Advanced Accounting and Reporting

1. Kyle and Patt are partners with capital balances of ₱60,000 and ₱20,000, respectively. Profits and losses
are divided in the ratio of 60:40. Kyle and Patt decided to form a new partnership with Gerald, who
invested land valued at ₱15,000 for a 20% capital interest in the new partnership. Gerald’s cost of the
land was ₱12,000. The partnership elected to use the bonus method to record the admission of Gerald
into the partnership. Gerald’s capital account should be credited for

a. ₱12,000
b. ₱15,000
c. ₱16,000
d. ₱19,000

Answer: D
The requirement is to determine the balance in the new partner’s capital account after admission
using the bonus method. In this case, Gerald is investing land with a FV of ₱15,000 for a 1/5
interest in the new total capital of ₱95,000. Using the bonus method, the new capital P95,000
equals the total of the old capital plus Gerald’s investment (₱60,000 + ₱20,000 + ₱15,000). Thus, a
bonus of ₱4,000 is being credited to Gerald’s capital account because his interest (1/5 of ₱95,000,
or ₱19,000) exceeds his investment (₱15,000).

2. In reference to the downstream or upstream sale of depreciable assets, which of the following statements
is correct?

a. Upstream sales from the subsidiary to the parent company always result in unrealized gains or
losses.
b. The initial effect of unrealized gains and losses from downstream sales of depreciable assets is
different from the sale of non-depreciable assets.
c. Gains, but not losses, appear in the parent-company accounts in the year of sale and must be
eliminated by the parent company in determining its investment income under the equity method of
accounting.
d. Gains and losses appear in the parent-company accounts in the year of sale and must be eliminated
by the parent company in determining its investment income under the equity method of accounting.

Answer: D
All gains or losses arising from intercompany transactions must be eliminated and are always
ignored in determining the investment income. It can only be presented in separate financial
statements.

3. According to PFRS 4 Insurance Contracts, it is a contract wherein one party (the insurer) accepts
significant insurance risk from another party (the policyholder) by agreeing to compensate the
policyholder if a specified uncertain future event (the insured event) adversely affects the policyholder.

a. Onerous contract
b. Financial guarantee contract
c. Warranty
d. Insurance contract

Answer: D
 According to PFRS 4 Insurance Contracts, Insurance contract is a contract wherein one party (the
insurer) accepts significant insurance risk from another party (the policyholder) by agreeing to
compensate the policyholder if a specified uncertain future event (the insured event) adversely
affects the policyholder.

4. In PAS 21 The Effects of Changes in Foreign Exchange Rates, at the end of each reporting period, non-
monetary items that are measured in terms of historical cost in a foreign currency shall be translated
using the

a. Exchange rate at the date of transaction

b. Exchange rate at the date when the fair value was measured
c. Closing rate
d. None of the choices

Answer: A
Paragraph 23 of PAS 21 The Effects of Changes in Foreign Exchange Rates states that at the end
of each reporting period, non-monetary items that are measured in terms of historical cost in a
foreign currency shall be translated using the exchange rate at the date of transaction.

5. Mr. X purchased a property located in Thailand on December 31, 2020 for 26 million baht. The general
price index in the country was 50.8 on that date. However, on December 31, 2021, the general price
index had risen to 152.4. If the entity operates in a hyperinflationary economy, what would be the carrying
amount in the financial statements of the property after restatement?

a. 127.6 million baht

b. 78 million baht
c. 76.8 million baht
d. 8.67 million baht

Answer: B
26 million x 152.4/50.8 = 78 million

Based on PAS 29, financial statements of an entity that reports in the currency of a
hyperinflationary economy should be stated in terms of the measuring unit current at the balance
sheet date. Restatements are made by applying the general price index.

6. Normal spoilage is properly classified as

a. Prime cost
b. Period cost
c. Product cost
d. Deferred charge.

Answer: C
Normal spoilage is an inherent result of a manufacturing process and it is expected to occur
under efficient operating conditions. Thus, normal spoilage is included in the cost of units
produced and therefore included in the cost of inventory.

7. Janine Company produces only two products and incurs joint processing costs that total ₱8,750. Products
Dora and Boots are produced in the following quantities during each month: 7,500 and 6,000 gallons,
respectively. Janine Company also runs one advertisement each month that advertises both products at a
 cost of ₱1,500. The selling price per gallon for the two products are ₱20 and ₱17.50, respectively. Using
the physical unit method, what amount of joint processing costs is allocated to product Dora?

a. ₱4,861
b. ₱5,694
c. ₱3,889
d. ₱4,556

Answer: A
Total Units: 7,500 + 6,000 = 13,500
Dora (7,500/13,500 x ₱8,750) = ₱4,861

8. Which of the following items should be treated in the same manner in both combined financial statements
and consolidated statements?

Income taxes Non-controlling interest

a. No No
b. No Yes
c. Yes Yes
d. Yes No

Answer: C
Where combined statements are prepared for a group of related companies, intercompany
transactions and profit and losses should be eliminated. Matters such as noncontrolling interests,
income taxes, foreign operations, or different fiscal periods should be treated in the same manner
for both combined financial statements and consolidated statements.

