National Federation of Junior Philippine Institute of Accountants

In partnership with
R.G. Manabat & Co. |KPMG
Professional Review and Training Center | PRTC

National Mock Board

Examination 2016
-End of ExaminationThank you for taking the
NFJPIA National Mock Board Examination!

Page 24

Subject:

ADVANCED FINANCIAL ACCOUNTING

AND REPORTING
Page 1

INSTRUCTIONS: Select the best answer for each of the following questions. ALL questions are compulsory and MUST be attempted. Mark
only one answer for each item on the answer sheet provided. Strictly NO
ERASURES ALLOWED. Erasures will render your examination answer sheet
INVALID. Use PENCIL NO. 2 only. GOD BLESS!
Use the following information for the next four items (1-4)
Lucifer Company acquires a 40% ownership interest in Heaven and Earth
partnership at a cost of P300,000,000 and incurs acquisition related cost
P5,000,000. The said partnership constitutes a business and is considered
joint operation (Joint Operation Heaven and Earth) in accordance with
PFRS 11 Joint Arrangements. The contractual arrangement between the
parties establishes that Lucifer has rights to the assets and obligations for
the liabilities that relate to the joint operation in proportion to its ownership interest.

Work in Process, February 1:

Transferred in
Materials
Conversion costs
Current costs:
Transferred in
Materials
Conversion costs

Property, plant
and equipment
Intangible assets
(excluding goodwill)
Accounts receivable
Inventory

250,000,000

Acquisition date
amounts required by the
appropriate
standard for the
entire net assets
270,000,000

100,000,000

125,000,000

Retirement benefit obligations

Accounts Payable
Deferred tax liability

Acquisition date
fair values for
the entire net
assets
270,000,000

P 456,720
P 343,800
P 449,160

P
P3,168,000
P4,942,080

P
?
P1,344,000
P2,052,000

A)
B)
C)
D)

P6,818,880;
P7,135,680;
P6,763,680;
P7,135,680;

P633,600
P878,880
P1,267,200
P1,267,200

66. Total costs transferred to the Storeroom and the amount of WIP, end
in Department 2
P10,359,600;

P932,400

P10,359,600;

P1,160,400

P10,533,840;

P1,160,400

P10,533,840;

P932,400

125,000,000
67. Job order costing would be an appropriate system to account for the
manufacture of

230,000,000

210,000,000

210,000,000

160,000,000

175,000,000

175,000,000

(30,000,000)

(30,000,000)

(120,000,000)

(120,000,000)

A) Aircraft

B) Matches

C) Zippers

D) Cardboard boxes

68. Factory worker fringe benefit costs are usually charged to

(120,000,000)

(60,000,000)

B)PFRS 3

C)PFRS 11

A)WIP inventory
overhead

B) Direct labor C) Admin. Expenses

D)Facto ry

69. Which of the following is usually prepared daily by employees for

each job worked on?
A) Job time tickets

B) Time card

C) Punch card D) Cost control

card

70.State the proper order of partnership liquidation.

1. Lucifer, as a new partner, must apply the principles of what standard/s

for the acquisition of the said interest in a joint operation that constitutes
a business?
A)PAS 28

65. Total costs transferred to Department 2 and the amount of WIP, end
in Department 1

The following are the assets and liabilities of the Joint Operation:

Acquisition date
carrying values
for the entire net
assets

P
P 216,000
P 156,000

D)PAS 28, PFRS 3 and 11

Page 2

I. Outside creditors
II. Owners interests
III. Inside creditors
A) I, II, III
C) II, I, III
B) I, III, II
D) III, I, II

Page 23

2016, to sell 1,000,000 baht on April 30, 2017 at the forward rate.

Spot rate (baht)

11/1/2016

12/31/16

4/30/17

P1.190

P1.180

P1.210

1.199

1.187

1.210

Forward rate (baht)

62. The December 31, 2016 profit and loss statement, foreign exchange
gain or loss on forward contract amounted to:
A) P10,000 gain

B) P10,000 loss

C)P12,000 gain

B) P23,000 loss

C) P30,000 gain

D)P30,000

64. The standard cost per unit of component part K-45 is P4. During the
month 6,000 units of K-45 were purchased at a total cost of P25,200. In
addition, 7,100 units of K-45 were used during the month; however, the
standard quantity allowed for actual production is 6,900 units. The price
variance, if materials are recorded at actual cost (price):
A) P1,200 UF

B) P1,420 UF

C) P1,200 F

B)P69,000,000

C)P64,000,000

D)P72,000,000

4. The net increase (decrease) in the assets of Lucifer, if any

A)P504,000,000

B)P547,000,000

C)P586,000,000

D) P0

Use the following information for the next three items (5-7)
Barry and Oliver formed a partnership to practice law in the Philippines on
January 1, 2015. Their capital contributions were credited to their respective capital accounts as follows: Barry, Capital P600,000; Oliver, Capital
P1,000,000. During the year, the partnership has the following balances
before allocation of income:
Professional Fee Revenue
Costs of services
Operating expenses

