ReSA - THE REVIEW SCHOOL OF ACCOUNTANCY

CPA Review Batch 47  May 2024 CPALE  Pre-Week Summary Lecture

ADVANCED FINANCIAL ACCOUNTING & REPORTING ANTONIO DAYAG Sr.  JOHN ALDRIN CRUZ

AFAR PREWEEK LECTURE

Revenue Recognition
Installment Sales METHOD – under the OLD Standard (IAS 18), IAS 18 was superseded by IFRS 15 effective
January 1, 2018 (CPA Licensure Examination effectivity date: October 2018).
1. Since there is no reasonable basis for estimating the collectability, the Pius Appliance Company
uses the installment method of recognizing revenue for the following sales:
20x4 20x5
Sales………………………………………… P 225,000 P 337,500
Collections from:
20x4 sales………………………… 75,000 37,500
20x5 sales………………………… -0- 112,500
Defaults:
20x4 sales………………………… 7,500 15,000
20x5 sales………………………… -0- 30,000
Accounts written-off:
20x4 sales………………………… 18,750 56,250
20x5 sales………………………… -0- 18,750
Gross profit percentage………………… 30% 40%
What amount should Pius Appliance Co. report as deferred gross profit, ending balance in its
December 31, 20x5 balance sheet?
a. P123,750 c. P75,000
b. P 93,750 d. P70,500
2. Sharron Company uses the installment sales method in accounting for its installment sales. On
January 1, 20x5, Sharron Company had an installment accounts receivable from Reyes Company
with a balance of P18,000. During 20x5, P4,000 was collected from Reyes. When no further
collection could be made, the merchandise sold to Reyes was repossessed. The merchandise had
a fair market value of P6,500 after the company spent for P600 for reconditioning of the
merchandise. The merchandise was originally sold with a gross profit rate of 40%. Determine the
gain or loss on repossession and cost of repossessed merchandise respectively:
a. P2,500 loss; P6,500 c. P2,500 gain; P5,900
b. P2,100 loss; P6,500 d. P2,100 gain; P5,900

Use the following information for questions 3 and 4:

Coaster manufactures and sells logging equipment. Due to the nature of its business, Coaster is unable
to reliably predict bad debts. During 20x4, Coaster sold equipment costing P2,400,000 for P3,600,000.
The terms of the sale were 20% down, with equal payments due quarterly over the next 3 years. All
payments for 20x4 were made on schedule. Round off answers to two decimal places.
3. Assuming that Coaster uses the installment method of accounting for its installment sales, what
amount of realized gross profit will Coaster report in its income statement for the year ended
December 31, 20x4?
a. P1,680,000 c. P560,000
b. P1,120,000 d. P369,600
4. Assuming that Coaster uses the cost-recovery method of accounting for its installment sales, what
amount of realized gross profit will Coaster report in its income statement for the year ended
December 31, 20x5?
a. P-0- c. P316,800
b. P240,000 d. P960,000
IFRS 15 [Construction Accounting almost the same with IAS 18 with a major difference on account
classification such as “Gross Amount Due FROM Customers” (IFRS 15 – Current Asset/Contract Asset);
“Gross Amount Due TO Customers” (IFRS 15 – Current Liability/Contract Liability)
Use the following information for questions 5 - 8:
Seasons Construction is constructing an office building under contract for Cannon Cafe. The contract
calls for progress billings and payments of P620,000 each quarter. The total contract price is P7,440,000
and Seasons estimates total costs of P7,100,000. Seasons estimates that the building will take 3 years to
complete, and commences construction on January 2, 20x4.

5. At December 31, 20x4, Seasons estimates that it is 30% complete with the construction, based on
costs incurred. What is the total amount of Revenue from Long-Term Contracts recognized for 20x4
and what is the balance in the Accounts Receivable account assuming Cannon Cafe has not yet
made its last quarterly payment?

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ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY
BATCH 47 – May 2024 CPA Licensure Examination
AFAR Preweek
Accounts Accounts
Revenue Receivable Revenue Receivable
a. P2,480,000 P2,480,000 c. P2,232,000 P 620,000
b. P2,130,000 P 620,000 d. P2,130,000 P2,480,000

6. At December 31, 20x5, Seasons Construction estimates that it is 75% complete with the building;
however, the estimate of total costs to be incurred has risen to P7,200,000 due to unanticipated
price increases. At December 31, 20x4, Seasons estimated it was 30% complete. What is the total
amount of Construction Expenses that Seasons will recognize for the year ended December 31,
20x5?
a. P5,400,000 c. P3,195,000
b. P3,150,000 d. P3,270,000
7. At December 31, 20x5, Seasons Construction estimates that it is 75% complete with the building;
however, the estimate of total costs to be incurred has risen to P7,200,000 due to unanticipated
price increases. What is reported in the balance sheet at December 31, 20x5 for Seasons as the
difference between the Construction in Process and the Billings on Construction in Process
accounts, and is it a debit or a credit?
Difference between the accounts Debit/Credit
a. P1,690,000 Credit
b. P 620,000 Debit
c. P 440,000 Debit
d. P 620,000 Credit
8. Seasons Construction completes the remaining 25% of the building construction on December 31,
20x6, as scheduled. At that time the total costs of construction are P7,500,000. At December 31,
20x5, the estimates were 75% complete and total costs of P7,200,000. What is the total amount of
Revenue from Long-Term Contracts and Construction Expenses that Seasons will recognize for the
year ended December 31, 20x6?
Revenue Expenses Revenue Expenses
a. P7,440,000 P7,500,000 c. P1,860,000 P2,100,000
b. P1,860,000 P1,875,000 d. P1,875,000 P1,875,000
Revenue Recognition – (IFRS 15)
9. Ronella Ocampo sells hairstyling franchises. Ronella Ocampo receives P50,000 from a new
franchisee for providing initial training, equipment and furnishings that have a stand-alone selling
price of P50,000. Ronella Ocampo also receives P30,000 per year for use of the Ronella Ocampo
name and for ongoing consulting services (starting on the date the franchise is purchased). Carlos
became a Ronella Ocampo franchisee on July 1, 20x6, and on August 1, 20x6, had completed
training and was open for business. How much revenue in 20x6 will Ronella Ocampo recognize for
its arrangement with Carlos?
a. Zero c. P65,000
b. P10,000 d. P70,000
10. AA Computers licenses customer-relationship software to ABS Company. In addition to providing
the software itself, AA Computers promises to provide consulting services by extensively
customizing the software to ABS’s information technology environment, for a total consideration of
P3,456,000. In this case, AA Computers is providing a significant service by integrating the goods
and services (the license and the consulting service) into one combined item for which ABS has
contracted. In addition, the software is significantly customized by AA Computers in accordance
with specifications negotiated by ABS. How many performance obligations exist in the contract?
a. 0 c. 2
b. 1 d. 3
11. Fonesell Co enters into a contract on September 1, 20x5 to conduct telephone marketing activities
on behalf of a customer. The contract has a price of P8,000 and requires Fonesell Co to contact
10,000 households over a period of six months in order to enquire about buying habits and promote
its customer. The customer is invoiced equal amounts three months and six months after the
commencement of the contract. By Fonesell Co’s year-end of December 31, 20x5, it has
contacted 3,500 of the 10,000 customers. What amounts does Fonesell Co recognise in its financial
statements in the year ended December 31, 20x5?
a. revenue of P4,000 and a receivable of P4,000
b. revenue of P4,000 and a contract liability of P4,000
c. revenue of P2,800, a receivable of P4,000 and a contract asset of P1,200
d. revenue of P2,800, a receivable of P4,000 and a contract liability of P1,200

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ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY
BATCH 47 – May 2024 CPA Licensure Examination
AFAR Preweek
12. On November 1, 20x5, Green Valley Farm entered into a contract to buy a P75,000 harvester from
John Deere. The contract required Green Valley Farm to pay P75,000 in advance on November 1,
20x5. The harvester (cost of P55,000) was delivered on November 30, 20x5. The journal entry for John
Deere to record the contract on November 1, 20x5 includes a
a. credit to Accounts Receivable for P75,000.
b. credit to Sales Revenue for P75,000.
c. credit to Unearned Sales Revenue for P75,000.
d. debit to Unearned Sales Revenue for P75,000.
13. Same information with No. 12, the journal entry for John Deere to record the delivery of the
equipment includes a
a. debit to Unearned Sales Revenue for P75,000.
b. credit to Unearned Sales Revenue for P75,000.
c. credit to Cost of Goods Sold for P55,000.
d. debit to Inventory for P55,000.
14. OC signed a contract to provide office services to PQ for one year from 1 October 20x6 for P500
per month. The contract required PQ to make a single payment to OC for all 12 months at the
beginning of the contract. OC received P6,000 on October 1, 20x6. What amount of revenue
should OC recognize in its statement of profit or loss for the year ended March 31, 20x7?
a. Nil c. P3,000 profit
b. P 300 d. P6,000 profit

Revenue Recognition – Other Issues (IFRS 15)

15. On 31 March DT received an order from a customer, XX, for products with a sales value of P900,000.
XX enclosed a deposit with the order of P90,000. On March 31, DT had not obtained credit
references of XX and has not determined if it will meet this order. According to PFRS 15 Revenue
from Contract with Customers, how should DT record this transaction in its financial statements for
the year ended March 31?
(1) Include P900,000 as revenue for the year
(2) Include P90,000 as revenue for the year
(3) Do not include anything as revenue for the year
(4) Create a trade receivable for P810,000
(5) Create a trade payable for P90,000
a. 1 and 4 c. 3 and 4
b. 2 and 5 d. 3 and 5
Quality Assurance Warranty and Extended Warranty
16. D and R Computer Inc. manufactures and sells computers that include a warranty to make good
on any defect in its computers for 120 days (often referred to as an assurance warranty). In
addition, it sells separately an extended warranty, which provides protection from defects for three
years beyond the 120 days (often referred to as a service warranty). How many performance
obligations exist in this contract?
a. None c. Two
b. One d. Three

Gift Cards
• Seller records a deferred revenue liability when the card is sold.
• Seller recognizes revenue when the card is used and at the point when it concludes there is only a
“remote likelihood” that customer will use the card.
17. Bull’sEye sells gift cards redeemable for Bull’sEye products either in-store or online. During 20x6,
Bull’sEye sold P2,000,000 of gift cards, and P1,800,000 of the gift cards were redeemed for products.
As of December 31, 20x6, P150,000 of the remaining gift cards had passed the date at which
Bull’sEye concludes that the cards will never be redeemed. How much gift card revenue should
Bull’sEye recognize in 20x6?
a. P2,000,000 c. P1,850,000
b. P1,950,000 d. P1,800,000
Repurchase Agreement – Renewal Option
18. ABC Co., sells a subscription to its anti-virus software along with a subscription renewal option that
allows renewal at half the prevailing price for a new subscription. How many performance
obligations exist in this contract? How many performance obligations are in the contract?
a. 0 c. 2
b. 1 d. 3

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ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY
BATCH 47 – May 2024 CPA Licensure Examination
AFAR Preweek
19. When the bundle price is less than the sum of the standalone prices, the discount should be
allocated:
a. to the product (or products) associated with the discount.
b. to the entire bundle of products or services.
c. to the product cost, thereby increasing product margin.
d. to the selling price of product or services provided.

20. A company has satisfied its performance obligation when the

a. company has received payment for goods or services.
b. company has significant risks and rewards of ownership.
c. company has legal title to the asset.
d. company has transferred physical possession of the asset.

21. The most popular input measure used to determine the progress toward completion is
a. units-of-delivery method. c. labor hours worked.
b. cost-to-cost basis. d. tons produced.
22. A contract
a. must be in writing to be an enforceable contract.
b. is an agreement that creates enforceable rights and obligations.
c. is enforceable if each party can unilaterally terminate the contract.
d. does not need to have commercial substance.
23. The first step in the process for revenue recognition is to
a. determine the transaction price.
b. identify the contract with the customer.
c. allocate the transaction price to the separate performance obligations.
d. identify the separate performance obligations in the contract.
24. The second step in the process for revenue recognition is to
a. allocate transaction price to the separate performance obligations.
b. determine the transaction price.
c. identify the contract with customers.
d. identify the separate performance obligations in the contract.