9. The following information pertains to shipments of merchandise from Home Office to Branch during 2020:

Home Office’s cost of merchandise ₱280,000

Intracompany billing 350,000
Sales by Branch 430,000
Unsold merchandise at Branch on December 31, 2020 40,000

What amount of the above transactions should be included in sales in the combined income statement of
Home Office and Branch for the year ended December 31, 2020?

a. ₱350,000
b. ₱430,000
c. ₱310,000
d. ₱390,000

Answer: B
In computing the sale to be reported by an entity in its combined income statement, the accounts
are restated as if no intercompany transaction occurred. Applying this to the problem, the amount
of sale reflected in the combined statement should be the ₱430,000 sold by the branch.

10. In general, an acquirer measures and accounts for assets acquired and liabilities assumed or incurred in
a business combination after the business combination has been completed in accordance with other
applicable IFRSs. However, which of the following does the International Financial Reporting Standards 3
Business Combinations (IFRS 3) specifically provides accounting requirements?

a. reacquired rights
 b. contingent liabilities
c. contingent consideration
d. insurance contracts.

Answer: D
Paragraph 17 of IFRS 3 provides two exceptions to the general rule above: (1) classification of a
lease contract as either an operating lease or a finance lease in accordance with IAS 17 Leases
and (b) classification of a contract as an insurance contract in accordance with IFRS 4 Insurance
Contracts.

11. Based on the Government Accounting Manual for National Government Agencies, this is an authorization
issued by the DBM to NGAs to incur obligations for specified amounts contained in a legislative
appropriation in the form of budget release documents.

a. Appropriation
b. Allotment
c. Budget
d. Obligation

Answer: B
Allotment – is an authorization issued by the DBM to NGAs to incur obligations for
specified amounts contained in a legislative appropriation in the form of budget
release documents. It is also referred to as Obligational Authority.

Letter A Appropriations - is the authorization made by a legislative body to allocate funds for
purposes specified by the legislative or similar authority.

Letter C Approved Budget - the expenditure authority derived from appropriation laws,
government ordinances, and other decisions related to the anticipated revenue or receipts for the
budgetary period

Letter D Obligation- is an act of a duly authorized official which binds the government to the
immediate or eventual payment of a sum of money.

12. Chloe Corporation’s shipments to and from its Bicol branch are billed at 125% of cost. On December 31,
Bicol branch reported the following at billed prices: January 1 inventory of ₱35,000; shipments received
from home office of ₱875,000; shipments returned of ₱50,000; and December 31 inventory of ₱37,500.
What is the balance of the allowance for over-valuation of branch inventory on December 31 before
adjustments?

a. ₱182,000
b. ₱192,000
c. ₱165,000
d. ₱172,000

Answer: D
Beginning inventory ₱35,000
Shipments from HO 875,000
Shipments returned (50,000)
Goods available for sale ₱860,000
x 25/125
Allowance for over-valuation before adjustments ₱172,000
13. The Recto Branch of Bukas store is billed by the home office for merchandise shipments at 40% over
cost. The following information relates to Recto’s operations for the calendar year 2019:
Sales ₱4,500,000
Local purchases 1,000,000
Shipments from Home Office 2,450,000

Recto reports ending inventory of ₱700,000 of which ₱175,000 is identified to come from local
purchases.

Per home office reckoning, by how much is Recto’s cost of sales overstated?

a. ₱182,000
b. ₱192,000
c. ₱165,000
d. ₱172,000

Answer: B. 550,000

Shipments 2,450,000
Ending Inventory 525,000
1,925,000 / 1.40 x 40% = 550,000

14. According to PAS 29 Financial Reporting in Hyperinflationary Economies, hyperinflation indicates

characteristics of the economic environment of a country which include, but are not limited to, the
following, except:

a. the general population prefers to keep its wealth in monetary assets or in a relatively stable foreign
currency
b. the general population regards monetary amounts not in terms of the local currency but in terms of a
relatively stable foreign currency
c. sales and purchases on credit take place at prices that compensate for the expected loss of
purchasing power during the credit period, even if the period is short
d. cumulative inflation rate over three years is approaching, or exceeds, 100%.

Answer: A
Letter A is the answer since in a hyperinflationary economy, the general population prefers to
keep its wealth in non-monetary assets or in a relatively stable foreign currency.

15. JJ and OO share profits after the provision of annual salary allowances of ₱14,400 and ₱13,200,
respectively in the ratio of 6:4. However, if partnership’s net income is insufficient to provide for said
allowances in full amount, the net income shall be divided equally between the partners. In 2020, the
following errors were discovered: Depreciation for 2020 is understated by 2,100 and the inventory on
December 31, 2020 is overstated by ₱11,400. The partnership net income for 2020 was reported to be
₱19,500.
The capital accounts of the partners should be increased (decreased) by:

a. JJ, ₱(6,540); OO, ₱(6,540)

b. JJ, ₱(3,000); OO, ₱(3,000)
c. JJ, ₱(6,960); OO, ₱6,540
d. JJ, ₱(6,750); OO, ₱(6,750)

Answer: D
Correcting the allocated net income:
JJ OO Total
Correct allocation of net income, equally ₱3,000 ₱3,000 ₱6,000
Allocation of net income per books, equally 9,750 9,750 19,500
Adjustments increased (decreased) (6,750) (6,750) 13,500
 Advanced Accounting and Reporting

1. During the liquidation, the sale of all the assets of liquidated corporation resulted to net proceeds of
₱1,000,000. Liquidation expense amounting to ₱60,000 has been paid at the start of liquidation from the
net proceeds of disposal of all assets. Before the liquidation, the following data are provided concerning
the financial position of the said financially distressed corporation:

• The corporation has total assets with book value of ₱2,000,000 and deficiency amounting to
₱340,000.
• An investment property with book value of ₱500,000 and realizable value of ₱300,000 secured a loan
payable amounting to ₱100,000.
• Inventory with book value of ₱1,000,000 and realizable value of ₱100,000 secured a note payable
amounting to ₱200,000.
• Salaries payable and income tax payable amounted to ₱100,000 and ₱40,000, respectively.