Income tax expense

Income tax payable

Kim Manufacturing Company applies process costing in the manufacture of

its best-seller product, glucolite. Manufacturing starts in Department 1
where all materials are added at the start of the process. The good units
are then transferred to Department 2 where all the incremental materials
needed for its completion are added after final inspection. In Department
1, units are inspected at the 100% stage of production while in Department 2, inspection takes place when the units are 90% completed. Department 1 uses FIFO costing while Department 2 uses the weighted average costing. The production data for the month of February show the following:
Department 2

UNITS
Units in process, February 1, 2014
8,000
Work completed
1/5
Units in process, February 28
12,000
Work to be completed
/3
Started in process during February
60,000
Normal spoilage
(4% of units started in process)
Abnormal spoilage
(25% of normal spoilage)

A)P0

Debit
P8,000,000

Credit
P3,550,000
450,000

Mr. Malcom, the partnerships accountant, journalized the following entries

below before allocating the net income to the respective partners:

D) P1,420 F

Use the following information for the next two items (65-66)

Department 1

A)P236,000,000
B)P228,000,000 C)P194,000,000
D) P0
3. The amount of goodwill that Lucifer must recognized on its own financial
statements, if any

D)P12,000 loss

63. On April 30, 2017, foreign exchange gains or loss on forward contract
amounted to (ignoring any discount reversal):
A)P23,000 gain
loss

2. The net amount that Lucifer recognize on its own financial statements

4,000
4/5
7,000
2/7
1,000
500

Page 22

1,680,000

1,680,000

To record the income tax liability at 42% of the taxable income

Professional Fee Revenue
8,000,000
Cost of services
3,550,000
Operating expenses
450,000
Income tax expense
1,680,000
Income summary
2,320,000
To close all the temporary accounts to the income summary account
Both partners have doubts on the competence of Mr. Malcom since she was
already old and is not anymore accomplishing the continuing professional
development. Thus, both partners decided to consult Mr. Damien Dark, dated December 28, 2015, to help them in accounting for income tax and allocation of their net income for the period for a fee of P10,000. Mr. Damien
Dark, on his report dated December 31, 2015, noted the following:
The income tax rate applicable to partnership in the Philippines is the same
income tax rate applicable to Domestic Corporation, which is 30% of taxable
income.
Revenue for income tax purposes for the type of services the partnership is
rendering is taxable only when actually collected. Of the total amount of Pro-

Page 3

fessional Fee Revenue, P150,000 is still yet to be collected.

Operating expenses includes provision for bad debt amounting to P250,000,
which is considered to be non-deductible expense for income tax purposes.
Based on the above information and based on the judgment of both partners, determine the following:
5. Net income for allocation purposes
A)P2,800,000

B)P2,763,000

C)P2,793,000

D)P3,990,000

6. Share in the net income of Barry

A) P1,050,000

B)P1,036,125

C)P1,047,375

D)P1,496,250

C)P2,726,875

D)P2,750,000

7. Ending capital of Oliver

A) P3,493,750

B)P2,745,625

8. The capital balances of partners Beauty and Bestie before admission of

Bebe-Love are P50,000 and P55,000, respectively. Bebe-Love invested a
certain amount for 25% interest in the partnership. As a result of her admission she received a bonus of P3,750. How much did Bebe-Love invest
for her 25% interest in the partnership?
A)P33,750

B)P30,000

C) P35,000

D)P25,000

Use the following information for the next two items (9-10)
Michaela, Wes, and Connor formed a partnership on January 1, 2013,
agreeing to distribute profits and losses in the ratio of original capitals.
Original
investments
were
625,000,
250,000 and 125,000 respectively. Earnings of the firm and drawings by
each partner for the period 2013-2015 follows:
Drawings

2013

Net income
(loss)
Php440,000

Michaela

Wes

Connor

2014

185,000

Php150,00
0
150,000

Php78,000

Php52,000

78,000

52,000

2015

(105,000)

100,000

52,000

52,000

At the beginning of 2016, Michaela and Wes agreed to permit Connor to

withdraw from the partnership. Since the books for the partnership had
never been audited, the partners agreed to an audit in arriving at the settlement amount. In withdrawing, Connor was allowed to take certain furniture and was charged 15,000, although the book value was
45,000; the balance of Connor interest was paid in cash.
The following items were revealed in the course of the audit.

Page 4

Keith Urbans income shown does not include any dividend income from
Mimi. Keith Urbans accumulated profits balance at the date of acquisition
was P 5,958,500.
57. On December 31, 2015, determine the consolidated accumulated profits attributable to parent.
A) P 8,821,300

B) P 8,970,050

C)P 8,993,850

D)P 9,017,650

58. On December 31, 2014, determine the amount of net income attributable to parent.
A) P 2,149,650

B) P 2,159,850

C) P 1,776,500

D) P 1,786,700

59. Assume that Mimi has outstanding 6% P 100 par value cumulative preference shares with an aggregate value of P 1,000,000 that are classified
as equity and are held by non-controlling interests. What is the income
attributable to parent on December 31, 2014
A) P 1,721,500

