ADVANCED FINANCIAL ACCOUNTING AND REPORTING

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

a. Amount owing to third persons
b. Amount owing to partners other than capital contribution and share in profit
c. Amount owing to partners with respect to capital contribution
d. Amount owing to partners with respect to share in profit

2. How should the net profit or net loss of the partnership be divided among the partners, whether
capitalist or industrial?
a. In accordance with their capital contribution ratio
b. In accordance with just and equitable sharing taking into account the circumstances of the
partnership
c. Equally
d. In accordance with the partnership agreement

3. The partnership of Tinker, Ursa, and Viper became insolvent during 2021, and the partnership ledgers
shows the following balances after all partnership assets have been converted into cash and all
available cash distributed:
Debit Credit
Accounts ₱ 30,000
payable
Tinker capital 20,000
Ursa capital ₱120,000
Viper capital . 70,000
₱120,000 ₱120,000
Profit and loss sharing percentages for the three partners are Tinker, 30%; Ursa, 40%; and Viper, 30%.
The personal assets and liabilities of the partners are as follows:
Tinker Ursa Viper
Personal assets ₱60,000 ₱110,000 ₱60,000
Personal liabilities 50,000 60,000 40,000
If the partnership creditors recover ₱30,000 from Ursa, compute the amount to be received by Viper.
a. ₱70,000 b. ₱35,000 c. ₱30,000 d. ₱20,000

4. Viper and Weaver formed the Dota partnership several years ago. Capital account balances on January
1, 2021 were:
Viper ₱ 496,750
Weaver 268,250
The partnership agreement provides Viper with annual salary of ₱10,000 plus a bonus of 5% of the
partnership net income for managing the business. Weaver is provided annual salary of ₱15,000 with no
bonus. The remainder is shared evenly. Partnership net income for 2021 was ₱30,000. Weaver and Viper
each invested an additional ₱5,000 during the year to finance a special purchase. Year-end drawing
account balances were ₱15,000 for Viper and ₱10,000 for weaver.Determine the capital balances as of
December 31, 2021.
a. Viper, ₱499,964; Weaver, ₱280,036 c. Viper, ₱496,750; Weaver, ₱268,250
b. Viper, ₱485,000; Weaver, ₱270,000 d. Viper, ₱500,000; Weaver, ₱280,000
5. C, P, A are new CPA’s and are to form an accounting partnership. C is to contribute cash of 150,000
and his used computer originally bought at P 160,000 but has a secondhand value of P 100,000. P is
to contribute cash of P 200,000, and tables and chairs with an appraised value of P 40,000 but
acquired by P for only P 36,000. A, whose family is selling computers plus printer is to contribute
cash of P80,000 and a brand-new computer plus printer with regular price at P 160,000 but which
cost their family’s computer dealership P 140,000. Partners agree to share profits 3:2:3. What are
the capital balances of C, P and A, respectively upon formation?
a. 310,000, 236,000 and 220,000 c. 250,000, 236,000 and 240,000
b. 250,000, 240,000 and 240,000 d. 250,000, 240,000 and 220,000

6. What is the classification of the joint arrangement when the arrangement is structured without a
separate vehicle such as when the rights of each party to the total assets and obligations for total
liabilities relating to the arrangement are clearly established?
a. It shall be classified as joint venture.
b. It shall be classified as joint operation.
c. Neither joint venture nor joint operation
d. It can be either a joint operation or joint venture depending on the company policy of the
parties to the joint arrangement.

7. Before liquidation begin, Lugi-lugi, Inc. has a capital deficiency of ₱1,000,000 and ₱4,000,000 liabilities:
₱1,200,000 is fully secured; ₱800,000 is secured by assets with fair value of ₱400,000. The rest of the
liability is unsecured which includes ₱500,000 priority. Estimated net losses on assets disposal were
₱300,000. ₱200,000 assets are worthless. Estimated settlement for partially secured creditors
a. ₱ 484,210 b. ₱550,000 c. ₱ 650,000 d. ₱ 750,000

8. On January 1, 2020, Logan Inc., a small and medium enterprise (SME), invested P500, 000 cash in a
joint venture for 50% interest. For the year ended December 31, 2020, the joint venture reported net
income of P200, 000 and distributed cash dividend in the amount of P60, 000. As of December 31,
2020, the fair value of the investment in joint venture is P600, 000 and the estimated cost of disposal is
10% of fair value. The value in use of the investment is estimated at P550, 000.Under IFRS for SMES,
what is the book value of Investment in Joint Venture to be reported by Logan Inc. as of December 31,
2020 if the SME elects equity method?
a. P550, 000 c. P570, 000
b. P540, 000 d. P600, 000

9. When shall the incremental cost of obtaining a contract with a customer be recognized as an asset?
a. When it is probable that future economic benefits will flow to the entity and the cost can be
measured reliably.
b. When the entity expects to recover those costs.
c. When the costs will provide economic benefits for a period less than 12 months.
d. When the costs will decrease the revenue in the future periods.

