ACCBUSCO COMPILATION

PRELIM EXAM THEORIES

1. The purchase method of accounting for a business combination involves all of

the following steps, except- *

Identifying an acquirer
Allocating at acquisition date the cost of business combination to the assets acquired and
liabilities and contingent liabilities assumed
Measuring the cost of the business combination
Measuring the acquirer’s assets and liability

2. Eliminating entries are made to cancel the effects of intercompany transactions

and are made on the *

Work paper only

Books of both the parent company and the subsidiary
Books of the parent company
Books of the subsidiary company

3. Acquisition costs such as fees of accountants and lawyers that were necessary
to negotiate and consummate the purchase are –

Recorded as deferred asset and amortized over a period not to exceed 15 year
Expensed if immaterial but capitalized and amortized it over 2% of the acquisition price
Expensed in the period of the purchase
Included as part of the price paid for the company purchased

4. In an acquisition where there is an exchange of stock (acquirer) for assets

(acquire). How does the value of the acquire net assets change? *

The net assets decrease

There is no change in net assets
The net assets increase
The net assets may increase, decrease or remain the same

5. An acquirer exists in all of the following, except- *

The business combination results in the management of one entity being able to dominate
the selection of the management team of the resulting combined entity.
The business combination is effected through an exchange of voting ordinary shares for
cash
The shareholders of each entity maintain substantially the same voting rights and interest
in the combined entity
The fair value of one entity is significantly greater than that of the other combining entity
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6. Working paper eliminations are entered in- *

neither the parent company’s nor the subsidiary’s accounting records

the parent company’s accounting records only
the subsidiary’s accounting records only
both the parent company’s and subsidiary’s accounting records

7. The term “control” means ownership, directly or indirectly through subsidiaries

of- *

more than ½ of the outstanding voting stock of another company

at least 20% of the voting stock of another company
at least 10% of the voting stock of another company
at least 50% of the voting stock of another company

8. X Company, a subsidiary acquired for cash, owned equipment with a fair value
higher than the book value as of the date of acquisition. A consolidated balance
sheet prepared immediately after the acquisition would included this difference
in: *

Retained earnings
equipment
income statement
Goodwill

9. On the date of purchase-type acquisition the difference between the fair value
and book values of the subsidiary’s identifiable net assets are: *

Included in a working paper elimination

Recognized in the applicable asset and liability accounts of the parent
Accounted for in some other manner
Recognized in the applicable asset and liability accounts of the subsidiary

10. Consolidated financial statements are – I- The financial statements of a group

presented as those of single economic entity. II- Present a valid reflection of the
financial condition of the affiliates *

both I and II
Neither I nor II
I only
II only
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11. This concept of preparing consolidated financial statement means that that the
“group” consists of the assets and liabilities of the parent and the parent’s
proportional share of the assets and liabilities of the subsidiary *

parent entity concept

residual equity concept
entity concept
proprietary concept

12. The stockholders’ equity section of a consolidated balance sheet for parent and
its partially owned subsidiary consists of: *

the parent’s equity accounts, the subsidiary’s equity accounts and the non-controlling
interest
the parent’s and the subsidiary’s stockholder’s equity accounts
the parent’s stockholders’ equity accounts
the parent’s equity accounts and the non-controlling interest

13. What is the method of presentation required by PFRS 10 of Non-controlling

interest on the consolidated balance sheet? *

As a part of stockholders’ equity

As a separate item within the long-term liabilities section
As a separate item between liabilities and stockholders’ equity
As a deduction from goodwill from consolidation

14. When is a subsidiary excluded from consolidation *

When business activities are dissimilar from those of the other entities within the group
When control is intended to be temporary and subsidiary will be disposed within twelve
months
when it is operating under severe long-term restrictions that significantly impair its ability to
transfer funds to the parent
When investor is a venture capital organization, mutual fund, unit trust or similar entity