B) P 1,716,500

C) P 1,731,700

D)P 1,744,700

60. Public Broadcasting Station should recognize contributed services on its

statement of activities if which of the following conditions is (are) met?
I. The contributed services create or enhance nonfinancial assets
II. The contributed services require specialized skills, are provided by individuals possessing those skills, and would typically need to be purchased if not provided by donation.
A)I only
B) I and II
C)I or II
D)None
61. On December 20, 2015, United Appeal, a voluntary health and welfare
organization, received a donation of computer equipment valued at
P25,000 from a local computer retailer. The equipment is expected to have
a useful life of 3 years. The donor placed no restrictions how long the computer equipment was to be used and United has an accounting policy
which does not imply a time restriction on gifts of long-lived assets. On
Uniteds statement of activities prepared for the year ended December 31,
2015, the donation of computer equipments should be reported:
A)
B)
C)
D)

As an increase in temporary restricted net assets

Only in the notes to the financial statements
As an increase in unrestricted net assets
As either an increase in temporary restricted net assets or as an
increase in unrestricted net assets.

Use the following information for the next two items (62-63)
On November 1, 2016, Creamline Dairy Corp. concluded that the Thailand
baht would weaken during the next six moths because of the coup that
transpired recently. In hopes of reporting a gain, Creamline
entered into a foreign exchange forward for speculation on November 1,

Page 21

SCENE Inc. On this date, the identifiable assets acquired and liabilities assumed have fair values of P6,400,000 and P3,600,000, respectively.
SMUTTY incurred the following acquisition-related costs: legal fees,
P40,000, due diligence costs, P400,000; and general and administrative
costs of maintaining an internal acquisition, P80,000.

Understatement of accrued expenses

Understatement of accrued revenue
Overstatement of inventories

As consideration, SMUTTY transferred 8,000 of its own shares with par

value and fair value per share of P400 and P500, respectively, to OBSCENEs former owners. Costs of registering and listing the shares
(previously issued and newly issued) amounted to P160,000 (P20,000 pertains to listing fees of previously issued shares).

End of
2013
Php4,000

End of
2014
Php5,000

End of
2015
Php6,500

2,500

1,000

1,500

15,000

20,000

20,000

1,500

3,500

2,000

Understatement of depreciation
expense on assets still held

ased on the foregoing and the result of your review, answer the following:
54. How much is the goodwill (gain on bargain purchase) on the business
combination?
A) P716,000

B) P556,000

C) P600,000

D) P1,200,000

55. How much is the total amount charged to profit or loss in relation to
the transaction above?
A) P520,000

B) P680,000

C) P540,000

D) P0

56. Ignoring the consideration and issue costs above, but instead, SMUTTY
issued bonds with face value and fair value of P4,000,000 before incurring
the transaction costs. Transaction Costs in issuing the bonds amounted to
P200,000. How much is the goodwill (gain on bargain purchase) on the
business combination
A) P716,000

B) P556,000

C)P600,000

D) P1,200,000

Use the following information for the next three items (57-59)
On January 2, 2014, Keith Urban Corporation purchased 70% of the ordinary shares of Mimi Company for P 4,675,000. At that date, Mimi Company had P 4,887,500 of ordinary shares outstanding and accumulated profits of P 1,572,500. Mimis equipment with a remaining life of 5 years had a
book value of P 2,380,000 and a fair value of P 2,550,000. Mimis remaining assets had a book value equal to their fair values. All intangible assets
except goodwill are expected to have remaining lives of 10 years. Noncontrolling interest shall be measured at fair value.
The income and dividend figures for both Keith Urban and Mimi Company
are as follows:
Income Dividends
Keith Urban Corporation:
Income Dividends
Mimi Company:

2014
2015

P 1,572,500
1,785,000

P 425,000
510,000

2014
2015

P 340,000
569,500

P
55,000
127,500

Page 20

9. The correcting journal entry to record the errors discovered include/s

A) debit to depreciation expense P2,000
B) credit to accumulated depreciation P2,000
C) debit to inventories P20,000
D) debit to Connor, capital P4,000
E) both b and d
10. The total amount Connor received as liquidation of his capital from the
partnership?
A) P0

B)P11,250

C)P26,250

D)P15,000

Use the following information for the next four items (11-14)
On April 2, 2015, PURPOSE Company sold inventory costing P1,200,000 for
P2,000,000. The terms of the sale provide that a 20% down payment shall
be made on date of sale and the balance collectible in four equal installments
every December 31, starting December 31, 2015 as evidenced by a noninterest bearing note for the said balance. The market rate with the same type
of financial instrument is 10% on April 2, 2015. The present value factor of
an ordinary annuity of 1 at 10% for four periods is 3.1699.
(Round off gross profit percentage into two decimal %)
11. If a non-PFRS revenue recognition method will be applied in recognizing
PURPOSEs revenue, which of the following will be required to be disclosed
as part of the Companys policy?
I. The fact that the Company will not be applying PFRS revenue recognition method.
II. The reasons why non-PFRS revenue recognition will provide more relevant and reliable information.
A)I only

B)II only

C)I and II

D) None

Page 5

12. In 2015, how much is the realized gross profit of PURPOSE Company assuming all the installments due were collected on time and the Company
applied provisions of PAS 18 Revenue for its revenue recognition?
A)P0