10. What is the accounting treatment of the transaction price when a contract with a customer has multiple
performance obligations?
a. The transaction price shall be recognized as revenue of the most important performance obligation.
b. The transaction price shall be allocated equally to the different performance obligation.
c. The transaction price shall be allocated to the different performance obligations by reference to
their relative standalone selling prices.
d. The transaction price shall be recognized as revenue only at the end of completion of all
performance obligations.

11. Josie enters into a contract with Karding to deliver Product X and Product Y. The agreement specifies
that payment for Product X will not occur until Product Y is delivered.
The price of the products is as follows:
 Contract price to transfer Product X & ₱150,000
Y
Separate price for Product X 60,000
Separate price for Product Y 90,000
When Product X is delivered first, the journal entry will include a
a. Debit to Contract Asset, ₱60,000 c. Debit to Accounts Receivable, ₱60,000
b. Credit to Sales, ₱90,000 d. Debit to Contract Asset, ₱150,000

12. You were engaged to audit the books of accounts of MMN contractors which had a 3 year construction
contract in 2021 for ₱9,000,000. MMN uses the percentage of completion method for financial
statement purposes. Revenue recognized for each year is based on the ration of cost incurred to total
estimate cost to complete the contract. Data on this contract follows:
Accounts receivable-construction contract billings ₱ 300,000
Construction in Progress ₱ 937,500
Less: Account Billed 843,750 93,750
Net Income recognized in 2021 (before tax) 150,000
MMN Contractors maintain a separate bank account for each construction contract. Bank deposits to
this contract amounted to ₱500,000.
Applying PFRS for SME, how much cash collected on the contract was not yet deposited at December
31, 2021?
a. ₱43,750 b. ₱37,500 c. ₱193,750 d. ₱287,500

13. Under a consignment arrangement, CONSIGNOR COMPANY ships 24 units of special electronic gadgets
called Tsamba Bebe to CONSIGNEE ENTERPRISES. The cost per unit to Consignor, Inc. is P1,500 and
the goods will be sold at P2,400 each for a 10% commissions on gross sales. Freight charges paid by
the consignor on the shipments was P1,500. At the end of 30 days, the consignee rendered an Account
Sales for 18 units sold and reimbursable charges for: Delivery expenses, P1,000 and Advertising,
P1.500, among others. The consignor uses the Consignment-Out account in accounting for the
consignments. On the other hand, the Consignee uses the Consignment-In account. How much is the
net profit of the consignor?

a. P 8,705 c. P 8,255
b. P 5,555 d. P 2,513

14. On January 1, 20x5, Lesiey Benjamin signed an agreement (covering 5 years) to operate as a
franchisee of Campbell Inc. for an initial franchise fee of P50,000. The amount of P 10,000 was paid
when the agreement was signed, and the balance is payable in five annual payments of P8,000 each,
beginning January 1 , 20x6. The agreement provides that the down payment is non-refundable and
that no future services are required of the franchisor once the franchise commences operations on April
1, 20x5. Lesley Benjamin's credit rating indicates that she can borrow money at 11% for a loan of this
type. The amount of the unearned franchise revenue on January 1, 20x5:
a. Zero b. P39,567 c. P 10.433 d. P50,000

15. Which of the following transactions will decrease the normal balance of the Pasay branch account on
the book of the home office?
a. Net income recognized by Pasay branch
b. Collection by Panay branch of Pasay branch receivable
c. Debit memo received by the home office from the branch
d. Credit memo received by the home office from the branch
Panay

Cash

HO

Pasay

HO

AR

Home office

Inv in Panay

Inv in Pasay

Inv in Panay

Inv in Pasay

16. Plant assets of branch are controlled and maintained in the books of the branch. The accounting
treatment if the home office bought the plant asset will include the following:
a. home office credits cash or accounts payable, branch debits plant asset.
b. home office debits branch assets, branch credits cash, or accounts payable.
c. home office credits cash or accounts payable, branch debits home office equity.
d. home office debits branch asset, branch prepares a memo entry.