25. The third step in the process for revenue recognition is to

a. determine the transaction price.
b. identify the separate performance obligations in the contract.
c. allocate transaction price to the separate performance obligations.
d. recognize revenue when each performance obligation is satisfied.
26. The last step in the process for revenue recognition is to
a. allocate transaction price to the separate performance obligations.
b. recognize revenue when each performance obligation is satisfied.
c. determine the transaction price.
d. identify the contract with customers.
27. A company must account for a contract modification as a new contract if
a. Goods or services are interdependent on each other.
b. The promised goods or services are distinct.
c. The company has the right to receive consideration equal to standalone price.
d. Goods or services are distinct and company has right to receive the standalone price.
28. The transaction price for multiple performance obligations should be allocated
a. based on selling price from the company’s competitors.
b. based on what the company could sell the goods for on a standalone basis.
c. based on forecasted cost of satisfying performance obligation.
d. based on total transaction price less residual value.
29. When the bundle price is less than the sum of the standalone prices, the discount should be
allocated :
a. to the product (or products) associated with the discount.
b. to the entire bundle of products or services.
c. to the product cost, thereby increasing product margin.
d. to the selling price of product or services provided.

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ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY
BATCH 47 – May 2024 CPA Licensure Examination
AFAR Preweek
30. Unconditional rights to receive consideration because a performance obligation has been
satisfied are
a. reported as a receivable on the statement of financial position.
b. reported as a contract asset on the statement of financial position.
c. reported as a contract liability on the statement of financial position.
d. are not reported on the balance sheet.
31. Partial satisfaction of a multiple performance obligation is reported on the statement of financial
position as
a. contract liability. c. contract asset.
b. receivable. d. unearned service revenue.
Business Combination
32. Corin, a private limited company, has acquired 100% of Coal, a private limited company, on
January 1, 2019. The fair value of the purchases consideration was 10 million ordinary shares of P1
of Corin, and the fair value of the net assets acquired was P7 million. At the time of the acquisition,
the value of the ordinary shares of Corin and the net assets of Coal were only provisionally
determined. The value of the shares of Corin (P11 million) and the net assets of Coal (P7.5 million)
on January 1, 2019, were finally determined on November 30, 2019. However, the directors of Corin
have seen the value of the company decline since January 1, 2019, and as of February 1, 2020,
wish to change the value of the purchase consideration to P9 million. What value should be placed
on the purchase consideration and assets of Coal as at the date of acquisition?
a. Purchase consideration P10 million, net asset value P7 million.
b. Purchase consideration P11 million, net asset value P7.5 million.
c. Purchase consideration P9 million, net asset value P7.5 million.
d. Purchase consideration P11 million, net asset value P7 million.
33. The balance sheet of San Jacinto Company as of December 31, 20x2 is as follows:
Assets Liabilities and Stockholders’ Equity
Cash……………………………P 175,000 Current liabilities……………… P 250,000
Accounts receivable………. 250,000 Mortgage payable……………. 450,000
Inventories……………………… 725,000 Common stock…………………… 200,000
Property, plant and Additional paid-in capital 400,000
Equipment…………………… 950,000 Retained earnings…………………… 800,000
Total Assets………………… P2,100,000 Total Liabilities and SHE… P 2,100,000
On December 31, 20x2 the Sta. Clara, Inc. bought all of the outstanding stock of San Jacinto
Company for P1,800,000 cash. On the date of purchase, the fair market value of San Jacinto’s
inventories was P675,000, while the fair value of San Jacinto’s property, plant and equipment was
P1,100,000. The fair values of all other assets and liabilities of San Jacinto Company were equal to
their book values. The consolidated balance sheet of Sta. Clara and San Jacinto, after the
acquisition of San Jacinto should reflect goodwill in the amount of –
a. P300,000 c. P500,000
b. P400,000 d. Zero

34. Using the same information in No. 33, the amount of goodwill recorded in the books of Sta. Clara
amounted to:
a. P300,000 c. P500,000
b. P400,000 d. Zero

Stock Acquisition/Consolidation
Use the following information for questions 35 and 36:
Pedro purchased 100% of the common stock of the Sanburn Company on January 1, 20x4, for
P500,000. On that date, the stockholders' equity of Sanburn Company was P380,000. On the purchase
date, inventory of Sanburn Company, which was sold during 20x4, was understated by P20,000. Any
remaining excess of cost over book value is attributable to building with a 20-year life. The reported
income and dividends paid by Sanburn Company were as follows:
20x4 20x5
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . P80,000 P90,000
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . 10,000 10,000
35. Using the cost model/method, which of the following amounts are correct?
Investment Income Investment Account Balance
20x4 December 31, 20x4
a. P10,000 P500,000
b. P70,000 P570,000
c. P70,000 P550,000
d. P10,000 P550,000

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ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY
BATCH 47 – May 2024 CPA Licensure Examination
AFAR Preweek
Solution/Answer:
35. a
20x4 Investment income: Dividend of P10,000 x 100%
20x4 Investment balance: P500,000
36. Using sophisticated (full) equity method, which of the following amounts are correct?
Investment Income Investment Account Balance
20x4 December 31, 20x4
a. P55,000 P555,000
b. P55,000 P545,000
c. P75,000 P565,000
d. P80,000 P570,000
Solution/Answer:
36. b: Investment (P500,000 + P80,000 – P10,000 – P20,000 – P5,000) = P545,000
Income: P80,000 – P20,000 – P5,000 = P55,000
37. On January 1, 2019, Gold Rush Company acquires 80 percent ownership in California Corporation
for P200,000. The fair value of the non-controlling interest at that time is determined to be P50,000.
It reports net assets with a book value of P200,000 and fair value of P230,000. Gold Rush Company
reports net assets with a book value of P600,000 and a fair value of P650,000 at that time, excluding
its investment in California. What will be the amount of goodwill that would be reported
immediately after the combination under current accounting practice if the option of full-goodwill
method is used?
a. P50,000 c. P30,000
b. P40,000 d. P20,000
Solution/Answer: Answer: d
(80%) Fair value of consideration given………………….. P 200,000
(20%) Fair value of non-controlling interest (given)……. 50,000
(100%) Fair value of Subsidiary……………………………… P 250,000
Less: Book value of Net Assets (Stockholders’
Equity of Subsidiary)….………............................... 200,000
Allocated Excess.……………………………………………… P 50,000
Less: Over/Undervaluation of net assets
(P230,000 – P200,000)…………………………………. 30,000
Goodwill (Full/Gross-up).….…………………………………… P 20,000
38. Lauren Corporation acquired Sarah, Inc. on January 1, 2019, by issuing 13,000 shares of common
stock with a P10 per share par value and a P23 market value. This transaction resulted in recording
P62,000 of goodwill. Lauren also agreed to compensate Sarah’s former owners for any difference
if Lauren’s stock is worth less than P23 on January 1, 2020. On January 1, 2020, Lauren issues an
additional 3,000 shares to Sarah’s former owners to honor the contingent consideration agreement.
Under which of the following is true?
a. The fair value of the expected number of shares to be issued for the contingency increases
the Goodwill account balance at the date of acquisition.
b. The Investment account balance is not affected, but the parent’s Additional Paid-In
Capital is reduced by the par value of the extra 3,000 shares when issued.
c. All of the subsidiary’s assets and liability accounts must be revalued for consolidation
purposes based on their fair values as of January 1, 2021.
d. The additional shares are assumed to have been issued on January 1, 2019, so that a
retrospective adjustment is required.
Consolidation: Subsequent to Date of Acquisition
39. On January 1, 2021, Turner, Inc. reports net assets of P480,000 although a building (with a 10-year
life) having a book value of P260,000 is now worth P300,000. Renrut Corporation pays P540,000 on
that date for a 90 percent ownership interest in Turner. On December 31, 2023, Turner reports a
Building account of P182,000 and Renrut reports a Building account of P510,000. What is the
consolidated balance of the Building account?
a. P720,000 c. P780,000
b. P724,000 d. P810,000
Solution/Answer: Answer: A
Renrut building……………………………………... P510,000
Turner building 12/31/23…………………………… P182,000
Excess acquisition-date fair value allocation
(P300,000 – P260,000)……………………… 40,000
Amortization of allocated excess for 3 years
[(P40,000 / 10 years) x 3 years]……………. (12,000) 210,000
Consolidated buildings, 2023…………………………… P720,000

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ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY
BATCH 47 – May 2024 CPA Licensure Examination
AFAR Preweek
Or,
Renrut building………………………………….. P510,000
Turner building acquisition-date fair value… P 300,000
Amortization for 3 years (10-year life)…………( 90,000) 210,000
Consolidated buildings…………………………… P720,000

40. On January 1, 20x1, Harry, Inc. reports net assets of P880,000 although a patent (with a 10-year life) having
a book value of P330,000 is now worth P400,000. Newt Corporation pays P840,000 on that date for an
80 percent ownership in Harry. On December 31, 20x2, Harry reports total expenses of P621,000 while
Newt reports expenses of P714,000. What is the consolidated total expense balance on December
31, 20x2?
a. P1,197,800 c. P1,342,000
b. P1,335,000 d. P1,349,000
Solution/Answer: Answer: C
Parent - Newt expense – 20x2…………………………………… P 714,000
Subsidiary - Harry expenses – 20x2……………………………... 621,000
Amortization of allocated excess
(P400,000 – P330,000) / 10 years………………… 7,000
Consolidated total expense for 20x2..…………………….. P1,342,000
41. At the end of 20x9, Paper Company’s stockholders’ equity includes common stock of P500,000 and
additional paid-in capital of P300,000. Paper purchased a 70 percent interest in Slick Company on
January 1, 20x9, when the non-controlling interest in Slick had a fair value of P90,000. No differential
arose from the business combination. During 20x9, Slick reports net income of P20,000 and declares
dividend of P5,000. The 20x9 consolidated balance sheet includes retained earnings of P630,000
(controlling interest portion). Determine the consolidated equity on December 31, 20x9:
a. P1,430,000 c. P1,524,500
b. P1,457,000 d. P1,526,000
Solution/Answer: Answer: C
Consolidated Equity:
Attributable to Equity Holders’ of Parent / Controlling Interest:
Common stock………………………………… P 500,000
Additional paid-in capital.....…………………. 300,000
Retained earnings………………………………. 630,000
Equity Holders’ of Parent/Controlling Interest… P 1,430,000
Non-controlling interest:
[P90,000 + (P20,000 – P5,000) x 30%................. 94,500
Consolidated Equity………..…………………………….. P 1,524,500
42. Which of the following forms of business combination is not subject to laws specific to business
combinations?
a. Asset for asset acquisition
b. Statutory merger
c. Statutory consolidation
d. All three are subject to laws
43. Which of the following is not a true statement with regard to a statutory merger?
a. One entity continues to exist
b. One entity ceases to exist
c. The name of the new entity is not the same as either of the entities
d. All of the above are true statements with regard to a statutory merger
44. Which of the following is not true with regard to the statutory consolidation form of business
combination?
a. A new corporation must be formed
b. Control of the net assets of the combining entities must be acquired by the new entity
c. The net assets of the combining entities must be acquired with assets of the new corporation
d. The combining entities both cease to exist after the combination
45. Following the completion of a business combination in the form of a statutory consolidation, what
is the balance in the new corporation’s Retained Earnings account?
a. The acquirer Retained Earnings account balance
b. The acquiree Retained Earnings account balance
c. Zero
d. The sum of the acquirer and acquiree Retained Earnings account balances
46. Which of the following is not true with regard to a business combination accomplished in the form
of a stock acquisition?
a. Two companies remain in existence after the combination
b. A parent-subsidiary relationship is said to exist