B)P467,960

C)P497,451

D)P800,000

13. In 2015 (after the collection of the first installment), how much is the
realized gross profit of PURPOSE Company if the collectability of the installments were not reasonably assured and the Company disclosed in its accounting policy that for purposes of revenue recognition, the Company will
apply installment sales method under US GAAP since it will provide more
reliable and relevant information to the users of the financial statements?
A) P197,796

B)P205,959

C)P224,480

D) P272,000

14. Assume that the collectability of the installments were uncertain and the
Company disclosed in its accounting policy that for purposes of revenue
recognition, the Company will apply cost recovery method under US GAAP
since it will provide more reliable and relevant information to the users of
the financial statements. How much is the total deferred interest income
after the collection of the 2016 installment as a result of the cost recovery
application?
A)P95,097

B) P96,306

C) P191,403

D)P196,785

15. After Diana Equipment Corporations first year of operations, records

show the following information:
Installment sales

P150,000

Purchases

100,000

Inventory new merchandise, December 31, 2015

10,000

Installment accounts receivable, December 31, 2015

80,000

Additional information:
The accountant of Diana Equipment Corporation erroneously did not record
an inventory received as trade-in from a customer.
The appraised value of the trade-in merchandise is P20,000. The related installment sale and installment accounts receivable were recorded at their
appropriate amounts of P80,000 and P70,000, respectively.
How much is the realized gross profit?
A) P32,400

B) P35,000

C)P35,200

Credits:
Accounts payable . . . . . . . . . . . .
Unrealized inventory profit . . . . . . .
Main Store . . . . . . . . . . . . . . .
Capital stock . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . .
Sales . . . . . . . . . . . . . . . . . .
Shipments to branch . . . . . . . . . . .
Profit from branch . . . . . . . . . . .
Total credits . . . . . . . . . . . . . .

P 15,000
9,200
50,000
16,000
200,000
90,000
P 382,500

P
500
30,000
120,000
2,300
P 150,500

50. Inventories on hand at December 31, 2015 at the main store and
branch are P3,000 and P1,800, respectively. The December 31, 2014
branch inventory includes merchandise purchased from outsiders of P300,
and the December 31, 2015 branch inventory includes P150 of merchandise purchased from outsiders. The combined cost of goods sold amounted
to:
A) P261,200
B)P252,200
C) P243,150
D)P252,150
51. Colorado has a 10% holding in Darweesh Establishment. Each of the
seven other investors in Darweesh holds between 10% and 20% of its equity. The Darweesh Establishment owns a fleet of ships that is used by all
the investors to transport their own products around the world. The operation of Darweesh and of its fleet is the subject of a detailed agreement
among all the investors. Colorado has a director on the board of Darweesh
but, in accordance with the agreement, the entity is directed by one of the
other investors, who receives a fee for this service.
A) A subsidiary
C) Probably a joint operation

B)An associate
D) Probably a joint venture

52. In the separate FS of a parent entity, investments in subsidiaries that

are not classified as held for sale should be accounted for
I.
II.
III.
A)

At cost
In accordance with IFRS 9
Equity method
I, II or III
B)I and II only

C)I and III only

D)II and III only

53. For purposes of Separate financial statements, which of the following

items must not be capitalized as part of the investment in Subsidiary account?
I. Indirect cost of acquiring the subsidiary
II. Direct cost of acquiring the subsidiary
III. Share issue cost

D)P36,000

Use the following information for the next two items (16-17)
The Secret Circle Inc. uses installment method under US GAAP for its revenue recognition and accounting for repossessions. On January 1, 2015, The
Secret Circle Inc. sold inventory costing P612,244 on installment sale to The
Witches of the East End Co. for P960,000. The selling price will be payable

Page 6

A)I, II and III

B)I and II only

C) I and III only

D)II and III only

Use the following information for the next three items (54-56)
On January 1, 2015, SMUTTY acquired the identifiable net asset of OB-

Page 19

2015, the District 2 branch encountered an inventory shortage, and District 1 branch shipped the merchandise to the District 2 branch at a freight
cost of P160 paid by District 1 branch. Shipping charges from the home
office to the District 2 branch would have been P175.
46. The Capitol will record the P5,500 shipment to District 1, together with
the P200 shipping charge, in a journal entry that includes the following:
A) Shipment from home office, P6,600
B) Shipments to District 1, P5,700
C) Unrealized profit branch inventory, P1,100
D) Investment in District 1, P5,700
47. District 1 should record the transfer of the merchandise to District 2 by
either a debit or credit entry that includes the following:
A)
B)
C)
D)

Shipment from home office, P5,500

District 2, P6,975
Home Office, P6,960
Inventory, P5,6600

B) P6,975

C) P6,760

D)P6,775

49. The loss on excessive freight charges on the inter-branch transfer

amounted to:
A) P200

B) P160

After making three timely payments, The Witches of the East End Co. defaulted. Thus, The Secret Circle Inc. repossessed the inventory. On the
date of repossession, it was estimated that the inventory has a fair value
of P576,664. The Secret Circle Inc. spent P115,340 in reconditioning the
inventory before selling it to Charmed Company for P865,000, its cash
equivalent price payable within 9 months. The receivable related to the
resale was not discounted since interest is immaterial. Charmed Company
made total payments of P346,000 on the resale within 2015. (Round off
gross profit percentage into two decimal %)
16. How much is the gain (loss) on repossession?
A) (P 78,744) B) (P 75,652)

48. If merchandise is unsold at year end, the District 2 branch will inventory the merchandise at what amount?
A) P6,000

in twenty-four equal monthly installments beginning on January 1, 2015

and every first of the month thereafter. The market rate on similar instrument is 6%.

