UNION CHRISTIAN COLLEGE

City of San Fernando, La Union

School of Business and Sciences

Accountancy Program

MOCK BOARD EXAMINATION

SY 2019-2020

Instructions: Kindly encircle the correct letter using black or blue ball pen. Double encircling,
erasures, usage of pencil and friction pen in encircling means wrong.

1. On December 31,2019, London Bank granted a P5,000,000 loan to a borrower with 10% rate payable
annually and maturing in 5 years.

The loan was discounted at the market interest rate of 12%.

Unfortunately, the financial condition of the borrower worsened because of lower revenue.
On December 31,2021, the bank determined that the borrower would pay back only P3,000,000 of the
principal at maturity.
However, it was considered likely that interest would continue to be paid on the P5,000,000 loan.
The present value of 1 at 12% is .57 for five periods and .71 for three periods. The present value of an
ordinary annuity of 1 at 12% is 3.60 for five periods and 2.40 for three periods.

1. What is the amount of cash paid to the borrower on December 31,2019?

2. What is the carrying amount of the loan receivable before impairment on December 31,2021?
3. What is the impairment loss for 2021?

2. At the beginning of current year, Anne Company purchased 20% of the outstanding ordinary shares of
Dune Company for P4,000,000 of which P1,000,000 was paid in cash and P3,000,000 is payable with 12%
annual interest at every year-end.
Dune Company’s shareholders’ equity at the beginning of current year was P13,000,000.
Anne Company also paid P500,000 to a business broker who helped find a suitable business and
negotiated the purchase.
At the time of acquisition, the fair values of Dune Company’s identifiable assets and liabilities were equal
to their carrying amounts except for an office building which had a fair value in excess of carrying
amount of P2,000,000 and an estimated life of 10 years.
During the current year, Dune Company reported net income of P5,000,000 and paid cash dividend of
P2,000,000.

1. What is the implied goodwill from the acquisition?

2. What amount of income should be reported for the current year as a result of the investment?
3. What is the carrying amount of the investment in associate at year-end?

3. At the beginning of current year, Occidental Company purchased 40% of the outstanding ordinary
shares of Manapla Company for P3,500,000 when the net assets of Manapla amounted to P7,000,000.
At acquisition date, the carrying amounts of the identifiable assets and liabilities of Manapla were equal
to their fair value, except for equipment for which the fair value was P1,500,000 greater than carrying
amount and inventory whose fair value was P500,000 greater than cost.
The equipment has a remaining life of 4 years and the inventory was all sold during the current year.
Manapla Company reported net income of P4,000,000 and paid P1,000,000 cash dividend during the
current year.

1. What is the excess fair value over the acquisition cost?

2. What is the maximum amount of the equity in earnings of the investee?
3. What is the carrying amount of the investment in associate at year-end?

4. On January 1,2019, Haven Company acquired 20% of the ordinary shares of an associate for
P6,000,000. On this date, all the identifiable assets and liabilities of the associate were recorded at fair
value.
An analysis of the acquisition showed that goodwill of P300,000 was acquired. The associate reported
the following net income and dividend:
2019 2020
Net income 3,000,000 4,000,000
Dividend paid 1,000,000 1,500,000

In December 2019, the associate sold inventory to Haven Company for P900,000. The cost of the
inventory was P600,000.
This inventory remained unsold by Haven Company on December 31,2019. However, it was sold by
Haven Company in 2020.
In December 2020, the associate sold inventory to Haven Company for P750,000. The cost of the
inventory was P500,000
This inventory remained unsold by Haven Company on December 31,2020.

1. What amount should be reported as investment income for 2019?

2. What amount should be reported as investment income for 2020?
3. What is the carrying amount of the investment in associate on December 31,2020?