15. Conditions in general for preparation of consolidated statements. I- A controlling

financial interest must be present, continuing and assured. II- Consolidated must
present a valid reflection of the financial condition of the affiliates. III- In view of
the unified managerial control, where in control is less than a majority ownership
of the subsidiary’s voting power *
I only is true
I, and II are True
II and III are true
I, II and III are true
ACCBUSCO COMPILATION

MIDTERM EXAM THEORIES

1. Inventory sales from a parent to one of its subsidiaries are referred to as

downstream sales *

True
False

2. All intercompany transaction generally are related-party transactions *

True
False

3. The working paper elimination In journal entry format) for a second year of
intercompany sales made at a markup over subsidiary cost by a partially owned
subsidiary to the parent company includes: *

a credit to cost of goods sold- subsidiary

a debit to Retained earnings-subsidiary
a credit to Non-controlling interest in net assets of subsidiary
none of the foregoing

4. If an intercompany inventory transfer occurs in late 2020 and all this inventory is
not resold to on outside, third party until 2021, the intercompany sale is
eliminated in consolidation in 2020 and 2021 *

False
True

5. The concept profit on intercompany transactions to be deferred for consolidated

reporting purposes a gross profit *

False
True

6. From a consolidated point of view, the intercompany gain on a parent company’

s sale of a depreciable plant asset to the subsidiary is realized when: *

the subsidiary abandons the plant asset

some other transaction or event takes place
the parent company sells the plant asset to the subsidiary
the subsidiary resells the plant asset to the parent company
ACCBUSCO COMPILATION

7. A working paper elimination to remove an intercompany profit or gain is not

relevant for an intercompany- *

sales-type/capital lease
sale of plant asset or intangible
sale of merchandise
acquisition of an affiliate’s outstanding bonds payable in the open market

8. Enroy Company owns a 100% interest in the common stock of the Diaz
Company. On January 1, 2015, Enroy sold Diaz a fixed asset that Diaz will use
over a 5-year period. The asset was sold at a P 50,000 profit. In the
consolidated statements, this profit will- *

not be recorded
be recognized when the asset is resold to outside parties at the end of its period of use
be recognized over 5 years
be recognized in the year of sale

9. The amount of the adjustment to the non-controlling interest in consolidated net

assets is equal to the non-controlling interest’s percentage of the- *

realized intercompany gain at the beginning of the period

Unrealized intercompany gain at the beginning of the period
realized intercompany gain at the end of the period
Unrealized intercompany gain at the end of the period

10. A wholly owned subsidiary sold land to its parent during the year at a gain. The
parent continues to hold the land at the end of the year. The amount to be
reported as consolidated net income for the year should equal- *

The parent’s separate operating income, plus the subsidiary’s net income, minus the
intercompany gain
The parent’s separate operating income, plus the subsidiary’s net income, plus the
intercompany gain
The parent’s net income, plus the subsidiary’s net income, minus the intercompany gain
The parent’s separate operating income, plus the subsidiary’s net income
ACCBUSCO COMPILATION

PRE-FINAL EXAM THEORIES

1. It is a form of joint venture, where each venturer should recognize in its separate
financial statements all assets of the venture that it controls, all liabilities that it
incurs, all expenses that it incurs, and its share of any revenues produced by the
venture. *

Jointly controlled operations.

Jointly controlled interests.
Jointly controlled entities.
Jointly controlled assets

2. It is the contractually agreed sharing of control over an economic activity, and

exists only when the strategic financial and operating decisions relating to the
activity require the unanimous consent of the parties sharing control *

significant influence
Joint control
Control
Controlling interest

3. Joint ventures can take many forms and structures. Joint ventures may be
created as partnership, as corporations, or as unincorporated associations. All of
the following are the distinct types of joint venture, except *

Jointly controlled assets

Jointly controlled entities.
Jointly controlled operations.
Jointly controlled interests.