C) P175

D)P185

50. LAST Company operates retail hobby shops from the main store and a
branch store. Merchandise is shipped from the main store and to the
branch and billed to the branch at an arbitrary 10% markup. Trial balances of the main store and branch as of December 31, 2015 are as follows:
Main Store

Branch

D)P 39,688

17. In The Secret Circle Inc.s Statement of Comprehensive Income, how

much will be the total realized gross profit for the year ended December
31,
2015,
before
gain
(loss)
on
repossession?
A) P 34,752

B) P 115,332

C) P 105,440

D) P 150,084

Use the following information for the next six items (18-23)
On June 1, 2015, Stiles Construction Corp. contracted to build an office
building for Scott Inc. for a total contract price of P60,900,000. Stiles Construction Corp.s accounting policy for revenue and construction costs
recognition is to apply provisions of PAS 11- Construction Contracts. The
Company is subject to 30% income tax rate and is taxable based on accounting profit.
The estimated total costs of the contract are as follows:
(Please refer to the next page)

Debits:
Cash . . . . . . . . . . . . . . . . . .
P 1,500
Accounts receivable net . . . . . . . . 200
Inventory, December 31, 2014 . . . . . . 3,500
Building net . . . . . . . . . . . . .
60,000
Equipment net . . . . . . . . . . . . .
30,000
Branch store . . . . . . . . . . . . . .
32,300
Purchases . . . . . . . . . . . . . . . .
240,000
Shipments from home office . . . . . . . Other expenses . . . . . . . . . . . . .
15,000
Total debits . . . . . . . . . . . . . .
P 382,500

C) P 36,596

P
1,000
2,500
18,000
12,000
11,000
99,000
7,000
P150,500

Page 18

Page 7

Estimated costs of design and technical assistance that are directly related to the contract
Estimated costs of design and technical assistance that are not directly related to a specific
contract (properly allocated)

P800,000
200,000

Estimated costs of materials to be used in the

construction

22,000,000

Estimated costs of construction labor

11,200,000

Estimated costs of rectification and guarantee

work, including expected warranty
Estimated administrative costs expected to be
reimbursed in accordance with contractual
agreement
Estimated insurance costs during construction
Estimated construction overhead
Estimated marketing costs for selling condominium units
Estimated total contract costs

1,200,000

A) P1,530

520,000
80,000
4,000,000
400,000
40,400,000

P400,000
100,000
12,000,000
6,000,000
480,000
120,000
7,200,000
60,000
960,000
800,000
28,120,000

Information related to budgeted and actual labor hours on the said contract is shown below:

Page 8

B) P3,530

C) P12,130

D) P13,600

45. On December 31, 2014, the following information has been collected by
BLT Companys office and branch for reconciling the branch and home office accounts. The home offices branch account balance as of December
31, 2014 is Php896,000.
a.

The following were the actual costs incurred by Stiles Construction Corp.
during the first year of the construction:
Costs of design and technical assistance that
are directly related to the contract
Costs of design and technical assistance that are not
directly related to a specific contract (properly allocated)
Costs of materials to be used in the construction
Costs of construction labor
Admin. costs expected to be reimbursed in accordance
with contractual agreement
Admin. costs not expected to be reimbursed
Research and development costs for which reimbursement
is not specified in the contract
Insurance costs during construction
Construction overhead
Marketing costs for selling condominium units
Total contract costs incurred to date

P1,200 were unpaid on December 31, 2014; Cash received from customers on account, P40,000, after allowing cash discounts of P1,470; Cash
remitted to the home office during the year, P33,000. What is the income
or loss of the branch during 2014 insofar as the home office is concerned?

On December 27, 2014, the branch remitted cash of Php67,000 to the

head office and debited accounts payable for this transaction. The cash
receipt was recorded by the head office as Php 6,700 twice, one on December 29, 2014, and another on January 3, 2015.
b. On December 26, 2014, the branch returned Php55,000 of limited
edition merchandise to the home office. The home office debited
Investment in Branch account when the merchandise was received
on December 30, 2014.
c. The home office allocated 20% of its general expenses to the
branch. The branch erroneously recorded the allocation of general
expenses at 30%. The general expenses amounted to Php178,000.
d. Branch store insurance premiums of Php25,750 were paid by the
home office. The branch recorded the insurance premium at
Php25,570.
e. An equipment costing the home office Php65,000 was transferred
to the branch. The branch recorded the equipment at Php6,500.
f. Freight charge on merchandise made by the home office for
Php6,890 was recorded in branchs books at Php8,690.
g. Home office credit memo representing a discount on merchandise
for Php4,000 was recorded twice by the branch.
h. The home office failed to take up the Php23,000 debit memo from
the branch representing the defective merchandise returned by the
branch.
i. The home office erroneously recorded the branchs credit memo at
Php35,985. The branch collected Php45,985 from the home offices
customers.

