASE 14
On May 31, 2016, TVD Company, a subsidiary of CW Philippines Corporation, through TO Inc.,
completed the purchase of the net assets (including certain contracts) of Archie Company. The
transaction between TVD Company and Archie Company qualifies for recognition under PFRS 3 since
it involves acquisition of group of assets qualifying as a business. The total purchase price paid for said
acquisition is P2 M. Based on the guidance provided for under IFRS 3, below are the fair values of
Archie Company’s assets and liabilities:

Real Property Leases [nil]

Personal Properties (BV is 800,000
P600,000)
Business Contracts [nil]
Customer and Supplier List [nil]
Transportation and
Warehouse Management [nil]
System
Unearned Revenues [nil]
Key employees [nil]
Entities involved are all subject to the 30% regular corporate income tax (RCIT). Based on the tax rules
in the Philippines for this type of acquisition, TVD Company can depreciate the acquisition cost of the
assets other than land (if any) acquired over the remaining life thereof and claim the same as a deduction
for income tax purposes. TVD Company is expected to be in net income/taxable income position in the
future and is not expected to incur any losses for both accounting and tax purposes. Based on the
foregoing, determine the following:
55. Total amount of net assets (including DTA/DTL, if any) that will be considered in determining the
goodwill or gain on bargain purchase
a. P1,220,000 c. P800,000
b. P1,160,000 d. P0 since acquisition of assets only

56. The amount of DTA or DTL to be recognized related to the goodwill (GW), if any
a. P0 since initial recognition exception per PFRS 3
b. P0 since initial recognition exception per PAS 12
c. P0 since upon actual write off of goodwill, the same is not allowed to be deducted for income
tax purposes
d. P234,000 DTA
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 e. P234,000 DTL

57. The net impact on total asset of the transaction above is

a. P0 b. P600,000 c. P800,000 d. P1,800,000

CASE 15
On January 1, 2016 an entity purchased a tract of vacant land that is situated overseas for Baht90,000.
The entity classified the land as investment property. The fair value of the land at December 31, 2013
is Baht100,000. The entity’s functional currency is Php (Peso).
Spot currency rates:
January 1, 2013 : 1 Baht= P2
Weighted average exchange rate in 2013 : 1 Baht = P2.04
December 31, 2013 : 1 Baht = P2.10
58. What is the carrying amount of the investment property at December 31, 2016 and what amount
would be presented in profit or loss for the year ended December 31, 2016?
a. Carrying amount of investment property = P210,000. Profit for the year includes P30,000
increase in the fair value of the investment property.
b. Carrying amount of investment property = P210,000. Profit for the year includes P20,400
increase in the fair value of the investment property and P9,600 foreign exchange (forex) gain.
c. Carrying amount of investment property = P180,000. Profit for the year includes no amount in
respect of the investment property.
d. Carrying amount of investment property = P189,000. Profit for the year includes P9,000 forex
gain.

CASE 16
The ABC Chemical Company produces a product known as “minergy” from which by-product results.
• This by-product can be sold at ₱10 per pound.
• The manufacturing costs of the main product and by-product up to the point of separation for the
three months ended March 31, 2012 follows: Materials, ₱175,000; Labor, ₱100,000; Overhead,
₱100,000.
• The units processed were 35,000 pounds of the main product and 3,500 pounds of the by-product.
• During the period, 31,500 pounds of the “minergy” were sold at ₱48; while the company was able
to sell 2,625 pounds of the by-product.
• Selling and administrative expenses related to the main product amounted to ₱210,000.
• Disposal cost per each unit of the by-product is ₱2.
Assume that the by-product is inventoried and recorded at net realizable value. The net realizable value
of the by-product reduces the manufacturing costs of “minergy”. What is the unit cost of “minergy”?
Assume that the by-product is recorded as realized. What is the cost of inventory of “minergy”?
a. P10.71; P37,500 b. P9.91; P37,500 c. P9.91; P34,700 d. P10.71; P34,700

CASE 17
The historical comprehensive income statement of Reese Company for 2016
Sales 2,500,000
Less: Cost of sales
Inventory, January 1 175,000
Add: Purchases 1,250,000
Less: Inventory, December 31 250,000 1,175,000
Gross profit 1,325,000
Less: Operating expenses, other than 1,000,000
depreciation
Depreciation expense 1,000,000
Net loss 675,000