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ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY
BATCH 47 – May 2024 CPA Licensure Examination
AFAR Preweek
c. Consolidated financial statements are normally required
d. All of the above statements are true
47. In a business combination accounted for as an acquisition, registration costs related to common
stock issued by the parent company are
a. expensed as incurred.
b. deducted from other contributed capital.
c. included in the investment cost.
d. deducted from the investment cost.
48. What is the appropriate accounting treatment for the value assigned to in-process research and
development acquired in a business combination?
a. Expense upon acquisition.
b. Capitalize as an asset.
c. Expense if there is no alternative use for the assets used in the research and development and
technological feasibility has yet to be reached.
d. Expense until future economic benefits become certain and then capitalize as an asset.
49. Majority-owned subsidiaries should be excluded from the consolidated statements when
a. control does not rest with the majority owner.
b. the subsidiary operates under governmentally imposed uncertainty.
c. a foreign subsidiary is domiciled in a country with foreign exchangerestrictions or control
d. any of these circumstances exist.
50. Under the economic entity concept, consolidated financial statements are intended primarily for
the benefit of the
a. stockholders of the parent company.
b. creditors of the parent company.
c. minority stockholders.
d. all of the above.
51. Reasons a parent company may pay more than book value for the subsidiary company's stock
include all of the following except
a. the fair value of one of the subsidiary's assets may exceed its recorded value because of
appreciation.
b. the existence of unrecorded goodwill.
c. liabilities may be overvalued.
d. stockholders' equity may be undervalued.
52. What is the method of presentation required by PFRS 10 of “non-controlling interest” on a
consolidated balance sheet?
a. As a deduction from goodwill from consolidation.
b. As a separate item within the long-term liabilities section.
c. As a part of stockholders' equity.
d. As a separate item between liabilities and stockholders' equity.
53. A 70 percent owned subsidiary company declares and pays a cash dividend. What effect
does the dividend have on the retained earnings and non-controlling interest balances in the
parentcompany’s consolidated balance sheet?
a. No effect on either retained earnings or non-controlling interest.
b. No effect on retained earnings and a decrease in non-controlling interest
c. Decreases in both retained earnings and non-controlling interest.
d. A decrease in retained earnings and no effect on non-controlling interest.
54. In a business combination accounted for as an acquisition, how should the excess of fair value of
identifiable net assets acquired over implied value be treated?
a. Amortized as a credit to income over a period not to exceed forty years.
b. Amortized as a charge to expense over a period not to exceed forty years.
c. Amortized directly to retained earnings over a period not to exceed forty years.
d. Recognized as an ordinary gain in the year of acquisition.
55. Goodwill represents the excess of the implied value of an acquired company over the
a. aggregate fair values of identifiable assets less liabilities assumed.
b. aggregate fair values of tangible assets less liabilities assumed.
c. aggregate fair values of intangible assets less liabilities assumed.
d. book value of an acquired company.
56. Which of the following accounts need not be eliminated in consolidation?
a. Intercompany Sales. d. Long-term Intercompany Receivables.
b. Intercompany Cost of Sales. e. None of the above.
c. Intercompany Interest expense.
57. Non-controlling interest in consolidated income is never affected by
a. upstream sales c. Non-controlling interest is affect by all sales
b. downstream sales d. None of the above

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ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY
BATCH 47 – May 2024 CPA Licensure Examination
AFAR Preweek
58. 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 unrealizedgains
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 incomeunder
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 determining its investment income under theequity
method of accounting.

59. In the year a subsidiary sells land to its parent company at a gain, a workpaper entry is made
debiting
1. Retained Earnings- P Co 2. Retained Earnings - S Co 3. Gain on Sale of Land.
a. 1 c. 3
b. 2 d. both 1 and 2.
60. In years subsequent to the year a 90% owned subsidiary sells equipment to its parent company at a
gain, the non-controlling interest in consolidated income is computed by multiplying the non-
controlling interest percentage by the subsidiary’s reported net income
a. minus the net amount of unrealized gain on the intercompany sale.
b. plus the net amount of unrealized gain on the intercompany sale.
c. minus intercompany gain considered realized in the current period.
d. plus intercompany gain considered realized in the current period.

61. Company S sells equipment to its parent company (P) at a gain. In years subsequent to the year of
the intercompany sale, a workpaper entry is made under the cost model debiting
a. Retained Earnings - P. c. Equipment.
b. Non-controlling interest. d. all of these.

Consolidation: Subsequent to Date of Acquisition - Intercompany Sales of Inventory

Items 62 through 65 are based on the following information:
The separate incomes (which do not include investment income) of Pell Corporation and Sell
Corporation, its 80% owned subsidiary, for 20x6 were determined as follows:
Pell Sell
Sales . . . . . . . . . . . . . . . . . . . . . . P400,000 P100,000
Less Cost of Sales. . . . . . . . . . . . 200,000 60,000
Gross profit . . . . . . . . . . . . . . . . P200,000 P40,000
Other expenses . . . . . . . . . . . . . 100,000 30,000
Separate incomes . . . . . . . . . . P100,000 P10,000
During 20x6 Pell Sold merchandise that cost P20,000 to Sell for P40,000, and at December 31, 20x6 half
of these inventory items remained unsold by Sell.
62. The Non –controlling interest in net income for 20x6:
a. P 0 c. P 8,000
b. 2,000 d. 10,000

63. The Consolidated sales for 20x6:

a. P500,000 c. P460,000
b. 480,000 d. 400,000

64. The Consolidated cost of sales for 20x6:

a. P230,000 c. P270,000
b. 248,000 d. 300,000

65. The Profit attributable to Equity Holders of Parent or Controlling Interests in Consolidated Net Income
for 20x6:
a. P108,000 c. P 98,000
b. 100,000 d. 80,000

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ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY
BATCH 47 – May 2024 CPA Licensure Examination
AFAR Preweek
Solution/Answer:
62. (b)
Pell Sell
(CI-CNI) (NCI-CNI) CNI
Net Income from own operations:
Pell P100,000
Sell 8,000 P 2,000
RPBI of S (down) “solo” – Realized 0
RPBI of P (up) “hati” 0 0
UPEI of S (down) “solo” – Unrealized ( 10,000)
UPEI of P (up) “hati” ( 0) ( 0)
Amortization of allocated excess “hati” ( 0) ( 0)
Impairment of goodwill (if partial – “solo”;
if full –“hati” depending on the amount
or % allocated, if none use CI% and NCI% ( 0) ( 0)
P 98,000 P 2,000 P100,000
*Equity in Subsidiary Loss (debit/reduction),
P2,000 loss
Profit Attributable to Equity NC Interest Consolidated
Holders of Parent/Controlling Interest in NI in Net Income Net Income
(CI-CNI) (NCI-CNI) (CNI)

63. (c)
Sales (Cr) Cost of Sales (Dr)
Parent – Pell P 400,000 P 200,000
Subsidiary – Sell 200,000 60,000
Intercompany sales – downstream ( 40,000) ( 40,000)
Intercompany sales – upstream ( 0) ( 0)
RPBI of S (downstream sales) ( 0)
RPBI of P (upstream sales) ( 0)
UPEI of S (downstream sales) 10,000
UPEI of P (upstream sales) _________ 0
Consolidated P 460,000 P 230,000
64. (a) – refer to No. 62
65. (c) – refer to No. 62
Reminder: To determine the Investment balance at the end of the current year under equity
method, use this approach:
Investment balance, beginning of the current year (equity method)…..P xxx
Add (deduct): ESI(L) – Equity in Subsidiary Income(*Loss).………………... xxx
Deduct: Dividend – S (Dividends declared/paid x % controlling interest) xxx
Investment balance, ending (equity method)………………………………..P xxx
Consolidation: Subsequent to Date of Acquisition - Intercompany Sales of Fixed Assets
66. Kestrel Company acquired an 80% interest in Reptile Corporation on January 1, 20x4. On January 1,
20x5, Reptile sold a building with a book value of P50,000 to Kestrel for P80,000. The building had a
remaining useful life of ten years and no salvage value. The separate balance sheets of Kestrel
and Reptile on December 31, 20x5 included the following balances:
Kestrel Reptile
Buildings ........................................................................................

The consolidated amounts for Buildings and Accumulated Depreciation - Buildings that appeared,
respectively, on the balance sheet at December 31, 20x5, were
a. P620,000 and P192,000. c. P650,000 and P192,000.
b. P620,000 and P195,000. d. P650,000 and P195,000.

Items 67 through 70 are based on the following information:

Silver Corporation is a 90% owned subsidiary to Proto Corporation acquired several years ago at book
value equal to fair value. For the years 20x5 and 20x6, Proto and Silver report the following:
20x5 20x6
Proto’s separate income . . . . . . . P300,000 P400,000
Silver’s net income. . . . . . . . . . . . . 80,000 60,000
The only intercompany transaction between Proto and Silver during 20x5 and 20x6 was the January 1,
20x5 of land. The land had a book value of P20,000 and was sold intercompany for P30,000, its
appraised value at the time of sale.

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ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY
BATCH 47 – May 2024 CPA Licensure Examination
AFAR Preweek
67. If the land was sold by proto to Silver (downstream sales) and that Silver still owns the land at
December 31, 20x6, compute the Profit Attributable to Equity Holders of Parent or CNI Attributable
to Controlling Interests for 20x5 and 20x6:
20x5 20x6 20x5 20x6
a. P363,000 P454,000 c. P372,000 P460,000
b. 362,000 454,000 d. 362,000 460,000

68. The Consolidated/group net income for 20x5 and 20x6:

20x5 20x6 20x5 20x6
a. P362,000 P454,000 c. P370,000 P460,000
b. 380,000 460,000 d. 372,000 460,000

69. Except that the land was sold by Silver to Proto (upstream sales) and proto still owns the land at
December 31, 20x6, compute the Profit Attributable to Equity Holders of parent or CNI Attributable
to Controlling Interests for 20x5 and 20x6:
20x5 20x6 20x5 20x6
a. P363,000 P454,000 c. P370,000 P460,000
b. 362,000 454,000 d. 363,000 460,000

70. Using the same information in No. 74, the Consolidated/group net income for 20x5 and 20x6:
20x5 20x6 20x5 20x6
a. P362,000 P454,000 c. P370,000 P460,000
b. 380,000 460,000 d. 372,000 460,000
Solution/Answer:
67. (b)
Downstream
20x5 20x6
Proto Silver Proto Silver
(CI-CNI) (NCI-CNI) CNI (CI-CNI) (NCI-CNI) CNI
NI from own operations:
P P300,000 P400,000
S 72,000 P 8,000 54,000 P 6,000
RG thru dep (down) 0 0
UG (downstream) ( 10,000) ( 0)
Amortization ( 0) ( 0) ( 0) ( 0)
Impairment of goodwill
(if partial – “solo”; if full
– “hati” depending on the
amount or % allocated,
if none use CI% and NCI ( 0) _( 0) ( 0) ( 0)
P362,000 P 8,000 P370,000 P454,000 P 6,000 P460,000
Note: Net income of parent is understood to be as Parent’s reported net income which includes dividend income from subsidiary.

CI-CNI NCI-CNI CNI CI-CNI NCI-CNI CNI

68. (c) – refer to No. 67
69. (a)
Upstream
20x5 20x6
Proto Silver Proto Silver
(CI-CNI) (NCI-CNI) CNI (CI-CNI) (NCI-CNI) CNI
NI from own operations:
P P300,000 P400,000
S 72,000 P 8,000 54,000 P 6,000
UG (Upstream) ( 9,000) ( 1,000) ( 0) ( 0)
RG thru dep (up) 0 0 0 0
Amortization ( 0) ( 0) ( 0) ( 0)
Impairment of goodwill
(if partial – “solo”; if full
– “hati” depending on the
amount or % allocated,
if none use CI% and NCI ( 0) _( 0) ( 0) ( 0)
P363,000 P 7,000 P370,000 P454,000 P 6,000 P460,000
Note: Net income of parent is understood to be as Parent’s reported net income which includes dividend income from subsidiary.