How much is the unadjusted balance of the home office account in the
books of the branch as of December 31, 2014?
A)P712,700

B) P736,620

C) P716,620

D) P718,820

Use the following information for the next four items (46-49)
The Capitol Inc. has two branches to which merchandise is transferred at
cost plus 20%, plus freight charges. On November 30, 2015, home office
shipped merchandise that cost P5,500 to its District 1 branch, and the
P200 shipping charges was paid by the home office. On December 15,

Page 17

39. Pecan pays P60,000,000 in cash to the former shareholders of Southern. How much goodwill does it record?

Total direct labor hours to date

A) P52M

Estimated direct labor hours

B) P53M

C) P33M

D) P17M

40. Pecan pays P60M in cash to the former shareholders of Southern. Subsequent information reveals that Southern has customer lists, not reported
on its balance sheet, with a fair value of P3M at the date of acquisition.
This information was received during the measurement period.
The entry to record the new information includes a credit of P3M to
A) intangible assets

B) goodwill

C) gain on acquisition

D) APIC

41. Pecan pays P60,000,000 in cash to the former shareholders of Southern. Assume the fair values of Southerns identifiable net assets are as
originally stated. Within the measurement period, additional information
on Southerns expected future performance at the date of acquisition reveals that the earnout had a fair value of P200,000 at the date of acquisition.
The entry to record the new information includes a credit of P800,000 to
A) intangible assets

B) goodwill

C) gain on acquisition

D) earnings

42. Pecan pays P60,000,000 in cash to the former shareholders of Southern. Assume the fair values of Southerns identifiable net assets are as
originally stated. Subsequent increases in the demand for Southerns
products requires that the earnout be revalued to P1,800,000. The entry
to record the new information includes a debit of P800,000 to
A)intangible assets
C)loss on contingency

B)goodwill
D) earnings conting. liab.

A) (P19,200) B)P72,300

C) (P2,700)

D)P55,800

44. The Boom Company of Makati opened a branch at Cebu on January 1,

2014 to expand the market of its product. Merchandise shipped during
2014 to the Cebu branch totaled P59,000, and this included a profit of
25% based on cost. At the end of the year, the inventory was P6,000 at
billed price. Sales on account, P72,500; Expenses, P16,500, of which

Page 16

hours

1,600

hours

At the end of year one, Stiles Construction Corp. engage an independent

surveyor to assess the completion of the project. The independent surveyor has certified that at the period-end the contract is 55% complete and
that the company is entitled to apply for cumulative progress payments of
P31,820,250 (after a 5% retention). Stiles Construction Corp.'s best estimate of the physical proportion of the work it has completed is that it is
60% complete.
18. Assuming stage of completion is measured by the proportion that contract costs incurred for work performed to date bear to the estimated total
contract costs, what is the POC as of the end of the 1st year?
A)42%

B) 45%

C) 50%

D) 51%

19. Assuming stage of completion is measured by surveys of work performed, what is the amount of revenue to be recognized as of the end of
the 1st year?
A)P 31,820,250

B)P 30,450,000

C)P 33,495,000

D)P

36,540,000

20. Assuming stage of completion is measured by completion of a physical

proportion of the contract work, what is the balance of the Construction in
progress account as of the end of the 1st year?
A)P 32,540,000

43. On April 1, 2015, the Toshiba Company established an agency in Laguna, sending its merchandise samples costing P82,500 and a working
fund of P65,000 to be maintained on the imprest basis. During the month
of April, the agency transmitted to the home office sales orders that cost
of P468,750. However, the home office was able to fill-up only 80% of the
orders. Total cash of P250,000 was collected from the customers. A home
office disbursement chargeable to the sales agency includes the acquisition of equipment for Laguna, P180,000 to be depreciated at 10% per annum. The agency paid expenses of P43,700 and received replenishment
thereof from the home office. The agency samples are good until February
2016. It was estimated that the gross profit on goods shipped to bill agency sales orders averages 25%. Net income (loss) for the month ended
April 30, 2015 is

900

B) P 36,540,000

C)P 30,450,000

D)P 31,495,000

21. Assuming stage of completion is measured by efforts-expended method

(input measure of POC), what is realized gross profit as of the end of the
1st year?
A)P 10,450,000
12,540,000

B)P 11,495,000

C)P 11,756,250

D) P

22. Assuming the outcome of a construction contract cannot be estimated

reliably in year one and the company billed 30% of the contract price,
what is the net CIP (Progress Billings) at the end of year 1?
A) (P 18,270,000)

B)P 9,850,000 C)P 2,650,000 D) P 1,730,000

23. Assuming stage of completion is measured by the proportion that contract costs incurred for work performed to date bear to the estimated total
contract costs, what is the profit contribution of this project as of the end
of the 1st year?
A)P 10,450,000

B)P 2,330,000 C)P 2,730,000 D)P 1,631,000

Page 9

Bulgaria Company recognizes construction revenue and expenses using the

percentage of completion method. During 2013, a single long-term project
was begun which continued through 2015. Information on the project was
as follows:
2013
Accounts receivable from construction contract
Construction
year

expenses

each

Construction in progress
Partial billings on contract
Gross profit recognized for the
year

2014

2015

100,00
0

300,000

105,00
0

192,000

122,00
0

364,000

100,00
0
?