What is the amount received by pure unsecured creditors without priority?

a. ₱600,000
b. ₱570,000
c. ₱700,000
d. ₱800,000

Answer: B
Assets Liabilities
Total Realizable Value 1,000,000 Total Liabilites 2,340,000
Liquidation expenses (60,000) Loan Payable (100,000)
RV Investment Property (300,000) Note Payable (200,000)
RV Inventory (100,000) Unsecured with priority (140,000)
RV of Free Assets 540,000 Unsecured w/out priority 1,900,000
Fully Secured (300k-100k) 200,000 Partially Secured (200k-100k) 100,000
Unsecured with priority (140,000)
Net free asset 600,000 2,000,000
30%
1,900,000 x 30% = 570,000

2. Which of the following criteria must be met for bifurcation to occur?

a. The embedded derivative meets the definition of a derivative instrument.

b. The hybrid instrument is regularly recorded at fair value.
c. Economic characteristics and risks of the embedded instrument are “clearly and closely” related to
those of the host contract.
d. All of the choices.

Answer: A
The following are the requirements for hybrid instruments to be bifurcated:
a. The host contract is carried at fair value
b. The underlying of the embedded feature are not “clearly and closely” related to the host
contract.
c. The embedded feature would be a derivative if it were freestanding.
3. On January 1, 2020, Ayala acquired 90% of outstanding ordinary shares of Globe Inc. The following data
are provided:

• On year 2020, Ayala sold inventory at a price of ₱1,000,000 with gross profit rate of 20% based on
sale to Globe. 40% remained in ending inventory of Globe on December 31, 2020. These inventories
are eventually sold on year 2021 to third persons by Globe.
• During 2021, Globe sold inventory at a price of ₱500,000 with gross profit of 40% based on sale to
Ayala of which 10% remained in ending inventory of SM on December 31, 2021.
• During 2021, Ayala reported sales of ₱10M while Globe reported sales of ₱4M. In the same year,
Ayala reported gross profit of P3M while Globe reported gross profit of ₱2M.

What is the amount of Ayala’s consolidated sales for the year ended December 31, 2021?

a. ₱12,500,000
b. ₱14,000,000
c. ₱13,000,000
d. ₱13,500,000

Answer: D
₱10,000,000 + ₱4,000,000 – ₱500,000 = ₱13,500,000

4. Which of the following is not considered in determining transaction price as indicated under PFRS 15?

a. Variable consideration
b. Existence of a significant financing component in the contract
c. Constraining estimates of variable consideration
d. All of the choices.

Answer: B
PFRS 9, paragraph 48 states that when determining transaction price, an entity shall consider the
effects of all the following:
- Variable consideration
- Constraining estimates of variable consideration
- The existence of a significant financing component in the contract
- Non-cash consideration
- Consideration payable to a customer

5. A reconciliation of the Makati branch account of Manila Head Office and the Head Office account carried
in the books of the branch office shows the following reconciliation items at December 31, 2020.
• A debit for merchandise allowance of ₱9,562.50 was taken up by the branch as ₱8,437.50.
• A charge by the branch of ₱8,912.50 for an advance taken by the Branch Operations manager when
he visited the branch was recorded twice by the Home Office.
• The branch has not taken up ₱4,375 covered by a credit memo from the home office.

The Makati branch account in the head office books had a debit balance of ₱393,625.50 at December 31,
2020. The reciprocal accounts were in agreement at the beginning of the year.

The unadjusted balance of the Head Office account in the branch books at December 31, 2020 is:

a. ₱ 405,788
b. ₱ 403,038
c. ₱ 387,963
d. ₱ 390,213
 Answer: A

6. True or False:
Head Office, unadjusted balance SQUEEZED ₱ 405,788.00
I. Erroneous Debit by the Branch 1,125.00
II. Unrecorded advances (8,912.50)
III. Credit memo not taken up by the branch (4,375.00)
Head Office, adjusted balance ₱ 393,625.50

I. Drawing accounts are debited for partners’ withdrawal and for partners’ personal expenses paid by
the partnership.
II. An entity sharing control in the joint arrangement must assess its rights and obligations arising from
the undertaking.

a. Both statements are true.

b. Only statement I is true.
c. Only statement II is true.
d. Both statements are false.

Answer: A
Both statements are correct.
I. Drawing accounts are debited for partners’ withdrawal and for partners’ personal expenses
paid by the partnership.
II. An entity sharing control in the joint arrangement must assess its rights and obligations
arising from the undertaking.

7. In a consignment agreement, which of the following bears which type of risk?

Inventory Risk Credit Risk

a. Consignor Consignor
b. Consignor Consignee
c. Consignee Consignor
d. Consignee Consignee

Answer: A
Both credit risk and inventory risk are born by the consignor.

8. Rex, a partner in an accounting firm, has 30% participation in the firm’s profit and losses. During 2020,
Rex withdrew ₱100,000 against his capital, but contributed additional property with a fair value of
₱20,000. Rex’s capital increased by ₱10,000 during 2020.