CI-CNI NCI-CNI CNI CI-CNI NCI-CNI CNI

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ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY
BATCH 47 – May 2024 CPA Licensure Examination
AFAR Preweek
70. (c) – refer to No. 69

Foreign Currency Transactions without Hedging

71. On October 1, 20x1, Mud Company a Philippine Company purchased parts from Terra, a
Portuguese Company with payment due on December 1, 20x1. If Mud’s 20x1 operating income
included no foreign exchange gain or loss, the transaction could have:
a. Resulted in an extraordinary gain
b. Been denominated in Philippine pesos
c. Generated a foreign exchange gain to be reported as a deferred charge on the balance
sheet
d. Generated a foreign exchange loss to be reported as a separate component of stockholders’
equity
Answer: B
(b) – “operating income included NO forex gain or loss” - the transaction is payable or
denominated in Philippines pesos, therefore it is not a Foreign Currency transaction it is simply an
ordinary transaction wherein no foreign currency involved.

72. A Philippine exporter has a Thai baht account receivable resulting from an export sale on April 1 to
a customer in Thailand. The exporter signed a forward contract on April 1 to sell Thai baht and
designated it as a cash flow hedge of a recognized Thai baht receivable. The spot rate was P0.022
on that date, and the forward rate was P0.023. Which of the following did the Philippine exporter
report in net income?
a. Discount expense c. Premium expense
b. Discount revenue d. Premium revenue
Answer: D
(d) if spot rate is lower than forward rate (Spot < Forward rate) it is a PREMIUM (buyer’s point of view
is a an expense; if seller’s point of view it is a revenue)

Items 73 to 75 are based on the following information:

On September 9, 20x8, Selma Inc. accepted a noncancellable merchandise sales order from a
Japanese firm. The contract price was 100,000 yens. The merchandise was delivered on December 14,
20x8. The invoice was dated December 11, 20x8, the shipping date (FOB shipping point). Full payment
was received on January 22, 20x9. The spot direct exchange rates for the Japanese yens on the
respective dates are as follows:
September 9, December 11, December 14 December 31 January 22,
20x8 20x8 20x8 20x8 20x9
P.75 P .78 P .77 P .73 P .725
73. What is the reportable sales amount in the 20x8 income statement?
a. P73,000 c. P77,000
b. 75,000 d. 78,000
74. What is the reportable foreign exchange gain or loss amount in the 20x8 income statement?
a. P2,000 gain c. P5,000 loss
b. 4,000 loss d. 5,000 gain
75. What is the reported value of the receivable from the customers at December 31, 20x8?
a. P73,000 c. P77,000
b. 75,000 d. 78,000
Solution/Answer:
73. (d) – Exposed Asset
Spot Rates
Date of Commitment: 9/9/x8 P.75
Date of Transaction (invoice): 12/11/x8 P.78 Asset – Accounts Receivable

Date of Delivery: 12/14/x8 P.77

B/S Date: 12/31/x8 P.73 P.05 XL

Date of settlement: 1/22/x9 P.725
Note:
• Reportable sales amount in 20x8 income statement: 100,000 yens x P.78 = P78,000 (d), the historical rate on
12/31/20x8 or spot rate on the date of transaction, 12/11/20x8.
• Title passed on 12/11/20x8, the shipping date. A foreign currency transaction should be recorded initially at
the rate of exchange on the date of transaction (historical spot rate)
• In the absence of the invoice date (or shipping date - FOB shipping point), then the date of delivery will be
used.

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ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY
BATCH 47 – May 2024 CPA Licensure Examination
AFAR Preweek
Solution/Answer:
74. (c) – P.05 x 100,000 yens = P5,000 loss (refer to No. 73)
75. (a) – Exposed Asset, the reportable value of the receivable from the foreign customer at 12/31/20x8:
100,000 yens x P.73 = P73,000, the spot rate on 12/31/20x8 or current rate on 12/31/20x8.

Items 76 to 78 are based on the following information:

On September 3, 20x8, Connelly placed a noncancellable purchase order with a Japanese company
for a custom-built machine. The contract price was 1,000,000 yens. The machine was delivered on
December 23, 20x8. The invoice was dated November 13, 20x8, the shipping date (FOB shipping point).
The vendor was paid on January 7, 20x9. The spot direct exchange rates for the Japanese yens on the
respective dates are as follows:
September 3, November 13, December 23, December 31, January 7,
20x8 20x8 20x8 20x8 20x9
P.20 P .21 P .22 P .23 P .24
76. What amount is the capitalizable cost of the equipment?
a. P200,000 c. P220,000
b. 210,000 d. 230,000

77. What is the reportable foreign exchange gain or loss amount in Connelly’s 20x8 income statement?
a. P10,000 loss c. P30,000 loss
b. 20,000 gain d. 20,000 loss

78. What is the reported value of the payable to the vendor at December 31, 20x8?
a. P200,000 c. P220,000
b. 210,000 d. 230,000
Solution/Answer:
76. (b) – Exposed Liability
Spot Rates
Date of Commitment: 9/3/x8 P.20
Date of Transaction (invoice): 11/13/x8 P.21 Liability – Accounts Payable

Date of Delivery: 12/23/x8 P.22

B/S Date: 12/31/x8 P.23 P.02 XL

Date of settlement: 1/7/x9 P.24
Note:
• Capitalizable cost of the equipment: 1,000,000 yens x P.21 = P210,000, the historical rate on
12/31/20x8 or spot rate on the date of transaction (11/13/20x8).
• Title passed on 11/13/20x8, the shipping date. A foreign currency transaction should be recorded
initially at the rate of exchange on the date of transaction (historical spot rate)
• In the absence of the invoice date (or shipping date - FOB shipping point), then the date of
delivery will be used.
Answer:
77. (d) – P.02 x 1,000,000 yens = P20,000 loss (refer to No. 76)
78. (d) – Exposed Liability, the reportable value of the payable to the foreign vendor at 12/31/20x8:
1,000,000 yens x P.23 = P230,000, the spot rate on 12/31/20x8 or current rate on 12/31/20x8.

79-81 - None
Foreign Currency Transactions with Hedging
Items 82 and 83 are based on the following information:
On September 1, 20x8, Ramus Company purchased machine parts from Jacky Chan Company for
6,000,000 Hong Kong dollars to be paid on January 1, 20x9. The exchange rate on September 1 is HK
$7.7 = P1. On the same date, Ramus enters into a forward contract and agrees to purchase HS
$6,000,000 on January 1, 20x9, at the rate of HK $7.7 = P1. On December 31, 20x8 and on January 1,
20x9, the exchange rate is HK $8.0 = P1.
82. What is the fair value of the forward contract on December 31, 20x8?
a. P 0 c. P750,000
b. P29,221 d. P779,221

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BATCH 47 – May 2024 CPA Licensure Examination
AFAR Preweek
Solution/Answer: b
Fair Value of Forward Contract:
September 1, 20x8 (no initial fair value – PFRS 9)……….. …… P 0
December 31, 20x8:
9/1/20x8: Current (Original) Forward Rate
(HK$6,000,000/HK$7.7)…..……………………...........P779,221
12/31/20x8: Spot rate (HK$6,000,000/HK$8.0)………………....... 750,000
Forex loss on forward contract.…………………………………………… 29,221
Fair value of forward contract, 12/31/20x8 (a payable)..……………….. P 29,221
*Under the forward contract, Ramus must pay P779,221 to purchase HK$6,000,000 on January 1,
2019. Equivalently, Ramus can make a settlement payment if the peso value of HK$6,000,000 on
January 1, 20x9, is less than P779,221, and it can receive a payment if the value is more. In this case,
the value is P750,000 (HK$6,000,000/8.0), so Ramus must make a payment.
83. What is the notional value of the HK $ forward contrac?
a. P 0 c. P750,000
b. P29,221 d. P779,221
Solution/Answer: D
HK$6,000,000/HK$7.7 = P779,221. The notional amount is the total face amount of the asset or liability that
underlies the derivative contract. The notional amount can be misleading because the value of a derivative
is a function of changes in prices or interest rates and is normally equal to just a small fraction of the notional
amount of the underlying asset.
A notional amount may be expressed in the number of currency units, shares, bushels, pounds or other units
specified in the financial instrument.
Hyperinflationary Economy
84.The following equity relates to an entity operating in a hyperinflationary economy:
Before After
PAS 29 Restatement
Share capital………………………………………………… 100 170
Revaluation reserve………………………………….......... 20 -
Retained earnings……………………………………......… 30 -
150 270
What would be the balances on the revaluation reserve and retained earnings after the
restatement for PAS 29?
a. Revaluation reserve 0, retained earnings 100
b. Revaluation reserve 100, retained earnings 0
c. Revaluation reserve 20, retained earnings 80
d. Revaluation reserve 70, retained earnings 30
85. Property was purchased on December 31, 20x4 for 20 million baht. The general price index in the
country was 60.1 on that date. On December 31, 20x7, the general price index had risen to 240.4.
If the entity operates in a hyperinflationary economy, what would be the carrying amount in the
financial statements of the property after restatement?
a. 20 million baht c. 80 million baht
b. 1,200.2 million baht d. 4.808 million baht

Partnership
Use the following information for question 86 to 88:
OO and PP are partners sharing profits in this proportion – 60:40. A balance sheet prepared for the
partners on April 1, 20x4 shows the following:
Cash . . . . . . . . . . . . . . . . . . . . P48,000 Accounts payable . . . . . . . . . P 89,000
Accounts Receivable . . . . . . . 92,000 OO, capital . . . . . . . . . . . . . . 133,000
Inventories . . . . . . . . . . . . . . . . 165,000 PP, capital. . . . . . . . . . . . . . . 108,000
Equipment . . . . . . . . . . . . 70,000
Less: Accumulated
Depreciation . . . . . . . 45,000 25,000
Total Assets . . . . . . . . . . . . . . . . P330,000 Total Liabilities & Capital . . . . P 330,000

On this date, the partners agree to admit RR as a partner. The terms of the agreement are
summarized below. Assets and liabilities are to be restated as follows:

• An allowance for possible uncollectible of P4,500 is to be established.

• Inventories are to be restated at their present replacement value of P170,000.
• Accrued expenses of P4,000 are to be Recognized.