420,000
?

320,000
?

2013
17,000
22,000
17,000
22,000

2014
50,000
64,000
50,000
56,000

610,000
500,000
20,000

2015
226,000
246,000
364,000
610,000

Plant & equipment

150,000,000

Total

P 162,000,000

Liabilities

P 130,000,000

Common stock, P1 par

400,000
23,800,000

Retained earnings

(10,000,000)

Treasury stock, 6,000 shares

(400,000)

Accumulated OCI

18,200,000

Total

P 162,000,000

Pecan Corporation is in the process of acquiring Southern. Its research reveals that Southerns current assets are carried at P2,000,000 more than
book value, its plant & equipment is carried at P60,000,000 more than
book value, and it has the following unreported intangibles:
Fair value
Non-competition agreement

P 8,000,000

Skilled employees

25. A defense contractor (the entity) and the government (the customer)
agree in a contract that the defense contractor delivers twenty-five aircrafts to the government. The original contract includes an option for the
government to purchase additional five aircrafts; however, the price for
the delivery of these aircrafts is not determined yet and, hence, still needs
to be negotiated. Later, the government exercises its option for the purchase of five additional aircrafts; the new contract is priced afresh. Due to
the effect of initial costs and of the learning curve, the profit margin on the
additional contract is much higher than the profit margin on the original
contract.
Given the information above, which of the following statements is (are)
true about the proper accounting of the new contract under Philippine Accounting Standard (PAS) 11, Construction Contracts?
I.

P 12,000,000

Additional paid-in capital

24. Compute the profit recognized from the long-term construction contract
in 2013 and 2014 and construction expenses in 2015:
A)
B)
C)
D)

Current assets

The two contracts cannot be combined for accounting purposes because

the price for the aircrafts in the new contract was not negotiated with
regard to the original contract price.

Page 10

4,000,000

Business from prospective customers

16,000,000

Order backlog

30,000,000

Pecan includes an earnings contingency, with

P1,000,000, as part of the acquisition agreement.

present

value

of

37. Pecan finances the acquisition with bonds. If Southerns shareholders

are to receive P72 per share in cash on acquisition, how much cash must
Pecan generate from the sale of bonds?
A)P14.4M

B)P28.8M

C)P28.368M

D)P30.368M

38. How much cash must Pecan generate from the sale of bonds, if it wants
to report P40,000,000 in goodwill?
A)P47M P

B)48.8M

C)P438M

D)P28M

Page 15

shareholders each hold 5 % of the voting rights of Entity H. None of

the shareholders has contractual arrangements to consult any of the
others or make collective decisions.
A)I only

B)II only

C)I and II

D)None

III. The purchase of additional five aircrafts by the government shall be

treated as a separate contract.

35. Determine which of the entities below is/are not subsidiary/ies of ABC
Company.
I.

II. The two contracts can be combined for accounting purposes because
the price for the aircrafts in the new contract was negotiated with regard to the original contract price.

Entity M (a retailer): ABC has an interest of 40% in entity M. ABC

signed an agreement with the major shareholder whereby ABC is responsible for the financial and commercial operations of Entity M, while
the main shareholder is responsible for the marketing decisions and
human resources department.

IV. The construction of the additional asset shall be treated as a separate

construction contract when (a) the asset differs significantly in design,
technology or function from the asset or assets covered by the original
contract; and (b) the price of the asset is negotiated without regard to
the original contract price.
A)I and III

B)I and IV

C)II and III

D)II and IV

II. Entity N: ABC has 41% of Entity N and has the right to veto any decision by the board of directors to sell a major subsidiary of Entity N.
A)I only

B)II only

C)I and II

D) None

36. Which of the following entities is/are not subsidiaries of EBC?

I.

EBC Ltd. has an interest of 52% in ABD Ltd. and signed an agreement
with the shareholder B, whereby B is responsible for the production and
commercial operations of ABD Ltd., while EBC is responsible for the
marketing decisions and human resources department.

II. EBC Ltd. has direct interest in 27% of Douro Wines. At the beginning of
this year, EBC Ltd. entered into an agreement whereby it established
an option to increase its holding with more than 24% of the equity interests of Douro Wines. The exercise price of the call option is in the
money and it can be exercised at any moment.

26. PRINCESS COMPANY filed a voluntary bankruptcy petition on August

15, 2013 and the statement of affairs reflect the following amounts:
BOOK CARRYING
ESTIMATED
VALUE
VALUE
Pledged with fully
secured creditors
Pledged with partially
secured creditors
Free Assets

Liabilities with priority

Fully secured creditors
Partially secured creditors
Unsecured creditors

III. EBC Ltd. has 42% of GHT Ltd. and has the right to veto in the board of
directors with regard to the annual operating budget.
A) I, II and III
III only

I only

B)I only

C)I and III only

D)II and

P150,000

P185,000

90,000

60,000

210,000
450,000

160,000
405,000

Liabilities
P 35,000
130,000
100,000
270,000
P 535,000

Use the following information for the next four items (37-40)

How much cash will be available to pay the unsecured non-priority claims?