How much is the net income for 2020? Round off to the nearest peso.

a. ₱300,000
b. ₱ 90,000
c. ₱333,333
d. ₱180,000
 Answer: A
Share in Net Income = ₱10,000 – ₱20,000 + ₱100,000 = ₱90,000
Net Income = ₱90,000 / 30% = ₱300,000

9. The partners, A and B, share profits 3:2. However, A is to receive a yearly bonus of 20% of the profits, in
addition to his profit share. The partnership made a net income for the year of ₱24,000 before the bonus.
Assuming A’s bonus is computed on profit after deducting said bonus, how much profit will B receive?

a. ₱15,200
b. ₱ 9,600
c. ₱ 8,000
d. ₱ 9,000

Answer: C
B = bonus
B = .20 (24,000 – B)
B = 4,800 – .20B
B = 4,000
A B
Bonus ₱4,000
Profit (3:2) 12,000 ₱8,000
₱16,000 ₱8,000

10. On December 31, 2020, ABC Partnership’s Statement of Financial Position shows that A, B and C have
capital balances of ₱400,000, ₱300,000 and ₱100,000 with profit or loss ratio of 1:4:5. On January 1, 2021,
C retired from the partnership and received ₱80,000. At the time of C’s retirement, the assets and liabilities
of the partnership are properly valued.

What is the capital balance of B after the retirement of C?

a. ₱284,000
b. ₱308,000
c. ₱316,000
d. ₱320,000

Answer: C
Capital Balance of B before the retirement of C ₱300,000
Add: Share of B from Bonus given by C (P20,000 x 4/5) 16,000
Capital Balance of B after the retirement of C ₱316,000

11. On December 31, 2020, the Statement of Financial Position of ABC Partnership provided the following data
with profit or loss ratio of 1:6:3:

Current Assets ₱1,000,000 Total Liabilities ₱600,000

Noncurrent Assets 2,000,000 A, Capital 900,000
B, Capital 800,000
C, Capital 700,000
On January 1, 2021, D is admitted to the partnership by purchasing 40% of the capital interest of B at a
price of ₱500,000.

What is the capital balance of B after the admission of D on January 1, 2021?

 a. ₱540,000
b. ₱480,000
c. ₱420,000
d. ₱300,000

Answer: B
Capital Balance of B before the admission of D ₱800,000
Less: Capital to be transferred to D (P800,000 x 40%) (320,000)
Capital Balance of B after the admission of D ₱480,000

12. Bernice, a partner in Bernice-Ezrah Partnership, has a 40% participation in profits and losses. Bernice’s
capital account has a net decrease of ₱500,000 during the calendar year 2020. During 2020, she also
withdrew ₱1,500,000 (charged against her capital account) and contributed property valued at ₱300,000
to the partnership.

What is Ezrah’s share in partnership net income/(loss)?

a. ₱1,750,000
b. ₱1,050,000
c. (₱ 750,000)
d. ₱1,350,000

Answer: B
Bernice’s capital net decrease (₱500,000)
Capital withdrawal 1,500,000
Capital contribution (300,000)
Bernice’s share in net income (40%) 700,000
/ 40%
Total net income of partnership 1,750,00
x 60%
Ezrah’s share in net income (60%) ₱1,050,000

13. On December 31, 2020, ABC Partnership’s Statement of Financial Positions shows that A, B and C have
capital balances of ₱500,000, ₱300,000 and ₱200,000 with profit or loss ratio of 1:3:6. On January 1, 2021,
C retired from the partnership and received ₱350,000. At the time of C’s retirement, an asset of the
partnership is undervalued.

What is the capital balance of A after the retirement of C?

a. ₱462,500
b. ₱537,500
c. ₱562,500
d. ₱525,000

Answer: D
Capital Balance of A before the retirement of C ₱500,000
Add: Share of A in asset revaluation (250,000 x 10%) 25,000
Capital Balance of A after the retirement of C 525,000

Cash received by C upon retirement 300,000

 Capital of C before retirement 200,000
Share of C asset revaluation 150,000
Total asset revaluation (150,000 / 60%) ₱250,000

14. Which partner is not allowed to participate in the management of a partnership?

a. Capitalist partner
b. Industrial partner
c. Nominal partner
d. Managing partner

Answer: C
A nominal partner is one who does not have any real interest in the business but lends his name
to the firm, without any capital contributions, and doesn’t share the profits of the business. He
also does not usually have a voice in the management of the business of the firm, but he is liable
to outsiders as an actual partner.

15. At the time of partnership liquidation, which credits shall be settled first?

a. Those amounts owing to third persons

b. Those amounts owing to partners other than capital contribution and share in profit.
c. Those amounts owing to partners with respect to capital contribution.
d. Those amounts owing to partners with respect to share in profit.