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BATCH 47 – May 2024 CPA Licensure Examination
AFAR Preweek
OO, PP and RR will divide profits in the ratio of 5:3:2. Capital balances of the partners after the formation
of the new partnership are to be in the aforementioned ratio, with OO and PP making cash settlement
between them outside of the partnership to adjust their capitals, and RR investing cash in the
partnership for his interest.
86. The cash to be invested by RR is:
a. P60,250 c. P50,000
b. P47,500 d. P59,375
87. The total capital of the partnership after the admission of RR is:
a. P296,875 c. P237,500
b. P301,250 d. P286,850
88. Cash settlement between OO and PP is:
a. OO will pay PP P17,537.50 c. OO will invest P17,537.50
b. PP will pay OO P17,537.50 d. PP will withdraw P17,537.50
Solutions/Answers:
86. d
Total capital of the new partnership (see no. 87) P 296,875
Multiply by RR’s interest 20%
Cash to be invested by RR P 59,375
87. a OO PP Total
(60%) (40%)
Unadjusted capital balances P133,000 P108,000 P241,000
Adjustments:
Allowance for bad debts ( 2,700) ( 1,800) ( 4,500)
Inventories 3,000 2,000 5,000
Accrued expenses ( 2,400) ( 1,600) ( 4,000)
Adjusted capital balances P130,900 P106,600 P237,500
Total capital before the formation of the new partnership (see above) P 237,500
Divide by the total percentage share of OO and PP (50% + 30%) 80%
Total capital of the partnership after the admission of RR P 296,875
88. a
Agreed Capital Contributed Capital Settlement
OO P148,437.50 (50% x P296,875) P 130,900 P 17,537.50
PP 89,062.50 (30% x P296,875) 106,600 (17,537.50)
Therefore, OO will pay PP P17,537.50
Use the following information for questions 89 to 92:
A partnership began its first year of operations with the following capital balances:
Young, Capital . . . . . . . . . . . . . . . . . . . . . . . P 143,000
Eaton, Capital . . . . . . . . . . . . . . . . . . . . . . . 104,000
Thurman, Capital . . . . . . . . . . . . . . . . . . . . . 143,000
The Articles of Partnership stipulated that profits and losses be assigned in the following manner: Young
was to be awarded an annual salary of P26,000 with P13,000 salary assigned to Thurman. Each partner
was to be attributed with interest equal to 10% of the capital balance as of the first day of the year.
The remainder was to be assigned on a 5:2:3 basis, respectively. Each partner was allowed to withdraw
up to P13,000 per year. Assume that the net loss for the first year of operations was P26,000 with net
income of P52,000 in the second year. Assume further that each partner withdrew the maximum
amount from the business each year.
89. What was Young’s share of loss for the first year?
a. P 3,900 loss d. P24,700 loss
b. P11,700 loss e. P111,500 loss
c. P10,400 loss
90. What was the balance in Eaton's Capital account at the end of the first year?
a. P120,900 d. P80,600
b. P118,300 e. P111,500
c. P126,100
91. What was Thurman's share of income or loss for the second year?
a. P17,160 income d. P17,290 income
b. P4,160 income e. P28,080 income
c. P19,760 income
92. What was the balance in Young's Capital account at the end of the second year?
a. P133,380 d. P132,860
b. P84,760 e. P71,760
c. P105,690

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AFAR Preweek
Solutions/Answers:
89. b
Y E T Total
Capital, 1/1/Year I 143,000 104,000 143,000 390,000
Net income (loss) (11,700) (10,400) (3,900) (26,000)
Withdrawals – personal (13,000) (13,000) (13,000) (39,000)
Capital, 12/31/ Year I 118,300 80,600 126,100 325,000

Year I Net loss

Salary 26,000 - 13,000 3,900
Interest – 10% x beginning capital 14,300 10,400 14,300 3,900
5:2:3 (52,000) (20,800) (31,200) (10,400)
Total (11,700) (10,400) (3,900) (2,600)
Capital, 1/1/Year 2 118,300 80,600 126,100 325,000
Net income (loss) 28,080 76,700 19,760 52,000
Withdrawals – personal (13,000) (13,000) (13,000) (3,900)
Capital, 12/31/ Year 2 133,380 144,300 132,860 338,000
Year 2 Net loss -
Salary 26,000 - 13,000 3,900
Interest – 10% x beginning capital 11,830 8,060 12,610 32,500
5:2:3 (9,750) (3,900) (5,850) (19,500)
28,080 76,700 19,760 52,000
90. d - refer to No. 89
91. c - refer to No. 89
92. a - refer to No. 89
93. The capital accounts of the partnership of Newton, Sharman, and Jackson on June 1, 20x4, are
presented, along with their respective profit and loss ratios:
Newton………………………………………………………………P139,200 1/2
Sharman…………………………………………………………….. 208,800 1/3
Jackson……………………………………………………………… 96,000 1/6
P444,000
On June 1, 20x4, Sidney was admitted to the partnership when he purchased, for P132,000, a
proportionate interest from Newton and Sharman in the net assets and profits of the partnership.
As a result of this transaction, Sidney acquired a one-fifth interest in the net assets and profits of the
firm. Assuming that implied goodwill is not to be recorded, what is the combined gain realized by
Newton and Sharman upon the sale of a portion of their interests in the partnership to Sidney?
a. P -0- c. P62,400
b. P43,200 d. P82,000
Solutions/Answers:
93. b
Amount paid P132,000
Less: Book value of interest acquired:
(P444,000 x 1/5) 88,800
Excess/Gain by Newton and Sharman P 43,200
Use the following information for questions 94 and 95:
A partnership has the following capital balances:
Partners Capital Balance
William (40% of gains and losses) . . . . . . . . . . . . . . . . . P 220,000
Jennings (40%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 160,000
Bryan (20%)…………………………………………………. 110,000
94. Darrow invests P270,000 in cash for a 30 percent ownership interest. The money goes to the original
partners. Goodwill is to be recorded. How much goodwill should be recognized, and what is
Darrow’s beginning capital balance?
a. P410,000 and P270,000 c. P140,000 and P189,000
b. P140,000 and P270,000 d. P410,000 and P189,000
Solutions/Answers:
94. a - Admission by purchase. The implied value of the company is P900,000 (P270,000/30%). Since
the money is going to the partners rather than into the business, the capital total is P490,000 before
realigning the balances. Hence, goodwill of P410,000 must be recognized based on the implied
value (P900,000 – P490,000). This goodwill is assumed to represent unrealized business gains and is
attributed to the original partners according to their profit and loss ratio. They will then each convey
30 percent ownership of the P900,000 partnership to Darrow for a capital balance of P270,000.

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BATCH 47 – May 2024 CPA Licensure Examination
AFAR Preweek
Formal presentation:
Amount paid ………………………….………….. P 270,000 / 30% P900,000 (100%)
Less: BV of interest acquired –
(P220,000 + P160,000 + P110,000) x 30%….... 147,000 490,000 (100%)
Excess……………………………………………….. P123,000
Divided by: Interest acquired………………….. 30%
Goodwill or revaluation of Asset …………….. P410,000 P410,000 (100%)
The entry would be as follows;
Goodwill/Asset 410,000
Williams (40%) 164,000
Jennings (40%) 164,000
Bryan (20%) 82,000
Williams [P220,000 + (P410,000 x 40%)] x 30% 115,200
Jennings [P160,000 + (P410,000 x 40%)] x 30% 97,200
Bryan [P110,000 + (P410,000 x 20%)] x 30% 57,600
Darrow 270,000
95. Darrow invests P250,000 in cash for a 30 percent ownership interest. The money goes to the business.
No goodwill or other revaluation is to be recorded. After the transaction, what is Jennings’s capital
balance?
a. P160,000 c. P170,200
b. P168,000 d. P171,200
Solutions/Answers:
95. d - Admission by investment. Since the money goes into the business, total capital becomes
P740,000 (P490,000 + P250,000). Darrow is allotted 30 percent of this total or P222,000. Because
Darrow invested P250,000, the extra P28,000 is assumed to be a bonus to the original partners.
Jennings will be assigned 40 percent of this extra amount or P11,200. This bonus increases
Jennings’ capital from P160,000 to P171,200.
Formal presentation:
Total agreed capital* (same with total contributed capital)…... P 740,000
Less: Total contributed capital (P220,000 + P160,000 +
P110,000 + P250,000)..............…………………………....... 740,000
Difference .......................................………………..…………………... P 0
*since no goodwill or revaluation is allowed total agreed is the same with
total contributed capital.
The new partner’s contributed capital is equal to the agreed capital, the difference of P3,600
in (a) is attributable to revaluation (goodwill) to old partners:
Darrow’s contributed capital………………………………………… P 250,000
Darrow’s agreed capital: (P740,000 x 30%)……………………...... 222,000
Bonus to old partners ........................……………………………….. P 28,000
Jennings: [P160,000 + (P28,000 x 40%)] = P171,200
96-97 - None
98. The condensed balance sheet of the partnership of China and Japan as of
December 31, 20x8 showed the following:
Total assets… ........................................................ P200,000
Total liabilities………………………………………… 40,000
China, capital………..……………………………… 80,000
Japan, capital……….……………………………… 80,000
On this date, the partnership was dissolved and its net assets were transferred to a newly-formed
corporation. The fair value of the assets was P24,000 more than the carrying value on the firm’s
books. Each of the partners was issued 10,000 shares of the corporation’s P1 par common stock.
Immediately after affecting the transfer of the net assets, and the issuance of stocks, the
corporation’s additional paid-in capital account would be credited for:
a. P136,000 c. P154,000
b. 140,000 d. 164,000
99. How does partnership accounting differ from corporate accounting?
a. The matching principle is not considered appropriate for partnership accounting.
b. Revenues are recognized at a different time by a partnership than is appropriate for a
corporation.
c. Individual capital accounts replace the contributed capital and retained earnings
balances found in corporate accounting.
d. Partnerships report all assets at fair value as of the latest balance sheet date.

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ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY
BATCH 47 – May 2024 CPA Licensure Examination
AFAR Preweek
100. Which of the following statements is correct with regard to drawing accounts that may be used
bya partnership?
a. Drawing accounts are closed to the partners’ capital accounts at the end of the
accountingperiod
b. Drawing accounts establish the amount that may be taken from the partnership by a
partnerin a given time period
c. Drawing accounts are similar to Retained Earnings in a corporation
d. Drawing accounts appear on the balance sheet as a contra-equity account
101. Which of the following would be least likely to be used as a means of allocating profits among
partners who are active in the management of the partnership?
a. Salaries
b. Bonus as a percentage of net income before the bonus
c. Bonus as a percentage of sales in excess of a targeted amount
d. Interest on average capital balances
102. The dissolution of a partnership occurs
a. Only when the partnership sells its assets and permanently closes its books
b. Only when a partner leaves the partnership
c. At the end of each year, when income is allocated to the partners
d. Only when a new partner is admitted to the partnership
e. When there is any change in the individuals who make up the partnership
103. Which of the following results in dissolution of a partnership?
a. contribution of additional assets to the partnership by an existing partner
b. receipt of a draw by an existing partner
c. winding up of the partnership and the distribution of remaining assets to the partners
d. withdrawal of a partner from a partnership
104. In a simple partnership liquidation, the last remaining cash distribution should be made
accordingto the ratio of
a. the individual partner’s profit and loss agreement.
b. the individual partner's capital accounts, increased by partner loans to thepartnership.
c. the individual partner’s capital accounts, increased by partnership loans to the
partners and decreased by partner loans to the partnership.
d. the individual partner’s capital accounts, decreased by partnership loans to the
partners and increased by partner loans to the partnership.
105. If a partner with a debit capital balance during liquidation is personally solvent, the
a. partner must invest additional assets in the partnership.
b. partner's debit balance will be allocated to the other partners.
c. other partners will give the partner enough cash to absorb the debit
balance.
d. partnership will loan the partner enough cash to absorb the debit balance.
Corporate Liquidation
Items 106 to 108 are based on the following information:
Orville Company recently petitioned for bankruptcy and is now in the process of preparing a statement
of affairs.
The carrying values and estimated fair values of the assets of Orville Company are as follows:

Carrying Value Fair Value

Cash . . . . . . . . . . . . . . . . . . . . . . . . P 20,000 P 20,000
Accounts Receivable . . . . . . . . . . 45,000 30,000
Inventory . . . . . . . . . . . . . . . . . . . . 60,000 35,000
Land . . . . . . . . . . . . . . . . . . . . . . . . 75,000 70,000
Building (net) . . . . . . . . . . . . . . . . . 180,000 100,000
Equipment (net) . . . . . . . . . . . . . . 170,000 80,000
Total . . . . . . . . . . . . . . . . . . . . . . . . P 550,000 P335,000

Debts of Orville are as follows:

Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 60,000
Wages Payable(all have priority) . . . . . . . . . . . . . . . . . . . . . . . . 10,000
Taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000
Notes payable (secured by receivable and inventory). . . 120,000
Interest on Notes Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000
Bonds Payable (secured by land and building) . . . . . . . . . . 150,000
Interest on bonds Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,000
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 363,000

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ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY
BATCH 47 – May 2024 CPA Licensure Examination
AFAR Preweek
106. What is the total amount of unsecured claims?
a. P 93,000 c. P121,000
b. P113,000 d. P126,000
107. What estimated amount will be available for general unsecured creditors upon liquidation?
a. P28,000 c. P113,000
b. P93,000 d. P121,000
108. What is the estimated dividend percentage?
a. 23% c. 77%
b. 93% d. 68%
Solutions/Answers:
106. c – P60,000 + [(P120,000 + P6,000) – (P30,000 + P35,000) = P121,000
107. b - P20,000 + P80,000 + [P170,000 – (P150,000 + P7,000)] = P113,000 – (P10,000 + P10,000)
= P93,000
Note: The lowest priority is given to claims by General Unsecured Creditors (i.e., without priority). These creditors
are paid only after secured creditors and unsecured creditors with priority are satisfied to the extent of any
legal limits. Often the general unsecured creditors receive less than the full amount of their claim. The amounts
to be paid to these creditors are usually stated as a percentage of total claim, such as 77 cents per peso
(refer to No. 107), or whatever the specific percentage is. The payment to general unsecured creditors is often
termed a “dividend”.