17. CITY Corporation started operating a branch on May 1, 2020 with a shipment of merchandise billed at
₱250,000. Additional shipments during the month were billed at ₱125,000. The branch returned
damage merchandise worth ₱10,000. Inter-office shipments are billed uniformly at 125% of cost. On
May 31, 2020, the branch reported a net loss of ₱52,500 and an inventory of ₱150,000. What is the
branch net income (loss) reflected in the combined income statement for May 2020?
A. (₱9,500) b. (₱52,500) c. ₱43,000 d. ₱95,500

Home office bills its branch for merchandise shipments at 30% above cost.
The following are some of the account balances on the books of home office and its branch as of
December 31, 2016:
Home office books Branch books
Inventory, January 1 35,000 101,500
Shipments from Home office 263,900
Purchases 1,575,000 350,000
Shipments to branch 253,750
Branch Inventory allowance ( allowance for 91,875
overvaluation)
Sales 2,100,000 1,260,000
Operating expenses 507,500 192,500
Per physical count the ending inventory of the branch is P 73,500 including goods from outside purchases
of P 48,475; the ending inventory of the home office is P 210,000.
18. What is the combined net income for the year?
a. 957,950 b. 871,850 c. 891,975 d. 942,725
19. How is goodwill or gain from bargain purchase computed?
a. The difference between the consideration transferred, including non-controlling interest in the
acquiree, and the acquisition-date fair value of net identifiable assets acquired.
b. The difference between the purchase price and the acquisition-date fair value of net identifiable
assets acquired.
c. The difference between the sum of (a) consideration transferred; (b) non-controlling interest in the
acquiree; and (c) acquisition-date fair value of the acquirer’s previously held equity interest in the
acquiree; and the acquisition-date fair value of net identifiable assets acquired.
d. The excess of the acquisition-date fair value of net identifiable assets acquired and there
carrying amounts in the acquiree's books.

20. Investor’s investment account is affected by investor’s share of the earnings of the investee after date
of acquisition under cost method and equity method, respectively

a. No effect, Increase c. Increase, No effect

b. Increase, Increase d. No effect, No effect

21. Entity A purchase 30% of the ordinary share capital of Entity B for ₱10 million on January 1, 2019. The
fair value of the assets of Entity B at that date was ₱20 million. On January 1, 2020, Entity A purchases
a further 40% of Entity B for ₱15 million, when the fair value of Entity B’s assets was ₱25 million. On
January 1, 2019 Entity A does not have significant influence over Entity B. If Entity A measures NCI at
fair value, what value would be recognized for goodwill (before any impairment test) in the
consolidated financial statements of A for the year ended December 31, 2020?

A. ₱12.5 million b. ₱7.5 million c. ₱9 million d. ₱8.75 million

22. Upper Company holds 60% of Lower Company’s voting shares. During the preparation of consolidated
financial statements for 2020, the following eliminating entry was made:
Retained earnings 6,00
0
Noncontrolling 4,00
interest 0
Land 10,000
Which of the following statements is correct?
a. Upper Company purchased land from Lower Company during 2020.
b. Upper Company purchased land from Lower Company before January 1, 2020.
c. Lower Company purchased land from Upper Company during 2020.
d. Lower Company purchased land from Upper Company before January 1, 2020.

23. On January 2, 2020, the Statement of Financial Position of Clarize Company and Paula Company
immediately before the combination are:

Clarize Co. Paula Co.

Cash P2,700,000 P90,000
Inventories 1,800,000 180,000
Property and equipment 4,500,000 630,000
(net)
 Total Assets P9,000,000 P900,000
Current Liabilities P540,000 P90,000
Ordinary Shares, P100 par 900,000 90,000
Share premium 2,700,000 180,000
Retained Earnings 4,860,000 540,000
Total Liabilities and P9,000,000 P900,000
Stockholder’s Equity
The fair value of Paula Company’s equipment is P918,000. Assuming Clarize Company acquired 90%
of the outstanding shares of Paula Company for P1,458,000 and non-controlling interest is measured at
fair value, how much is the total consolidated assets on the date of acquisition?
A. 9,252,000 b. 10,710,000 c. 10,422,000 d. 8,964,000

24. The separate incomes of Pony Corporation and Sony Corporation, its 80% owned subsidiary, for 2020
were determined as follows:
Pony Sony
Sales ₱ 400,000 ₱ 100,000
Less: Cost of sales 200,000 60,000
Gross profit ₱ 200,000 ₱ 40,000
Less: Other expenses 100,000 30,000
Separate incomes ₱ 100,000 ₱ 10,000
During 2020 Sony sold merchandise that cost ₱20,000 to Pony for ₱40,000, and at December 31, 2020
half of these inventory items remained unsold by Sony.The profit attributable to equity holders of the
parent for 2020:
a. ₱108,000 b. ₱100,000 c. ₱98,000 d. ₱80,000