Answer: A
The following is the proper order of partnership liabilities and equity.
a. Those amounts owing to third persons
b. Those amounts owing to partners other than capital contribution and share in profit.
c. Those amounts owing to partners with respect to capital contribution.
d. Those amounts owing to partners with respect to share in profit.
 Advanced Accounting and Reporting

1. The following summarizes the results of liquidation process of ABC Co.’s operations:

Gains on realization of assets ₱40,000

Losses on realization of assets 140,000
Additional assets 10,000
Share capital (@ original book value) 480,000
Deficit (@ original book value) 210,000

What is the recovery percentage of shareholders?

a. 55.55%
b. 66.66%
c. 77.77%
d. cannot be determined from the provided information

Answer: B
Share Capital ₱480,000
Less: Deficit 210,000
SHE @ BV 270,000
Assets – Liabilities @ BV 270,000
Gains 40,000
Losses (140,000)
Additional assets 10,000
Net assets available to shareholders 180,000
Divide by: SHE @ BV 270,000
Recovery of Shareholders 66.66%

2. ABC Partnership wishes to undergo liquidation and has the following information:

Cash ₱100,000 Accounts Payable ₱200,000

Non Cash Assets 700,000 A, Capital (40%) 150,000
B, Capital (40%) 250,000
C, Capital (20%) 200,000

Non cash assets were sold for ₱311,200 and the partnership incurred liquidation expenses of ₱52,400.
Compute for the maximum loss.

a. ₱641,200
b. ₱388,800
c. ₱441,200
d. ₱988,800

Answer: C
Loss on Realization (700, 000 – 311, 200) ₱388, 800
Liquidation Expenses 52, 400
Maximum Loss ₱441, 200
3. Bryan Company recently set-up its standard costs for its direct labor. The entity sets the benchmark at 2
direct labor hours per product at a standard rate of ₱100 per direct labor hour.

During the year, the entity manufactured 10 products using 30 direct labor hours at total direct labor costs
of ₱2,400 or ₱80 per direct labor hour.

What is the direct labor efficiency variance?

a. ₱400 favorable
b. ₱1,000 unfavorable
c. ₱600 unfavorable
d. ₱200 favorable

Answer: B
Actual direct labor hours 30
Standard direct labor hours (10 x 2) (20)
Direct labor efficiency variance 10
Multiply by standard direct labor cost 100
Unfavorable variance ₱1,000

4. Simple Christian Company employs actual costing for its production. The entity provided the following
data concerning its production during the year:

Decrease in direct materials during the year ₱500,000

Labor cost during the year 400,000
Actual factory overhead during the year 300,000
Increase in work in process 200,000
Decrease in finished goods during the year 100,000

What is the cost of goods manufactured during the year?

a. ₱1,200,000
b. ₱1,000,000
c. ₱1,400,000
d. ₱1,100,000

Answer: B
Decrease in direct materials during the year ₱500,000
Labor cost during the year 400,000
Actual factory overhead during the year 300,000
Total manufacturing costs during the year 1,200,000
Increase in work in process (200,000)
Cost of goods manufactured during the year ₱1,000,000
5. Entity A acquired 80,000 out of 100,000 outstanding ordinary shares of Entity B which enabled the former
to obtain control of the latter at an acquisition price of ₱1,000,000. Entity A paid ₱100,000 acquisition
related costs and ₱50,000 indirect costs of the business combination.

At the date of acquisition, the net assets of Entity B are reported at ₱1,600,000. An asset of Entity B is
overvalued by ₱60,000 while one liability is undervalued by ₱40,000.

What is the goodwill or gain on bargain purchase arising from the business combination?

a. ₱250,000 gain on bargain purchase

b. ₱150,000 gain on bargain purchase
c. ₱50,000 goodwill
d. ₱200,000 gain on bargain purchase

Answer: D
Net assets of acquire at carrying amount ₱1,600,000
Overvaluation of asset (60,000)
Undervaluation of liability (40,000)
Net assets of acquire at fair value 1,500,000

Consideration 1,000,000
FMV NCI (1,500,000 * 20%) *NOTE 300,000
Aggregate 1,300,000
Net assets of acquire at fair value 1,500,000
Gain on bargain purchase 200,000

6. On January 1, 2020, Solid Company accepted a long-term construction project for an initial contract price
of ₱1,000,000 to be completed on June 30, 2022. On January 1, 2021, the contract price was increased to
₱1,500,000 by reason of change in the design of the project. The outcome of the construction contract can
be estimated reliably. The project was completed on December 31, 2022 which resulted to penalty
amounting to ₱200,000. The entity provided the following data concerning the direct costs related to the
said project for 2020 and 2021:

2020 2021
Costs during the year ₱440,000 ₱680,000
Remaining estimated costs to complete at year-end 660,000 280,000

What is the construction revenue for the year ended December 31, 2020?

a. ₱340,000
b. ₱400,000
c. ₱440,000
d. ₱360,000

Answer: B
Costs incurred to date as of December 31, 2020 ₱440,000
Divided by total estimated cost as of 2020 (440,000+P660,000) 1,100,000
Percentage of completion for 2020 40%
Construction revenue for year 2020 (1,000,000 x 40%) ₱400,000
7. On January 1, 2020, Entity A, a public entity, and Entity B, a public entity, incorporated Entity C which has
its fiscal and operational autonomy. The contractual agreement of the incorporating entities provided that
the decisions on relevant activities of Entity C will require the unanimous consent of both entities. Entity A
and Entity B will have rights to the net assets of Entity C.