108. c – P93,000/P121,000 = 77% rounded. Refer to “Note” in No. 107

109. When is a “statement of affairs” used?
a. Only in liquidations.
b. Only in reorganizations.
c. In both liquidations and reorganizations.
d. In preparing a statement of realization and liquidation.
e. None of the above.
110. In a “statement of affairs,”
a. Assets pledged with partially secured creditors are shown on the asset side of the
statement and as a deduction on the liability side of the statement.
b. Assets pledged with fully secured creditors are shown only on the liability side of the
statement.
c. Liabilities owed to fully secured creditors are shown only on the asset side of the
statement.
d. Liabilities owed to partially secured creditors are shown on the asset side of the
balance sheet and as a deduction on the liability side of the statement.
e. None of the above.
Home Office and Branch Accounting
111. Selected information from the trial balances for the home office and the branch of Gerty
Company at December 31, 20x4 is provided. These trial balances cover the period from December
1 to December 31, 20x4. The branch acquires some of its merchandise from the home office (the
branch is billed at 20% above the cost to the home office and some of it from outsiders. Differences
in the shipments accounts result entirely from the home office policy of billing the branch at 20%
above cost.
Home Office Branch
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 60,000 P 30,000
Shipments to branch . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,000 -0-
Shipments to branch – loading / Unrealized profit
in branch inventory . . . . . . . . . . . . . . . . . . . . . . . . 3,600 -0-
Purchases (outsiders) . . . . . . . . . . . . . . . . . . . . . . . . 35,000 5,500
Shipments from home office . . . . . . . . . . . . . . . . . . -0- 9,600
Merchandise inventory, December 1, 20x4 . . . . . . . . 20,000 15,000
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,000 6,000
Additional information:
Merchandise inventory, December 31, 20x4:
Home office……………………………………………………………P20,000
Branch………………………………………………………………… 10,000
How much of the December 1, 20x4 inventory of the branch represents purchases from outsiders
and how much represents goods acquired from the home office?
Outsiders Home Office Outsiders Home Office
a. P -0- P15,000 c. P12,000 P 3,000
b. P5,000 P10,000 d. P 3,000 P12,000

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ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY
BATCH 47 – May 2024 CPA Licensure Examination
AFAR Preweek
Solutions/Answers:
111. d
Billed Price Cost Allowance
Merch. Inventory, 12/31/20x4 *P12,000 P10,000 P 2,000
Shipments 9,600 8,000 1,600
Cost of Goods Available for Sale P 3,600
*P2,000 / 20% = P10,000 + P2,000 = P12,000.
Merchandise inventory, December 1, 20x4…………………………………P 15,000
Less: Shipments from home office at billed price*………………………… 12,000
Merchandise from outsiders……………………………………………………P 3,000
Used the following information for question 112 and 113:
The Best Corporation operates a branch in Dagupan City. The home office ships merchandise to the
branch at 125 percent of its cost. Selected information from the December 31, 20x4 trial balance are
as follows:
Home Office Branch
Books Books
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 600,000 P300,000
Shipments to branch . . . . . . . . . . . . . . . . . . . . 200,000
Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 350,000
Shipments from home office . . . . . . . . . . . . . . - 250,000
Inventory, January 1, 20x4 . . . . . . . . . . . . . . . . 100,000 40,000
Allowance for overvaluation of branch
inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58,000
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120,000 50,000
Inventory at December 31, 20x4: Home office , P30,000; Branch , P60,000
112. The realized profit on sales made by the branch or overvaluation of cost of goods sold is:
a. P40,000 c. P46,000
b. P 86,000 d. None of the above.
Solutions/Answers:
112. c
125% 100% 25%
Billed Price Cost Allowance
Merchandise inventory, 1/1/x4 40,000
Shipments 250,000
Cost of goods available for sale 290,000
Less: MI, 12/31/x4 (Cost -P60,000 x 80%) 60,000
Overvaluation of CGS(230,000x 25/125) 230,000 46,000*

113. The combined net income of the home office and the branch after adjustment is:
a. P226,000 c. P496,000
b. P326,000 d. P500,000
Solutions/Answers:
113. b – P326,000
Sales (P600,000 + P300,000) ……………………………………… P 900,000
Less: Cost of goods sold
Merchandise inventory, beg.
[P100,000 + (P40,000/1.25)] ……………………….…… P 132,000
Add: Purchases…………………………………………… 350,000
Cost of goods available for sale……………………… P 482,000
Less: MI, ending [P30,000 + (P60,000/1.25)] ………… 78,000 404,000
Gross profit……………………………………………………… P 496,000
Less: Expenses (P120,000 + P50,000)………………………. _ 170,000
Net Income …………………………………………………. P 326,000
114. The Brooke Corporation has two branches, Branch P and Branch Q. The home office shipped
P80,000 in merchandise to Branch P and prepaid the freight charges of P500. A short time
thereafter, Branch P was instructed to ship this merchandise to Branch Q at a prepaid freight cost
of P700. Freight charges for this merchandise normally cost P800 when shipped from the home
office directly to Branch Q. Compute the excess freight on transfers of merchandise:
a. P700 c. P500
b. P800 d. P400

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ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY
BATCH 47 – May 2024 CPA Licensure Examination
AFAR Preweek
Solutions/Answers:
114. d
Freight actually paid by:
Home Office……………………………………………………………………..P 500
Branch P………………………………………………………………………….. 700
Total………………………………………………………………………………..P 1,200
Less: Freight that should be recorded…………………………………………….. 800
Excess freight……………………………………………………………………………P 400
115. The Home Office ledger account in the accounting records of a branch is best described as:
a. A revenue account
b. An equity account
c. A deferred revenue account
d. None of the foregoing
116. Which of the following statements correctly describes the relationship between the accounting
systems used for a sales agency when compared to the accounting systems used for a branch
office:
a. The sales agency accounting system cannot be set up to measure the profitability of the
sales agency but the branch accounting system can be set up to measure the profitability
of the branch
b. The sales agency accounting system can be set up to measure the profitability of the sales
agency but the branch accounting system cannot be set up to measure the profitability
ofthe branch
c. The accounting system of the sales agency is not usually considered a separate segment of
the company’s entire accounting system but the accounting system of the branch office is
usually considered a separate segment of the company’s entire accounting system
d. None of the above
Not-for-Profit Organization
117. Super Seniors is a not-for-profit organization that provides services to senior citizens. Super employs a
full-time staff of 10 people at an annual cost of P150,000. In addition, two volunteers work as a
part-time secretaries replacing last year’s full-time secretary who earned P10,000. Services
performed by other volunteers for special events had an estimated value of P15,000. These
volunteers were employees of local businesses, and they received small-value items for their
participation. What amount should Super report for salary and wage expenses related to the
above items?
a. P150,000 c. P165,000
b. P160,000 d. P175,000
118. Private College is sponsored by a religious group. Volunteers from this religious group regularly
contribute their skilled services to Private and are paid nominal amounts to cover their commuting
costs. If Private did not receive these volunteer services, it would have to purchase similar services.
During 2020, the total amount paid to these volunteers was P12,000. The gross value of services
performed by them, as determined by reference to lay equivalent salaries, amounted
toP300,000. What amount should Private record as expenses in 2020 for these volunteers’ services?
a. P312,000 c. P 12,000
b. P300,000 d. P 0
119. A not-for-profit organization receives two gifts. One is P80,000 and is restricted for paying salariesof
teachers who help children learn to read. The other is P110,000, which is restricted for
purchasing playground equipment. The organization spends both amounts properly at the end
of this year. The organization records no depreciation this period, and it has elected to view the
equipment as having a time restriction. On the statement of activities, what is reported for
unrestricted net assets?
a. An increase of P80,000 and a decrease of P80,000.
b. An increase of P190,000 and a decrease of P190,000.
c. An increase of P190,000 and a decrease of P80,000.
d. An increase of P80,000 and no decrease.
120. Mercy for Philippines, a private not-for-profit health-care entity located in Sampaloc, Manila, charged a
patient of P8,600 for services. It actually billed this amount to the patient’s third-partypayor. The third-party
payor submitted a check for P7,900 with a note stating that “the reasonable amount is paid in full per
contract.” Which of the following statements is true?
a. The patient is responsible for paying the remaining P700.
b. The health-care facility will rebill the third-party payor for the remaining P700.
c. The health-care facility recorded the P700 as a contractual adjustment that it will not collect.
d. The third-party payor retained the P700 and will convey it to the health-care facility at thestart of
the next fiscal period.

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ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY
BATCH 47 – May 2024 CPA Licensure Examination
AFAR Preweek
121. A voluntary health and welfare organization receives a gift of new furniture having a fair value of P2,100.
The group then gives the furniture to needy families following the Ondoy flood. How should the
organization record receipt and distribution of this donation?
a. Make no entry.
b. Recognize public support of P2,100 and community assistance expense of P2,100.
c. Recognize revenue of P2,100.
d. Recognize revenue of P2,100 and community expenditures of P2,100.
122. AAA take a leave of absence from his job to work full-time for a voluntary health and welfare
organization for six months. AAA fills the position of finance director, a position that normally paysP88,000
per year. AAA accepts no remuneration for his work. How should these donated services be recorded?
a. As public support of P44,000 and an expense of P44,000.
b. As public support of P44,000.
c. As an expense of P44,000.
d. They should not be recorded.
123. A VHWO has the following expenditures:
Research to cure disease ...................................................................... P 60,000
Fund-raising costs ................................................................................................ 70,000
Work to help disabled ................................................................................ 40,000
Administrative salaries ......................................................................................... 90,000
How should the organization report these items?
a. Program service expenses of P100,000 and supporting service expenses of P160,000.
b. Program service expenses of P160,000 and supporting service expenses of P100,000.
c. Program service expenses of P170,000 and supporting service expenses of P90,000.
d. Program service expenses of P190,000 and supporting service expenses of P70,000.
Joint Arrangements/Joint Operator’s Point of View - Incorporated Joint Operation
Joint Arrangements/Joint Operator’s Point of View - Incorporated Joint Operation
124. Cash contributed to a joint operation was used to purchase Equipment (P100,000) and raw
materials (P70,000). The following entry would be part of the overall recording of these transactions:
a. Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,000
Raw materials. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70,000
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170,000
b. Work in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170,000
Joint operation capital . . . . . . . . . . . . . . . . 170,000
c. Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170,000
Contribution to joint operation . . . . . . . . . . 170,000
d. Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170,000
Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,000
Raw materials . . . . . . . . . . . . . . . . . . . . . . . . . 70,000
Answer: A
125. Three joint operators are involved in a joint operation that manufactures ships chandlery. At the
beginning of the year the joint operation held P50,000 in cash. During the year the joint operation
incurred the following expenses: Wages paid P20,000, Overheads accrued P10,000. Additionally,
creditors amounting to P40,000 where paid and the joint operators contributed P15,000 cash each to
the joint operation. The balance of cash held by the joint operation at the end of the year is:
a. P 5,000 c. P 35,000
b. P25,000 d. P 75,000
Answer: C – [P50,000 – (P20,000 + P40,000) + P45,000] = P35,000
126. XX Company and YY Company formed a joint operation and share in the output of the joint operation
60:40. The joint operation paid a management fee of P20,000 to XX Company during the current period.
The cost to XX Company of supplying the management service was P14,000. XX Company records the
management fee revenue as follows:
a. Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,000
Free revenue . . . . . . . . . . . . . . . . . . . . . . . . . 20,000
b. Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,000
Free revenue . . . . . . . . . . . . . . . . . . . . . . . . . 14,000
c. Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,000
Free revenue . . . . . . . . . . . . . . . . . . . . . . . . . 12,000
d. Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,000
Free revenue …. . . . . . . . . . . . . . . . . . . . . . 8,000
Answer: A
127. A joint operation holds Equipment with a carrying amount of P1,200 000. The two joint operators
participating in this arrangement share control equally. They also depreciate Equipment using the