Southern Companys balance sheet is as follows:

A)P 240,000

B)P 180,000

C)P 160,000

D)P 125,000

(Please refer to the next page)

27. On January 1, 2015, Jaqs Grill Inc. granted a franchise to Mr. Jigs to
sell Jaqs products. The franchise agreement provides the following terms:

Page 14

Initial franchise fee in the amount of P15,000,000 payable at

P5,000,000 down-payment on January 1, 2015 and the balance payable in five equal annual installments every December 31. Mr. Jigs issued a 5 year non-interest bearing note. The prevailing market rate for
the similar note is 10%.

Page 11

Contingent franchise fees equal to 5% of the sales revenue to Mr. Jigs.

As of December 31, 2015, Jaqs Grill Inc. has not yet performed substantially all material services or conditions required of the franchise contract. For the year ended December 31, 2015, Mr. Jigs reported sales
revenue in the amount of P1,000,000.

What is the amount of total income to be reported in the Statement of Financial Position of Jaqs Grill Inc. for the year ended December 31, 2015?
A)P12,631,574

B)P808,157

C)P50,000

D)P0

31. Determine which of following entities shall prepare consolidated financial statements in accordance with PFRS 10.
I.

Entity AAA Ltd. that has an immaterial participation of 90% in equity

interest of XYZ Ltd.
II. Entity B ABC Group presents consolidated financial statements which
includes Entity B. Entity B is itself a parent because it has controlling
interests in 8 other entities. Entity B does not have equity traded in a
regulated market but is waiting for the approval of listing its debt in the
Philippine Stock Exchange.
A)I only

Use the following information for the next two items (28-29)
On December 31, 2015, Kendall Beiber granted franchise right to Celina
Gomez, Inc. for a non-refundable initial franchise fee of P400,000, of
which 20% was collected upon signing of the contact and the remaining 80% is represented by a note receivable in 4 equal annual
installments starting December 31, 2016. The prevailing market rate
of interest on December 31, 2015 is 12%.
There is significant uncertainty as to the collectability of the note. Hence,
installment sales method is to be applied.
Direct cost amounting to P258,392 were incurred during January 2016.
Celina commenced operations on February 1, 2016.

I.

C)P43,444

D)P0

B)P55,326

C)P43,444

D)P34,446

30. Raymond Holding Inc., a sub-holding of the Lee Group, makes an offer
for all the equity shares of Gel Ltd. on July 1, 2014. The consideration for
the offer is 50,000 shares in Raymond together with P10,000,000 cash.
The offer is accepted on August 1, 2014. However, the offer is conditional
upon receiving the approval of the competition authority which is obtained
on September 30, 2014. In the past, the competition authority has never
rejected the application for any merger or combination. The shares are
exchanged on August 10, 2014. What is the date of acquisition?
A)
B)
C)
D)

Entity C Ltd. that has an interest of 20% in equity shares of ACV Ltd.

A)I only

B)II only

C)I and II

D) None

33. Determine which of the following entities are not controlled by AAA Entity according to PFRS 10. Indicate CONTROLLED or NOT CONTROLLED on
the space provided.
I.

Entity XXX. AAA has direct interest in 17% of Entity XXX. In addition,
one of AAA's subsidiaries, KKK, which is 60% owned, has a holding of
45% of Entity XXX. ABC's effective share in RGH is 44% (17%+ 60% of
45%).

II. Entity V. Entity V is listed in Lebanon Stock exchange. AAA has a direct
interest in 44% of Entity V; the rest is dispersed and none of the rest of
the shareholders has more than 2%.

29. How much profit is recognized on the franchise in 2016?

A)P65,778

D) None

II. Entity V, an investment entity, acquired an investment in a subsidiary

(entity Y). Entity Y provides services that is related to Entity Vs investment activities

28. How much profit is recognized on the franchise in 2015?

B)P55,326

C)I and II

32. Determine which of following entities shall not prepare consolidated

financial statements in accordance with PFRS 10.

Kendall Beiber Co. had the following transactions:

A)P65,778

B)II only

July 1, 2014, the date of the offer

August 1, 2014, the date the offer has been accepted
August 10, 2014, the date the shares have been exchanged
September 30, 2014, the date of the approval by the competition
authority

III. Entity E. AAA has direct interest in 52% of Entity E. It signed a contractual arrangement with ALF Limited whereby both entities can appoint
two members each to the board of directors. The board of directors is
comprised of five members, one of whom is considered to be independent. The decisions over the relevant activities are taken in accordance
with majority of votes in the board of directors.
A)I only

B)II only

C)III only

D)I and III only

34. Determine which of the entities below is/are subsidiary/ies of ABC

Company.
I.

Entity G: ABC has direct interest in 23% of Entity G. In the beginning

of this year, ABC entered into an agreement which included an option
to increase its holding by an additional 42% of the equity interests of
Entity G in 3 years time. The exercise price of the call option is deeply
out of the money.

II. Entity H. ABC holds 45 % of the voting rights of Entity H. Eleven other

Page 12

Page 13