 Sales were earned, purchases other than ending inventory were made and operating expenses other
than depreciation expense were incurred evenly throughout the year.
 Ending inventory was acquired during the last week of December 2016
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 Depreciable assets were acquired on January 1, 2013
 General price indices were:

January 1, 2013 125

January 1, 2016 140
December 31, 2016 360

59. If Reese Company was operating in a hyperinflationary economy, the amount to be reported as net
income (loss) is
a. P2,720,000 b. P2,412,000 c. P972,000 d. P675,000

CASE 18
On December 31, 2016, Conti’s Inc. authorized Mary Grace Co. to operate as a franchisee for an initial
franchise fee of P3.40 million (M). Upon signing the contract, P0.90M was received and the balance is
paid by a note, due in 5 equal annual installments, beginning December 31, 2017. The prevailing market
rate is 12%. The down payment is nonrefundable and it represents a fair measure of the services already
performed by Conti’s and substantial future services are still required.
60. How much is the deferred revenue to be recognized as of December 31, 2016?
a. P 1,518,677 b. P 1,802,390 c. P 2,500,000 d. P 2,702,390

CASE 19
Forrest Company uses standard cost system for its production process and applies overhead on direct
labor hours. The following information is available for August when Forrest made 4,500 units:
Standards:
DLH per unit 2.50
Variable overhead per DLH P1.75
Fixed overhead per DLH P3.10
Budgeted variable overhead P21,875
Budgeted fixed overhead P38,750
Actual:
Direct labor hours 10,000
Variable overhead P26,250
Fixed overhead P38,000

61. Using two-variance approach, what is the controllable variance?

a. P 5,812.50 U b. P 5,812.50 F c. P 4,375 U d. P 4,375 F

62. What is the non-controllable variance?

a. P 3,125 F b. P 3,875 U c. P 3,875 F d. P 6,062.50 U

CASE 20
On January 2, 2016, GCC Corporation purchase 80% of VIP Company’s outstanding shares for
P19,000,000. Included in the price paid is control premium amounting to P500,000. The direct cost
(acquisition related) amounted to P45,000 was debited as part of the investment in subsidiary account
since GCC opted to use the cost method of accounting its investment in accordance with PAS 27. NCI
is measured at the present ownership instruments' proportionate share in the recognized amounts of the
VIP's identifiable net assets. At that date, VIP had P16M of ordinary shares outstanding and
accumulated profits of P6.40M. GCC’s accumulated profits at the date of acquisition was P13.80M.
VIP’s equipment with remaining life of 5 years had a book value of P9.00M and a fair value of P10.52M.
VIP’s remaining assets had book value equal their fair values. All intangible assets except goodwill are
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expected to have remaining lives of 8 years. The income and dividend figures on the separate financial
statements (SFS) for both GCC and VIP are as follows: Net income of GCC in 2016 is P3.60M; 2017
is P4.40M. Net income of VIP in 2016 is P1.36M; 2017 is P2.04M. Dividends declared by GCC in 2016
is P0.88M; 2017 is P1.56M. Dividends declared by VIP in 2016 is P0.28M; 2017 is P0.52M.

Based on the foregoing, determine the following:

63. Non-controlling interest in net assets (NCINAS) in 2017
a. P 5,000,000 b. P 5,209,600 c. P 5,158,000 d. P 5,182,400

64. Consolidated accumulated profits attributable to GCC in 2017

a. P b. P 20,929,600 c. P d. P 21,044,600 e. P 21,332,800
20,953,600 21,089,600

CASE 21
A taxpayer from the city of Las Pinas has the following information relating with his real property:
FMV of Land, P500,000; FMV of Res. House, P1,500,000. The one percent (1%) real property tax and
1% special education tax are both based on the assessed value of the real property. The assessed value
is 20% of the fair market value. Garbage fees amounted to P500.
65. How much is the total amount collected from the taxpayer?
a. P 40,500 b. P 8,500 c. P 400,500 d. P 4,500

* * * END OF EXAMINATION * * *

Queen of the Most Holy Rosary, pray for us!

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