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straight-line method. The Equipment has a useful life of 5 years. At reporting date each joint operator
must recognize the following entry, in relation to depreciation, in its records:
a. Depreciation, P240,000 c. Investment in joint operation, P240,000
b. Depreciation, P120,000; d. Assets in joint operation, P120,000.
Answer: B – (P1,200,000/5 years = P240,000 x 50% share = P120,000)
128. Three joint operators agree to an arrangement in which they have an equal share in an
agricultural joint operation. The work undertaken in setting up the joint operation cost P300 000
and each operator contributed in cash. Each operator will need to recognize the following
accounting entry:
a. Cost of joint operation product……………………………………………300,000
Cash…………………………………………………………………………. 300,000
b. Inventory in JO…………………………………………………………………100,000
Cash…………………………………………………………………………. 100,000
c. Cash in JO……………………………………………………………………...300,000
Cash…………………………………………………………………………. 300,000
d. Cash in JO………………………………………………………………………100,000
Cash…………………………………………………………………………. 100,000
Answer: D – P300,000 x 1/3 = P100,000
Use the following information for questions 129 and 130:
AA and BB have established the AB Joint Operation. AA has a 60% interest in the joint operation and
BB has a 40% interest.
AA contributed an asset with a carrying amount of P90,000 and a fair value of P120,000 and BB agreed
to provide technical services to the joint operation over the first two years of operations. The fair value
of the technical services was agreed to be P80,000 and the cost to provide the services was estimated
at P65,000 at the inception of the joint operation.
129. As part of its initial contribution, the journal entry for joint operator AA:
a. Debit against the Services Receivable in JO account of P32,000;
b. Debit against the Plant in JO account of P54,000;
c. Credit against the Plant of P120,000;
d. Credit against the Gain on Sale of Plant of P18,000.
Answer: B
The entry in the records of joint operator AA (60%) in relation to Plant assets is:
Plant assets in JO at BV (60% x P90,000)……………………… 54,000
??....................................................................................... ??
??........................................................................... ??
Gain on sale of building………………………………. 18,000
Plant assets at book value……………………………. 90,000
130. As part of its initial contribution entry BB will record a:
a. Debit against the Services Receivable in JO account of P32,000;
b. Debit against the Plant in JO account of P36,000;
c. Credit against the Obligation to JO of P39,000;
d. Credit against the Gain on Provision of Services of P6,000.
Answer: C
The entry in the records of joint operator BB (40%) in relation to Plant assets is:
Plant assets in JO at FV (40% x P120,000)…………………… 48,000
Obligation to JO at BV (for services, since he is
the contributor), 60%* x P65,000………………... 39,000
Gain on provision of services [60%* x (P80,000
- P65,000)…………………………. …………………. 9,000
Government Accounting – GAM (review journal entries in AFAR-21)
131. Agency DDD’s (incurrence) obligation of rent for three (3) years amounted to P90,000. The entry to
record thistransaction would be:
a. Rent expense ................................................................................................. 90,000
Cash – National Treasury, MDS…………………….……… 90,000
b. Prepaid Rent……………………………………………………………………… 90,000
Cash – National Treasury, MDS……………………………. 90,000
c. Rent expense…………………………………………………………………… 30,000
Cash – National Treasury, MDS………………………………. 30,000
d. Memorandum entry in RAODMOOE

132. Using the same information in the previous number, Agency DDD’s paid rent for three (3) years
amounted to P90,000. The entry to record this transaction would be:

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a. Rent expense……………………………………………………………………90,000
Cash – National Treasury, MDS……………………………. 90,000
b. Prepaid Rent………………………………………………………………90,000
Cash – National Treasury, MDS……………………………. 90,000
c. Rent expense………………………………………………………………30,000
Cash – National Treasury, MDS…………………………… 30,000
d. Memorandum entry in RAODMOOE

133. Agency KKK have an (incurrence) obligation for equipment per purchase order amounting to
P200,000. The entry for this transaction would be:
a. Office equipment 200,000
Accounts payable 200,000
b. Office Equipment 200,000
Cash-NT-MDS 200,000
c. Office equipment 200,000
Subsidy Income from National Government 200,000
d. Memorandum entry in RAODCO
134. What is the entry to record the receipt of the NCA for the purchase of a new motor vehicle
amounted to P500,000 (assuming the cost of the old motor vehicle amounted to P300,000 at 50%
depreciated)?
a. Memo entry
b. Cash- MDS…………………………………………………………300,000
Subsidy from National Government…………………… 300,000
c. Cash-MDS…………………………………………………………450,000
Subsidy from National Government…………………… 450,000
d. Cash-NT-MDS…………………………………………………… 500,000
Subsidy from National Government…………………… 500,000
Accounting for SME – Joint Arrangements/Joint Venture – A FAR-1 3
Insurance Contracts / Accounting – AFAR-20
Guidelines comparing PFRS versus SME – AFAR-23
Job Order Costing
135. Blue Beach Industries has two production departments, ABC and XYZ and uses a job order cost
system. In determining manufacturing costs, Blue Beach applies manufacturing overhead to
production orders based on direct labor cost using the departmental rates predetermined at the
beginning of the year based on the annual budget. The 2021 budget for the two departments are
as follows:
ABC XYZ
Direct materials…………………………………………………………P 630,000 P 90,000
Direct labor……………………………………………………………… 180,000 720,000
Manufacturing overhead……………………………………………… 540,000 360,000

Actual material and labor costs for Job No. 678 during 2011 were as follows:
Direct materials……………………………………………………………P 22,500
Direct labor:
Department ABC……………………………………………………. 7,200
Department XYZ……………………………………………………..10,800
What is the total manufacturing cost associated with Job No. 678 for 2011?
a.P45,000 c. P58,500
b.P49,500 d. P67,500
136.Kaden Corp. has two divisions – Ace and Bow. Ace has a job order cost system and manufactures
machinery on special order for unrelated customers. Bow has a process cost system and
manufactures Product Zee which is sold to Ace as well as to unrelated customers. Ace’s work-in-
process account at April 30, 2012, comprised the following:
Balance, April 1…………………………………………………………………………P 24,000
Direct materials (including transferred-in costs)…………………………………. 80,000
Direct labor…………………………………………………………………………………60,000
Factory overhead…………………………………………………………………………54,000
Transferred to finished goods………………………………………………………… (200,000)
Ace applies factory overhead at 90% of direct labor cost. Job Nos. 125, which was the only job in
process at April 30, has been charged with factory overhead of P4,500. Bow’s cost to manufacture
Product Zee is p3.00 per unit, which is sold to Ace for P5.00 per unit and to unrelated customers for
P6.00 per unit.
Direct materials (including transferred-in costs) charged to Job No. 125 amounted to:

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a. P5,000 c. P13,500
b. P8,500 d. P18,000
137. Simpson Company manufactures electric drills to the exacting specifications of various customers.
During April 2012, Job 403 for the production of 1,100 drills was completed at the following costs
per unit:

Direct materials…………………………………………P 10
Direct labor……………………………………………… 8
Applied factory overhead……………………………. 12
P 30
Final inspection of Job 403 disclosed 50 defective units and 100 spoiled units. The defective drills
were reworked at a total cost of P500 and the spoiled drills were sold for P1,500. What would be
the unit cost of the good units produced on Job 403?
a. P33 c. P30
b. P32 d. P29

138. Bagley Company has two service departments and two producing departments. Square footage
of space occupied by each department follows:
Custodial Services 1,000 ft.
General Administration 3,000 ft.
Producing Department A 8,000 ft.
Producing Department B 8,000 ft.
Total 20,000 ft.
The department costs of Custodial Services are allocated on a basis of square footage of space.
If these costs are budgeted at P38,000 during a given period, the amount of cost allocated to
General Administration under the direct method would be
a. P15,200. c. P6,000
b. P 7,125. d. P 0
139. Which of the following organizations would be most likely to use a job-order costing system?
a. the loan department of a bank
b. the check clearing department of a bank
c. a manufacturer of processed cheese food
d. a manufacturer of video cassette tapes
140. When job-order costing is used, the primary focal point of cost accumulation is the
a. department.
b. supervisor.
c. item.
d. job.
141. In a job-order costing system,
a. standards cannot be used.
b. an average cost per unit within a job cannot be computed.
c. costs are accumulated by departments and averaged among all jobs.
d. overhead is typically assigned to jobs on the basis of some cost driver.
142. What is the best cost accumulation procedure to use when many batches, each differing as
toproduct specifications, are produced?
a. job-order
b. Process
c. Actual
d. Standard
143. Which of the following could not be used in job-order costing?
a. Standards
b. an average cost per unit for all jobs
c. normal costing
d. overhead allocation based on the job's direct labor hours
144. Which of the following costing systems allows management to quickly recognize materials, labor,
and overhead variances and take measures to correct them?
Actual Cost System Normal Cost System
a. yes yes
b. yes no
c. no yes
d. no no

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145. Which of the following costing methods of valuation are acceptable in a job-order costing system?
Actual Standard Actual Predetermined
Material Material Labor Overhead
Cost Cost Cost Cost
a. yes yes no yes
b. yes no yes no
c. no yes yes yes
d. yes yes yes yes
146. In a normal cost system, a debit to Work in Process Inventory would not be made for
a. actual overhead.
b. applied overhead.
c. actual direct material.
d. actual direct labor.
147. A company producing which of the following would be most likely to use a price standard for
material?
a. Furniture
b. Philippine Basketball-logo jackets
c. custom-made picture frames
d. none of the above
148. Knowing specific job costs enables managers to effectively perform which of the following tasks?
a. estimate costs of future jobs.
b. establish realistic job selling prices.
c. evaluate job performance.
d. all answers are correct.
149. A job-order costing system is likely to provide better
(1) inventory valuations for financial statements.
(2) control over inventory.
(3) information about ability to accept additional production work.
(1) (2) (3)
a. yes no no
b. no yes yes
c. no no no
d. yes yes yes

Process Costing
150. Barkley Company adds materials at the beginning of the process in department M. Data
concerning the materials used in March 2012 production are as follows:
Units
Work-in-process at March 1………………………………………………………… 16,000
Started during March………………………………………………………………… 34,000
Completed and transferred to next department during
March…………………………………………………………………………… 36,000
Normal spoilage incurred……………………………………………………………… 4,000
Work-in-process at March 31…………………………………………………………. 10,000
Using the weighted-average method, the equivalent units for the materials unit cost calculations
are:
a. 30,000 c. 40,000
b. 34,000 d. 46,000
151. Dex Company had the following production for the month of June:
Units
Work-in-process at June 1……………………………………………………………… 10,000
Started during June…………………………………………………………………….. 40,000
Completed and transferred to finished goods……………………………………. 33,000
Abnormal spoilage incurred………………………………………………………….. 2,000
Work-in-process at June 30……………………………………………………………. 15,000
Materials are added at the beginning of the process. As to conversion cost, the beginning work-
in-process was 70% completed and the ending work-in-process was 60% completed. Spoilage is
detected at the end of the process. Using the weighted-average method, the equivalent units
for June, with respect to conversion cost, were:
a. 42,000 c. 45,000
b. 44,000 d. 46,000