25. On July 1, 2023 Liza Inc. acquired most of the outstanding shares of Hope Company for cash. The
incomplete working paper elimination entries on that date for the consolidated statement of financial
position of Liza Inc. and its subsidiary are shown below:

E(1) Stockholder’s equity- Hope Company 4,875,000

Investment in Home Company 3,168,750
Non-controlling interest 1,706,250
E(2) Machinery 875,000
Land 625,000
Copyright 122,500
Goodwill ?
Investment in Home Company 937,500
Non-controlling interest ?
Assuming non-controlling interest is measured at fair value, and the price includes control premium
of 137,500. In the working paper prepared on the date of acquisition, what portion of the goodwill is
attributable to parent’s shareholder’s equity?

a. 370,375 c. 643,845
b. 495,769 d. 569,810

26. A sale of goods denominated in a currency other than the entity's functional currency resulted in a
receivable that was fixed in terms of the amount be received. What is the treatment of any resulting
gain when exchange rates between the functional currency and the currency in which the transaction
was denominated changed?
a. Translation gain as component of other comprehensive income
b. Translation gain as component of income from continuing operations
c. Transaction gain as component of other comprehensive income
d. Transaction gain as component of income from continuing operations

27. Gain and losses arising from changes in fair value of derivatives designated as cash flow hedge
pertaining to effective portion are
a. Recognized in other comprehensive income with reclassification adjustment
b. Not recognized
c. Included in retained earnings
d. Recognized in profit or loss

28. Uragon Company sold warehouse facilities for $8,340,000 to a customer in Oregon, USA on November
02, 2020. Collection in US dollars was due on January 31, 2021. On the same date, to hedge this
foreign currency exposure, Uragon Company entered into a forward contract to sell $8,340,000 to
Export bank for delivery on January 31, 2021.Indirect exchange rates on different dates were as
follows:
Nov. 1 Dec. 31 Jan. 31
Spot rate 0.02387 0.02457 0.02494
30-day futures 0.02364 0.02475 0.02278
60-day futures 0.02392 0.02481 0.02437
90-day futures 0.02463 0.02403 0.02304

How much is the effect on earnings due to hedging instrument in the 2021 profit and loss statement?
a. P2, 502,000 c. (P2, 502,000)
b. P1, 585 d. (P1, 585)

29. On November 2, 2020, P Corp entered into a firm commitment with Japanese firm to acquire
equipment, delivery and passage of title on March 31, 2021, at a price of 4,375 yen. On the same date,
to hedge against unfavorable changes in the exchange rate of the yen, P Corp. entered into a 150 day
forward contract with BPI for 4,375 yen. The relevant exchange rates were as follows:
11/2/202 12/31/20 3/31/20
0 20 21
Spot Rate P37 P38 P35
Forward Rate P40 P33 P35

What is the foreign currency gain/(loss) due to the change in the fair value of the
underlying purchase commitment on December 31, 2020?
a. P30, 625 gain c. P4, 375 gain
b. P30, 625 loss d. P4, 375 loss

30. On December 31, 2020 a foreign subsidiary of ARTS-PRTC COMPANY, a Philippine corporation,
submitted the following balance sheet measured in its local currency.

Monetary assets FC 200,000 Monetary liabilities FC 180,000

Non monetary 800,000 Non monetary liabilities 20,000
assets
Share capital 400,000
Share premium 100,000
Retained earnings 300,000
Total FC 1,000,000 Total FC 1,000,000

The relevant exchange rates for one (1) unit of the FC are as follows:

Current rate - P0.34 Historical rate – P0.31 Average rate – P0.30

Assuming the Retained Earnings of the subsidiary on December 31, 2016 translated to Philippine pesos is
P91,525, what amount of cumulative translation adjustment must be reported in the consolidated balance
sheet presented in Philippine pesos on December 31, 2020?

a. P25,000 c. P24,525
b. P24,2 55 d. P25,475

31. On January 4, 2022, Agency H receives a Notice of Cash Allocation for Regular Agency Fund from the
DBM amounting to P 116,250,000.