Entity A and Entity B invested ₱1,000,000 and ₱1,500,000, respectively, equivalent to 40:60 capital interest
of Entity C. The financial statements of Entity C provided the following data for its two-year operation:
Net income (loss) Dividends declared
2020 ₱200,000 ₱100,000
2021 (2,000,000) -

What is the balance of Investment in Entity C to be reported by Entity A in its Statement of Financial Position
on December 31, 2021?

a. ₱1,080,000
b. ₱1,040,000
c. ₱240,000
d. ₱200,000

Answer: C

Entity A’s investment in Entity C – 1/1/2020 ₱1,000,000

Share in 2020 net income of Entity C (2,000,000 x 40%) 80,000
Share in 2020 cash dividend of Entity C (100,000 x 40%) (40,000)
Share in 2021 net loss of Entity C (2,000,000 x 40%) (800,000)
Carrying amount – December 31, 2021 ₱240,000

8. Coffee Company decided to open a branch in Manila. Shipments of merchandise to the branch totaled
₱54,000 which included a 20% markup on cost. All accounting records are kept at the home office. The
branch submitted the following report summarizing the operations for the year ended December 31, 2020:

Sales on account ₱74,000

Sales on cash basis 22,000
Collections of accounts receivable 60,000
Expenses paid 38,000
Expenses unpaid 12,000
Purchase of merchandise for cash 26,000
Inventory on hand, December 31; 80% from home office 30,000
Remittance to home office 55,000

What is the branch inventory on December 31, 2020 at cost?

a. ₱25,000
b. ₱20,000
c. ₱26,000
d. ₱10,000

Answer: C
Acquired from Home Office (80% x P30,000)/120% ₱20,000
Acquired from outsiders (20% x P30,000) 6,000
Branch inventory at cost, 12/31 ₱26,000
9. Lumiere Corp. which began operations in 2020, accounts for revenues using the installment method.
Lumiere’s sales and collections for the year were ₱60,000 and ₱35,000, respectively. Uncollectible
accounts receivable of ₱5,000 were written off during 2020. Lumiere’s gross profit rate is 30%.

In its December 31, 2020, balance sheet, what amount should Lumiere report as deferred revenue?

a. ₱10,500
b. ₱9,000
c. ₱7,500
d. ₱6,000

Answer: D

The deferred revenue is 30% of sales less collections and write-offs.

Installment receivable ₱60,000
Collections (35,000)
Write off (5,000)
Receivables, 12/31 ₱20, 000
Profit rate 30%
Deferred revenue ₱6,000

10. On January 1, 2021, A, B and G formed ABG Partnership with total agreed capitalization of ₱1,000,000.
The capital interest ratio of ABG Partnership is 5:1:4 while the profit or loss ratio is 3:2:5, respectively for
A, B and G.

During 2021, A and B made additional investments of ₱200,000 and ₱500,000, respectively, At the end of
2021, B and C made drawings of ₱300,000 and ₱100,000 respectively. On December 31, 2021, the
capital balance of B is reported at ₱200,000.

What is the net income/ net loss of ABG Partnership for the year ended December 31, 2021?

a. ₱500,000 loss
b. ₱1,000,000 loss
c. ₱800,000 income
d. ₱1,200,000 income

Answer: A
B, beginning capital ₱100,000
Additional investment 500,000
Drawings (300,000)
Share in Net Income/loss*(workback) (100,000)
B, ending capital P200,000

B’s share in Net loss (₱100,000)

Divide by: B’s P/L ratio 20%
ABG Partnership Net Loss (₱500,000)
11. Goldbars Development Company started work on a construction contract in 2020. The contract price is
₱10M. However, if the cumulative inflation reaches or exceeds 25%, the contract price shall be adjusted
upward by 10%. Cost escalations on the contract are probable as to recovery. Additional information on
the contract is shown below:

2020
Costs incurred to date ₱2,400,00
Estimated cost at completion 6,000,000
Cumulative inflation rate 18%

What is the percentage of completion during the year 2020?

a. 35%
b. 40%
c. 50%
d. 100%

Answer: B

Actual cost to date

Total Estimated cost at completion

= ₱2,400,000 = 40%

₱6,000,000

12. The Black clover home office ships merchandise to its Manila branch at 20% above cost. Manila branch’s
book shows a beginning inventory of ₱135,000 (50% from outside purchase) and shipments from home
office of ₱405,000. The ending inventory of the Manila branch amounted to ₱337,500 in which 60% is
home office merchandise while the remaining balance is from outside purchases. The Manila branch
purchased merchandise costing ₱317,500. The total sales and operating costs of the branch for the year
amounted to ₱1,040,000 and ₱220,000 respectively.

What is the amount of overvaluation of Cost of Goods Sold or undervaluation in income?

a. ₱33,750
b. ₱45,000
c. ₱78,750
d. ₱94,500

Answer: B

Billed Price - Cost (100%) = Allowance (20%)

(120%)
Beg. Inventory from HO (a) ₱67,500
Add: Shipments from HO 405,000 (c) ₱337,500 ₱67,500
TGAS 472,500 (d) 393,750 78,750
Less: Ending Inventory fr (b) (202,500) (168,750) (33,750)
HO
COGS from HO 270,000 225,000 45,000

Supporting solutions:
 a. ₱135,000 x 50% = 67,500 beg. inventory from HO
b. ₱337,500 x 60% = 202,500 ending inventory from HO
c. ₱405,000 ÷ 120% = 337,500
d. ₱472,500 ÷ 120% = 393,750

13. On November 1, 2022, The Franchisor authorized a certain Franchisee to operate for an initial franchise
fee of ₱3,400,000 of which ₱900,000 was considered a down payment, the balance was represented by
a non- interest-bearing note, due in 5 equal annual installments starting October 31, 2023. The prevailing
rate was 12%., PV factor was 3.60478. The down payment already represents a fair measure of the
services already performed by the franchisor, however as for the balance, substantial future services are
still required.