4. The particular relationship between parties that signifies the existence of a joint
arrangement is-

Significant influence by one party over the other party

Control over the financing and operating policies of one party by the other party
Shares influence by two parties over the activities of another party
Joint control by the parties over the activities of an operation

5. PFRS 11- Joint Arrangements provides that joint control exists where- *
One party alone has the power to control the strategic operating decisions of the joint
arrangement
Decisions in areas essential to the goals of the joint arrangement do not require consent of
the parties
No single party may be appointed as the manager of the joint arrangement
No single party is in position to control the activity unilaterally
ACCBUSCO COMPILATION

6. It is a party to a joint venture and does not have joint control over that joint
venture. *

Investor with a power to govern the financial and operating policies.

Investor in a joint venture.
None of these.
Venturer.

7. Under PFRS 11, what is the method of accounting for investment in joint
venture? *

Equity method
Fair value method
Cost method
Consolidation method

8. Per PFRS 11, what are the two types of joint arrangement (i.e, contractual
arrangement where two or more parties have joint control)? *

Joint forces and joint agreement

Joint venture and joint agreement
Joint forces and joint venture
Joint venture and joint operation

9. Identify whether the structure is joint venture or joint operation. These joint
arrangements are normally in the form of un-incorporated arrangements *

Joint operation
Joint venture

10. Identify whether the term of the contract is joint venture or joint operation. The
contractual terms provide the parties to the arrangement, right to the net assets
of the joint arrangement *

Joint venture
Joint operation

11. Identify whether the term of the contract is joint venture or joint operation. The
contractual terms provide the parties to the arrangement, direct right to the
assets and liabilities of the joint arrangement *

Joint venture
Joint operation
ACCBUSCO COMPILATION

12. Identify whether the rights of the parties is joint venture or joint operation. The
parties to the arrangement, have the direct right to the assets and liabilities of
the joint arrangement i.e. the assets and liabilities of the joint arrangement are
the assets and liabilities of joint operators *

Joint venture
Joint operation

13. Identify whether the structure is joint venture or joint operation. These joint
arrangements are structured in the form separate legal entities *

Joint operation
Joint venture

14. Identify whether the obligation for the liabilities is joint venture or joint operation.
The parties are not liable for the liabilities of the joint arrangement, instead the
separate legal entity will be liable for the liabilities. *

Joint operation
Joint venture

15. The objective of IFRS 11 is to ________________ by entities that have an

interest in joint arrangements. *

Regulate accounting policy to be applied

Achieve uniformity in the accounting policies used
Establish principles for financial reporting
Unify the accounting techniques used

16. Identify whether the obligation for the liabilities is joint venture or joint operation.
The parties are liable for the liabilities of the joint arrangement *

Joint venture
Joint operation

17. Identify whether the rights of the parties is joint venture or joint operation. The
parties to the arrangement have right to the net assets of the joint arrangement
i.e. the assets and liabilities of the joint arrangement are the assets and liabilities
of the separate legal entity *

Joint operation
Joint venture
ACCBUSCO COMPILATION

18. What entities shall apply IFRS 11? *

Only those entities that have joint control over a joint arrangement
Only those entities that have significant influence over a joint arrangement
Only those entities that are a party to a joint arrangement
All of the given

19. IFRS 11 requires an entity that is a party to a joint arrangement to determine the
__________ of joint arrangement in which it is involved. *

Legal Structure
Contractual agreement
Accounting policies
Type

20. Which of the following is not a characteristic of a joint arrangement? *

The parties of the joint arrangement are related parties to each other
Two or more of the parties have joint control of the arrangement
All of the given
The parties are bound by a contractual arrangement

21. Joint control is the contractually agreed sharing of control of an arrangement,

which exists only when decisions about the relevant activities require the
_____________ of the parties sharing control. *

Unanimous consent
Collective judgement
Unbiased decisions
Highest level of professionalism

22. In a joint arrangement, __________ controls the arrangement on its own. *

A party with joint control

A party with the majority of voting rights
No single party
A party with significant influence