5. Glorious Company acquired 40% interest in an associate, Alta Company for P5,000,000 on January
1,2019.
At the acquisition date, there were no differences between fair value and carrying amount of the
identifiable assets and liabilities.
Alta Company reported the following net income and cash dividend for 2019 and 2020:
2019 2020
Net income 2,000,000 3,000,000
Dividend paid 800,000 1,000,000

The following transactions occurred between Glorious Company and Alta Company:
 On January 1,2019, Alta Company sold an equipment costing P500,000 to Glorious Company for
P800,000
Glorious Company applied a 10% straight line depreciation
 On July 1,2020, Alta Company sold an equipment for P900,000 to Glorious Company.
 The carrying amount of the equipment is P500,000 at the time of sale.
The remaining life of the equipment is 5 years and Glorious Company used the straight-line
depreciation

 On December 1,2020 Alta Company sold an inventory to Glorious Company for P2,800,000
The inventory had a cost of P2,00,000 and was still on hand on December 31,2020

1. What amount should be reported as investment income for 2019?

2. What amount should be reported as investment income for 2020?
3. What is the carrying amount of the investment in associate on December 31,2019?
4. What is the carrying amount of the investment in associate on December 31,2020?

6. Alpha Company acquired 20,000 shares of Beta Company on January 1,2019 at P120 per
share. Beta Company had 80,000 shares outstanding with a carrying amount of P8,000,000.
The difference between the carrying amount and fair value of Beta Company on January 1,2019
is attributable to a broadcast license which is an intangible asset.

Beta Company recorded earnings of P3,600,000 and P3,900,000 for 2019 and 2020, respectively
and paid per-share dividend of P16 in 2019 and P20 in 2020.
Alpha Company has a 20-year straight line amortization policy for the broadcast license.

1. What amount should be reported as investment income for 2019?

2. What is the carrying amount of the investment in associate on December 31,2019?
3. What amount should be reported as investment income for 2020?
4. What is the carrying amount of the investment in associate on December 31,2020?

7. On January 1,2019, Myopic Company purchased bonds with face amount of P2,000,000 for
P1,900,500 including transaction cost of P100,500.

The business model for this investment is to collect contractual cash flows which are solely
payments of principal and interest.
The entity did not elect the fair value option.
The bonds mature on December 31,2021 and pay 8% interest annually every December 31 with
a 10% effective yield.

On December 31,2019, the entity changed the business model for this investment to collect
contractual cash flows and to sell the financial assets in the open market.
The bonds are quoted at 110 on January 1,2020 and 120 on December 31,2020.

1. What amount should be reported as interest income for 2019?

2. What amount of unrealized gain in OCI should be recognized on January 1,2020?
3. What cumulative amount in OCI is recognized in the statement of changes in equity for 2020?
4. What amount should be reported as interest income for 2020?
5. What is the carrying amount of the investment on December 31,2020?

8. On January 1,2019, Soledad Company purchased 10% bonds in the face amount of
P3,000,000.
The bonds mature on January 1,2029 and were purchased for P3,405,000 in yield 8%.
 The entity used the effective interest method of amortization and interest is payable annually
every December 31.

The business model for this investment is to collect contractual cash flows composed of interest
and principal.
On December 31,2020, the entity changed the business model for this investment to realize fair
value changes.

On January 1,2021 the fair value of the bonds was P2,845,000 at so effective rate of 11%.

1. What amount should be reported as interest income for 2020?

2. What amount in profit or loss should be recognized in 2021 as a result of the reclassification?
3. What amount should be reported as interest income for 2021?

9. Rhino Company a real state entity, had a building with a carrying amount of P20,000 on
December 31,2019. The building was used as offices of the entity’s administrative staff.

On December 31,2019, the entity intended to rent out the building to independent third parties.
The staff will be moved to a new building purchased early in 2019.

On December 31,2019, the original building had a fair value of P35,000,000.

On December 31,2019, the entity also had land that was held for sale in the ordinary course of
business.

The land had a carrying amount of P10,000,000 and fair value of P15,000,0000 on December
31,2019.

On such date, the entity decided to hold the land for capital appreciation.
The accounting policy is to carry investment property at fair value.

1. On December 31,2019, what amount should be recognized in revaluation surplus as a result

of transfer of the building to investment property?
2. On December 31,2019, what amount should be recognized in profit or loss as a result of
transfer of the land to investment property?

10. Ball Company purchased a P1,000,000 ordinary life insurance policy on its president. Ball
Company is the beneficiary under the life insurance policy. The policy year and the entity’s
accounting year coincide.

The entity provided the following data for the current year:

Cash surrender value, January 1 43,500

Cash surrender value, December 31 54,000

Annual advance premium paid January 1 20,000

Dividend received July 1 3,000

What amount should be reported as life insurance expense for the current year?