What is the amount of total revenue recognized on December 31, 2022?

a. ₱900,000
b. ₱2,702,390
c. ₱936,048
d. ₱1,116,287

Answer: C

Balance of note:
₱3,400,000 – ₱900,000 = ₱2,500,000/ 5 equal annual installments = ₱500,000/ yr.

PV of note:
₱500,000 x 3.60478 = ₱1,802,390

Total revenue:
Down payment ₱900,000
Interest Income (₱1,802,390 x 12% x 2/12) 36,048
Total revenue, 12/31/22 ₱936,048

14. A, B and C decided to form ABC Partnership. It was agreed that A will contribute an equipment with
assessed value of ₱100,000 with historical cost of ₱800,000 and accumulated depreciation of ₱600,000.
A day after the partnership formation, the equipment was sold for ₱300,000.

B will contribute a land and building with carrying amount of ₱1,200,000 and fair value of ₱1,500,000. The
land and building are subject to a mortgage payable amounting to ₱300,000 to be assumed by the
partnership. The partners agreed that B will have 60% capital interest in the partnership. The partners
also agreed that C will contribute sufficient cash to the partnership.

What is the cash to be contributed by C in the ABC Partnership?

a. ₱500,000
b. ₱600,000
c. ₱700,000
d. ₱800,000

Fair Market Value of Land and Building contributed by B ₱1,500,000

 Less: Mortgage Payable to be assumed by ABC Partnership (300,000)
Capital Credit of B in ABC Partnership 1,200,000
Divided by B’s Capital Interest Ratio /60%
Total Agreed Capitalization of ABC Partnership ₱2,000,000
Answer: A

Total Agreed Capitalization of ABC Partnership 2,000,000

Less: Total Capital Credit of A and B (P300,000 + P1,200,000) 1,500,000
Cash to be contributed by C in ABC Partnership ₱500,000

15. Entity A and Entity B incorporated Entity C to manufacture a microchip to be used by the incorporating
entities as component for their final products of cellular phones and tablets.

The contractual agreement of the incorporating entities provided that the decisions on relevant activities of
Entity C will require the unanimous consent of both entities.

Entity A and Entity B have rights to the assets, and obligations for the liabilities, relating to the arrangement.
The ordinary shares of Entity C will be owned by Entity A and Entity B in the ratio of 60:40. At the end of
first operation of Entity C, the financial statements provided the following data:

Inventory ₱1,000,000 Accounts payable ₱2,000,000

Land 3,000,000 Note payable 1,000,000
Building 5,000,000 Loan payable 4,000,000
Share capital 1,000,000
Retained earnings 1,000,000
Sales revenue 5,000,000

The contractual agreement of Entity A and Entity B also provided for the following concerning the assets
and liabilities of Entity C:

• Entity A owns the land and incurs the loan payable of Entity C.
• Entity B owns the building and incurs the note payable of Entity C.
• The other assets and liabilities are owned or owed by Entity A and Entity B on the basis of their capital
interest in Entity C.
• The sales revenue of Entity C includes sales to Entity A and Entity B in the amount of ₱1,000,000 and
₱2,000,000, respectively. As of the end of the first year, Entity A and Entity B were able to resell 30%
and 60% of the inventory coming from Entity C to third persons.

What is the amount of total assets to be reported by Entity A concerning its interest in Entity C?

a. ₱5,400,000
b. ₱3,000,000
c. ₱3,600,000
d. ₱5,000,000

Answer: C
Land owned by Entity A ₱3,000,000
Add: Interest of Entity A on co-owned inventory (P1,000,000 x 60%) 600,000
Total assets to be reported by Entity A concerning its interest in Entity C ₱3,600,000
 Advanced Accounting and Reporting

1. On January 1, 2019 Acacia Company sold its idle plant facility to Barbell, Inc. for ₱1,050,000. On this
date the plant had a net book value of ₱735,000. Cooper paid ₱150,000 cash on January 1, 2019, and
signed a note bearing interest at 10%. The note was payable in three annual installments of ₱390,000
beginning January 1, 2020. This included interest of ₱90,000. Acacia appropriately accounted for the sale
under the installment method. Barbell made a timely payment of the first installment on January 1, 2020.

At December 31, 2020, Acacia has deferred gross profit of

a. ₱45,000
b. ₱90,000
c. ₱180,000
d. ₱315,000

Answer: C
Selling price ₱1,050,000
Less: Depreciated cost (735,000)
Gross Profit P315,000
Gross Profit Rate 30%

Realized gross profit in 2019:

P150,000 down payment x 30% = P45,000

Realized gross profit in 2020:

P390,000 – 90,000 x 30% = P90,000

This leaves a balance of P180,000 in Deferred Gross Profit. (P315,000 – 45,000 – 90,000)

2. Which of the following unsecured debts with priority shall be paid first during corporate liquidation?

a. Corporate liabilities to employees

b. Obligations arising from corporate crime
c. Corporate liabilities arising from taxes to government
d. Obligations arising from corporate or tort or quasi-delict

Answer: A
Corporate liabilities arising from taxes to government even if unsecured must be fully paid since it
is mandatory under the law making it equal with secured debts.