23. A joint arrangement is an arrangement where all of its parties have joint control
of the arrangement. *

False
True
ACCBUSCO COMPILATION

24. ( 2 POINTS) A public sector health care provider (entity X) and a large property
developer (entity Y) enter into an agreement to work together to provide assisted
living services for the elderly. Entity X and entity Y establish a separate
company (entity Z). The legal form of the company confers the rights to the
assets and obligations for liabilities to the company itself. The agreement
between entity X and entity Y requires all decisions be made jointly. The
agreement also confirms: (a) Entity X will provide the assisted living services.
Entity Y will construct the premises. (b) The assets of the arrangement are
owned by entity Z, the company. Neither party will be able to sell, pledge,
transfer or otherwise mortgage the assets of entity Z. (c) The liability of the
parties is limited to any unpaid capital of entity Z. (d) Each party pays for its
share of expenses for operating the service in accordance with its interest in
entity Z. (d) Profits of entity Z will be distributed to entity X and entity Y 40:60,
being the parties’ respective interests in the arrangement. Identify on the basis
of the description above the type of joint arrangement *

Can be either joint operation or joint venture

Joint venture using equity method
Joint venture using cost method
Joint operation

25. ( 2 POINTS)Two entities (the parties) set up a separate vehicle (entity X) for the
purpose of establishing and operating a joint service center. The binding
arrangement between the parties establishes joint control of the activities that
are conducted in entity X. The main feature of entity X’s legal form is that the
entity, not the parties, has rights to the assets, and obligations for the liabilities,
relating to the arrangement. These activities include the allocation of office
space to services, managing the car park, maintaining the center and its
equipment, such as lifts, building the reputation of the center and managing the
client base for the center. The terms of the binding arrangement are such that:
(a) Entity X owns the service center. The binding arrangement does not specify
that the parties have rights to the service center. (b) The parties are not liable in
respect of the debts, liabilities or obligations of entity X. If entity X is unable to
pay any of its debts or other liabilities or to discharge its obligations to third
parties, the liability of each party to any third party will be limited to the unpaid
amount of that party’s capital contribution. (c) The parties have the right to sell
or pledge their interests in entity X. (d) Each party pays for its share of expenses
ACCBUSCO COMPILATION

for operating the service in accordance with its interest in entity X. Identify on
the basis of the description above the type of joint arrangement *

Joint operation
Joint venture using cost method
Joint venture using equity method
Can be either joint operation or joint venture

26. Which of the following statements is incorrect*?

Joint arrangements are always structured as companies

Joint arrangement can be classified into joint operations and joint ventures
A joint arrangement has two main characteristics
The key feature of a joint arrangement is that the parties involved have joint control over
the decision making in relation to the joint arrangement

27. ( 2POINTS) A public sector health care provider (entity X) and a large property
developer (entity Y) enter into an agreement to work together to provide assisted
living services for the elderly. The agreement between entity X and entity Y
requires all decisions to be made jointly. The agreement confirms: (a) Entity X
will supply operational assets including office equipment, motor vehicles and
furniture and fittings for the assisted living premises. (b) Entity Y will construct
the premises and will continue to own the premises. Entity Y will be responsible
for the ongoing maintenance of the premises. Entity Y cannot sell the premises
without first offering entity X the right to purchase the premises. Entity Y is
entitled to 100% of any gain on eventual sale of the premises. (c) The services
will be delivered through a new entity, entity Z, established for this purpose. (d)
Each party will pay for 50% of the expenses for operating the services. (e) Any
profits from providing the assisted living services will be shared equally between
entity X and entity Y. (f) Entity X will be responsible for managing staff and for
any liabilities arising from personal grievance claims and health and safety
issues. (g) Entity Y will be responsible for any liabilities to make good any
defects in the premises or alterations to the premises required to meet health
and safety codes and changes in those codes. Identify on the basis of the
description above the type of joint arrangement Joint operation *

Joint venture using equity method

Joint venture using cost method
Joint operation
Can be either joint operation or joint venture