What is the journal entry to record the receipt of notice of cash allocation?

a. Cash-MDS, Regular 116,250,000

Cash- Treasury/Agency Deposit, Regular 116,250,000
b. Cash-MDS, Regular 116,250,000
Notice of Cash Allocation 116,250,000
c. Cash-MDS, Regular 116,250,000
Subsidy from National Government 116,250,000
d. Cash-Collecting Officer 116,250,000
Subsidy from National Government 116,250,000

32. In 2022, De La Silliman University’s board of trustees established a P 100,000 fund to be retained and
invested for scholarship grants. In 2022, the fund earned P 6,000 which had not been disbursed on
December 31, 2022. What amount should De La Silliman University report in a quasi-endowment fund
balance on December 31, 2022?
A. ZeroB. 6,000 C. 100,000 D. 106,000
33. The purpose of the equivalent-unit computation is to ________.
a. satisfy the requirements of relevant PFRSs which requires all partially completed goods to be
reported as equivalent-units
b. assist the business in determining the cost assigned to ending inventory and work-in-process
inventory
c. convert completed units into the amount of partially completed output units that could be made
with that quantity of input
d. predict the future production capabilities of the organization

34. What is the best cost accumulation procedure to use when many batches, each differing as to product
specification, are produced?
a. Job order c. Actual
b. Process d. Standard

35. Lucy Sportswear manufactures a specialty line of T-shirts using a job-order cost system. During March,
the following costs were incurred in completing Job ICU2: direct materials, ₱13,700; direct labor,
₱4,800; administrative, ₱1,400; and selling, ₱5,600. Factory overhead was applied at the rate of ₱25
per machine hour, and Job ICU2 required 800 machine hours. If Job ICU2 resulted in 7,000 good shirts,
the cost of goods sold per unit would be
A. ₱6.50 b. ₱6.30 c. ₱5.70 d. ₱5.50

36. Violeta Company adds materials at the beginning of the process in Department A. Information
concerning the materials used in April is as follows:
Units

Work in process April 10,000

Started during April 50,000
 Completed & Transferred to the next department during 36,000
April
Normal spoilage incurred 3,000
Abnormal spoilage incurred 5,000
Work in process at April 30 16,000

Under Violeta’s accounting system, the costs of normal spoilage are treated as part of the cost of good
units produced. However, the cost of abnormal spoilage is charged to factory overhead. Using weighted
average method, what are the equivalent units for the materials unit cost calculation for the month of
April?
a. 47,000 b. 52,000 c. 55,000 d. 57,000

37. GAOGAO Mfg. Corp., makes single Product in two departments. The production data for mixing
department for May, 2008 follows:

Quantities:
In process, May 1 (40%) 4,000 units
Received from department 678 30,000 units
Completed and transferred 25,000 units
In process, May 31 (60%) 6,000 units

Production Costs: May 1 May 31

Transferred in P16,300 P89,100
Materials added 3,800 67,500
Conversion cost 1,940 81,000
Materials are added at the start of the process and losses normally occur during the early stages of the
operation.
Assuming average costing was used to account for the process, the closing work in process was:
a. P44,640 b. P46,800 c. P45,600 d. P51,680

38. Company Q produces three products from a joint process. The products can be sold at split-off or
processed further. In deciding whether to sell at split-off or process further, management should
a. ignore the joint cost in making the decision.
b. allocate the joint cost to the products based on a physical quantity measure prior to making the
decision.
c. allocate the joint cost to the products based on relative sales value prior to making the decision.
d. subtract the joint cost from the total sales value of the products before determining relative sales
value and making the decision.

39. Gion Corporation has identified activity centers to which overhead costs are assigned. The cost pool
amounts for these centers and their selected activity drivers for 2013 follow:

Activity Centers Costs Activity Drivers

Set-ups P620,000 24,800 set-ups
Utilities P950,000 125,000 machine hours
No. of parts P320,000 16,000 parts

Direct costs of producing product GG amounted to P75,000. The said product took 17,000 direct labor
hours and 15,000 machine hours to finish. Also, the product needed 7,500 set-ups and 550 parts to
complete. 25,000 units of product GG were produced during 2013. How much was the full cost per unit of
product GG using ABC?
A. P19.07 C. P15.50
B. P16.07 D. P12.50
40. SAMS Manufacturing Company produces only for customer order and most work are shipped within
thirty-seven hours of the receipt of an order. SAMS Company uses raw and in process (RIP) inventory
account and expenses all conversion costs to the cost of sales account. Work is shipped immediately
upon completion, so there are no finished goods on hand. At the end of each month, inventory is
counted, its conversion cost is estimated, and RIP account balance is adjusted accordingly. Raw
materials cost is backflushed from RIP to Cost of Sales. The Following information is for the month of
May:
Beginning balance of RIP P12,300
Raw materials purchased 246,000
Ending balance of RIP 12,100

The beginning balance of RIP includes P1,300 conversion cost and ending balance also includes P2,100
conversion cost estimates. Compute the amount of cost of goods sold after all transactions and
adjustments were made:
a. P246,000 b. P246,200 c. P247,000 d. P245,000