In the case of unsecured debts, the most onerous is paid first. Order of priority:
a. Corporate liabilities to employees – mandated by labor code
b. Obligations arising from corporate or tort or quasi-delict – civil liability (brought by private
 parties)
c. Obligations arising from corporate crime – penalty

3. When the company decides to change its accounting for construction contract from percentage of
completion to cost recovery method, how shall the accounting change be treated?

a. Accounted for as a change in accounting policy treated by retrospective application or with cumulative
effect in the beginning retained earnings at the date of change.
b. Accounted for as a change in account estimate treated by prospective application to the date of
change and future date profit or loss
c. Accounted for as a prior period error treated by retrospective restatement or with cumulative effect in
the beginning retained earnings at the date of discovery of error.
d. Accounted for as an equity transaction to be adjusted in the share premium or other comprehensive
income as the case may be.

Answer: A
A change in accounting policy is treated by a retrospective application.

IAS 11:
An entity shall change an accounting policy only if the change:
a. Is required by an IPSAS; or
b. Results in the financial statements providing faithfully representative and more relevant
information about the effects of transactions, other events, and conditions on the entity’s
financial position, financial performance, or cash flows.

IPSAS 3:
a. A change from one basis of accounting to another basis of accounting is a change in
accounting policy.
b. A change in the accounting treatment, recognition, or measurement of a transaction, event, or
condition within a basis of accounting is regarded as a change in accounting policy.

4. Which of the following instances will decrease the cost of goods manufactured for the period ended?
a. Increase in the finished goods during the period.
b. Increase in the direct labor cost from prior year.
c. Increase in the work in process inventory during the period.
d. Decrease in the raw materials inventory during the period.

Answer: C
The WIP has an inverse relationship with COGM.
COGM = Total Manufacturing Cost + Beg, WIP – End, WIP

5. Under Just-in-Time Inventory System and Backflush Costing, what costing method is ideally employed?
a. Normal Costing
b. Actual Costing
c. Standard Costing
d. Budgeted Costing

Answer: C
 Just in time and Backflush Costing is a streamlined cost accounting method that speeds up,
simplifies and minimizes accounting effort in an environment that minimizes inventory balances,
requires few allocations and uses standard cost and has few variances from standard.
6. FAR Co. has been undergoing liquidation since January 1. As of March 31, its condensed statement of
realization and liquidation is presented below:

Assets to be Realized ₱2,062,500 Assets Realized ₱1,800,000

Assets Acquired 1,125,000 Assets Not Realized 2,062,500
Liabilities Liquidated 2,812,500 Liabilities to be Liquidated 3,375,000
Liabilities Not Liquidated 2,550,000 Liabilities Assumed 2,437,500
Supplemental Charges ₱4,687,500
Supplemental Credits ₱4,200,000

The net gain (loss) for the 3-month period ending March 31 is
a. ₱250,000
b. (₱325,000)
c. ₱637,500
d. ₱425,000

Answer: C
Total Debit (₱8,550,000+₱4,687,500) ₱13,237,500
Total Credit (₱9,675,000+₱4,200,000) 13,875,000
Gain ₱637,500

7. On January 1, 2019, ABC Company acquired 80% of the outstanding voting stocks of BTS Corp for
₱500,000. On the same date, the book value net asset of BTS was ₱450,000 and the land account is
understated by ₱75,000. The transaction cost incurred and paid amounted to ₱5,000 and ₱1,000 for
direct and indirect cost, respectively.

How much is the amount of consideration transferred or cost of the business for purposes of computing
goodwill under full PFRS?

a. ₱500,000
b. ₱505,000
c. ₱495,000
d. ₱506,000

Answer: A
Consideration Transferred ₱500,000
NCI @ FV implied (500,000 / 80% x 20%) 125,000
Total Value of Acquiree 625,000
FVINA (450,000 + 75,000) (525,000)
Goodwill ₱100,000

8. Patrick and Nicole’s capital is ₱600,000 and ₱480,000 respectively. Profit Share Ratio 7:3. Liezel directly
purchased a 1/3 interest by paying Patrick ₱195,000 and Nicole ₱225,000. The land account is increased
by ₱180,000 before admission of Liezel.

What is the capital of Liezel after admission?

a. ₱300,000
b. ₱420,000
c. ₱356,000
 d. ₱484,000

Answer: B
Total Capital before Revaluation ₱1,080,000
Revaluation Up 180,000
Total Capital after Revaluation 1,260,000
Agreed Interest of Liezel X 1/3
Total Capital of Liezel ₱420,000

9. JT Company shipped inventory on consignment to Ninjavan Company that cost ₱20,000. Ninjavan paid
₱500 for advertising that was reimbursable from JT. At the end of the year, 70% of the inventory was sold
for ₱30,000. The agreement states that a commission of 20% will be provided to Ninjavan for all sales.

What amount of net inventory on consignment remains on the balance sheet for the first year for JT?
a. ₱6,000
b. ₱0
c. ₱20,000
d. ₱6,500

Answer: A
Inventory cost ₱20,000
Unsold x 30%
Inventory, end ₱6,000

10. M Insurance Company offers fire insurance. M received notice from its broker of sale of one-year fire
insurance on January 1, 2020 for a premium of ₱5,000. The commission broker is at 10%.

How much is the amount due from the policyholder, agent and broker?
a. ₱200
b. ₱1,800
c. ₱2,000
d. ₱0

Answer: B
Journal Entry:
Insurance Receivable ₱1,800
Commission Expense 200
Gross Premium Revenue ₱2,000