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152. In its July 2012 production, Gage Corp. which does not use a standard cost system, incurred total
production costs of P800,000, of which Gage attributed P30,000 to normal spoilage and P20,000 to
abnormal spoilage. Gage should account for this spoilage as:
a. Inventoriable cost of P30,000 and period cost of P20,000.
b. Period cost of P30,000 and inventoriable cost of P20,000.
c. Inventoriable cost of P50,000.
d. Period cost of P50,000.
153. Read, Inc. instituted a new process in October 2008. During October, 10,000 units were started in
Department A. Of the units started, 8,000 were transferred to Department B, and 2,000 remained
in Work-in-Process at October 31, 2008. The Work-in-Process at October 31, 2008, was 100%
complete as to material costs and 50% complete as to conversion costs. Material costs of P27,000
and conversion costs of P36,000 were charged to Department A in October. What were the total
costs transferred to Department B assuming Department A uses weighted-average process
costing?
a. P46,900 c. P56,000
b. P53,600 d. P57,120
154. ABC Company manufactures product X. It adds materials in the beginning of the process in
Department A, which is the first of two stages of its production cycle. The following are the
information concerning the materials used in Department A in September 2010:
Material
Units Costs
Work-in-process, September 1, 2010 4,000 P 2,000
Units started during September 48,000 23,480
Units completed and transferred to next
department B during September 30,000
Using the weighted-average method, the materials cost of the work-in-process in the September
30, 2010 is:
a. P 5,390 c. P11,000
b. P10,780 d. P14,700
155. From the industries listed below, which one is most likely to use process costing in accounting for
production costs?
a. Road builder.
b. Electrical contractor.
c. Newspaper publisher.
d. Automobile repair shop.
156. An equivalent unit of material or conversion cost is equal to
a. The amount of material or conversion cost necessary to complete one unit of
production.
b. A unit of work-in-process inventory.
c. The amount of material or conversion cost necessary to start a unit of production in
work-in-process.
d. Fifty percent of the material or conversion cost of a unit of finished goods inventory(assuming a
linear production pattern).
157. The percentage of completion of the beginning work-in-process inventory should be consideredin the
computation of the equivalent units of production for which of the following methods of process
costing?
FIFO Weighted Average
a. Yes No
b. Yes Yes
c. No Yes
d. No No
158. In a given process costing system, the equivalent units of production are computed using the
weighted-average method. With respect to conversion costs, the percentage of the completion
for the current period only is included in the calculation of the
Beginning Work-in- Ending Work-in-
Process inventory Process inventory
a. No No
b. No Yes
c. Yes No
d. Yes Yes

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Joint Products
159. Helen Corporation manufactures products W, X, Y, and Z from a joint process.
Sales Value at If Process Add’l Further Sales
Product Units Produced Split-off Costs Value
W 6,000 P 80,000 P 7,500 P 90,000
X 5,000 60,000 6,000 70,000
Y 4,000 40,000 4,000 50,000
Z 3,000 20,000 2,500 30,000
18,000 P200,000 P 20,000 P240,000
Assuming the total joint costs of P160,000 were allocated using the relative-sales-value at split-off
approach, what were the joint costs allocated to its product?
W X Y Z
a. P40,000 P 40,000 P 40,000 P 40,000
b. 53,333 44,444 35,556 26,667
c. 60,000 46,667 33,333 20,000
d. 64,000 48,000 32,000 16,000
160. Teresa Company manufactures products S and T from a joint process. The sales value at split-off was
P50,000 for 6,000 units of Product S and P25,000 for 2,000 units of product T. Assuming that the portion of the
total joint costs properly allocated to Product S using the relative-sales-value atsplit-off approach was
P 30,000, what were the total joint costs?
a. P 40,000 c. P 45,000
b. 42,000 d. 60,000
By-Products
161. The following information pertains to a by-product called Moy;
Sales in 20x3 ............................................................................................. 5,000 units
Selling price per unit… ......................................................................... P 6
Selling costs per unit………………………………………………. 2
Processing costs…………………………………………………… 0
Inventory of Moy was recorded at net realizable value when produced in 20x2. No units of Moy were
produced in 20x3. What amount should be recognized as profit on Moy’s 20x3 sales?
a. P 0 c. P 20,000
b. 10,000 d. 30,000
162. Joint costs are used for
a. Setting the selling price of a product
b. Determining whether to continue producing an item
c. Controlling costs
d. Determining inventory cost for accounting purposes
163. Which of the following components of production are allocable as joint costs when a single
manufacturingprocess produces several salable products?
a. Materials, labor, and overhead
b. Materials and labor only
c. Labor and overhead only
d. Overhead and materials only
164. At the split-off point, products may be immediately salable or may require further processing.
Which of thefollowing products have both of these characteristic?
By-products Joint Products
a. No No
b. No Yes
c. Yes No
d. Yes Yes
165. Which of the following is often subject to further processing in order to be salable?
By-products Scrap
a. No No
b. No Yes
c. Yes Yes
d. Yes No
166. For purposes of allocating joint costs to joint products, the relative sales value at split-off method
could beused in which of the following situation?
No Costs Beyond Costs Beyond
Split-off Split-off
a. Yes Yes
b. Yes No
c. No Yes
d. No No

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167. The characteristic which is most often used to distinguish a product as either a joint product
or a by-product is the
a. Amount of labor used in processing the product
b. Amount of separate product costs that are incurred in processing
c. Amount (i.e., weight, inches, etc.) of the product produced in the
manufacturing process.
d. Relative sales value of the products produced in the process.
168. When should process costing techniques be used in assigning costs to products?
a. If the product is manufactured on the basis of each order received.
b. When production is only partially completed during the accounting
period.
c. If the products is composed of mass-produced homogenous units.
d. Whenever standard costing techniques should not be used.
169. Which of the following is a characteristic of a process costing system?
a. Work-in-process inventory is restated in terms of completed units.
b. Costs are accumulated by order.
c. It is used by a company manufacturing custom machinery.
d. Standard costs are not applicable.
Service Cost Allocation
170. Bea Corporation distributes service department overhead costs directly to producing
departments withoutallocation to the other service department. Information for the month of June
20x3 is as follows:
Service Department
Maintenance Utilities
Overhead costs incurred P 20,000 P 10,000
Service provided to departments:
Maintenance 10%
Utilities 20%
Producing - A 40% 30%
Producing - B 40% 60%
Totals 100% 100%
The amount of maintenance department costs distributed to Producing – A Department for June
20x3 was
a. P 8,000 c. P 10,000
b. 8,800 d. 11,000
Activity-Based Costing
171. Cadott Manufacturing produces three products. Production and cost information show the
following:
Model X Model Y Model Z
Units produced 1,000 3,000 6,000
Direct Labor hours 2,000 1,000 2,000
Number of inspections 20 30 50
Inspection costs totaled P50,000. Using direct labor hours as the allocation base, inspections
costsallocated to each unit of Model X would be:
a. P 5.00 c. P20.00
b. 10.00 d. Some other answer
Answer: c – P50,000 x (2,000/5,000) = P20,000 / 1,000 units = P20.
172. Cadott Manufacturing produces three products. Production and cost information show the following:
Model X Model Y Model Z
Units produced 1,000 3,000 6,000
Direct labor hours 2,000 1,000 2,000
Number of inspections 20 30 50
Inspection costs totaled P50,000. Using ABC, inspections costs allocated to each unit Model Y
would be:
a. P 3.33 b. P5.00 c. P10.00 d. Some other answer
Answer: b – P50,000 x (30/100) = P15,000 / 3,000 units = P5.
Insurance Contracts
173. Entity A writes a single policy for a P100,000 premium and expects claims to be made of P60,000 in
year 4. At the time of writing the policy, there are commission costs of P20,000. Assume a discount rate
of 3% risk-free. The entity says that if a provision for risk and uncertainty were to be made, it would
amount to P25,000, and that this risk would expire evenly over years 2,3, and 4. Under existing policies,
the entity would spread the premiums, the claims expense, and the commissioning costs over the first
two years of the policy. Investment returns in years 1 and 2 are P2,000 and P4,000 respectively. What
is the profit in year 1 and 2, using the matching and deferral approach in years 1 and 2?
Year 1 Year 2 Year 1 Year 2
a. P12,000 P14,000 c. P26,000 P 0
b. P10,000 P10,000 d. 0 P26,000

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Solution:
Year 1: P50,000 – P30,000 – P10,000 + P2,000 = P12,000
Year 2: P50,000 – P30,000 – P10,000 + P4,000 = P14,000
174. An insurance contract can contain both deposit and insurance elements. An example might be a
reinsurance contract where the cedent receives a repayment of the premiums at a future time if
there are no claims under the contract. Effectively this constitutes a loan by the cedent that will be
repaid in the future. PFRS 4 requires that:
a. Each payment by the cedent is accounted for as a loan advance and as a payment for insurance
cover.
b. The insurance premium is accounted for as a revenue item in the income statement.
c. The premium is accounted for under PAS 18.
d. The premium paid is treated purely as a loan and is accounted for under PAS 39.
175. Which of the following types of insurance contract would probably not be covered by PFRS 4?
a. Motor insurance c. Medical insurance
b. Life insurance d. Pension plan
176. PFRS 4 says that insurance contracts should:
a. Be covered by existing accounting policies during phase one.
b. Comply with the PFRS Framework document
c. Comply with all existing PFRS
d. Be covered by PAS 32 and PFRS9 only
177. PFRS 4 was introduced principally for what reason?
a. To ensure that insurance companies could comply with International Financial Reporting
Standards by 2005.
b. To completely overhaul insurance accounting.
c. As a response to recent scandals within the insurance industry.
d. Because of pressure from the financial services authorities in several countries.
178. Which International Financial Reporting Standard will apply to those contracts that principally transfer
financial risk, such as credit derivative?
a. PAS 32. c. PFRS9
b. PAS 18. d. PFRS 4
179. PFRS 9 requires an entity to separate embedded derivatives that meet certain conditions from the host
insurance contract that contains them. It also requires the embedded derivative to be measured at
fair value and any changes in fair value to go into profit or loss. An insurer need not separate an
embedded derivative that itself meets the definition of an insurance contract. Which of the following
types of embedded derivative would need to be fair-values when embedded in an insurance
contract?
a. The guarantee of minimum interest rates when determining the surrender or maturity value
of a contract.
b. Death benefit linked to equity prices or stock market index payable only on death.
c. Policyholder’s option to surrender the insurance contract for a cash value that was
specified in the original insurance contract.
d. The guarantee of minimum equity returns that is available only if the policyholder decides
to take a life contingent annuity.
180. Insurers can recognize an intangible asset that is the difference between the fair value and book value
of insurance liabilities taken on in business combination. This asset should be accounted for using.
a. PAS 38, Intangible Assets.
b. PFRS 4, Insurance Contracts, only.
c. PAS 16, Property, Plant, and Equipment.
d. Such an asset should not be accounted for until phase two if the insurance contract.

*“The will to persevere is often the difference between failure and success.” *
*The most essential factor is persistence – the determination never to allow your energy or enthusiasm to be dampened by the discouragement that
must inevitably come.”
*If your determination is fixed, I do not counsel you to despair. Few things are impossible to diligence and skill. Great works are performed not by
strength, but perseverance. *
*The difference between the impossible and the possible lies in a person’s determination. *
***Wisdom is the quality that keeps you from getting into situations where you need it.***
***Every man is the architect of his own character. ***
***Patience is bitter but its fruit is sweet. ***
***Great passions, can elevate us to the things that we want to deliver. ***
***Nothing great was ever achieved without determination. ***
***Don’t be discouraged; everyone who got where he is, started where he was. ***
***Impossibilities vanish when a man and his GOD confront a mountain. ***
**The smallest deed is better than the grandest intention**
**You cannot discover new heights in life unless you have the courage to forego other things. **
**Great works are made not by strength but by perseverance. **
**Dignity and humility are the cornerstones of compassion. **
**Mistakes should be reason for us to grow further and strive harder, not as an excuse for discouragement. **
**Faith makes all things possible, love makes things easy and hope makes all things work. **
More success and rewards to all with GOD’s blessings!
GOD BLESS to all as ALWAYS!!!

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