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INTERNATIONAL SCHOOL OF ASIA AND THE PACIFIC

Peñablanca, Cagayan

ADVANCED FINANCIAL ACCOUNTING AND REPORTING

FIRST MOCKBOARD EXAMINATION
SET A
INSTRUCTIONS: Choose the best answer for each of the following. Fully shade only
one box for each item. Strictly no erasures allowed.

1. The following data pertain to a fixed-price long-term construction contract to

construct a concrete dike along a certain portion of the Angat River in Bulacan.
The contract price is P2,000,000. The contractor uses a cost-input-percentage
of completion for revenue recognition.
2014 2015 2016
Gross profit (loss) each yearP 50,000P175,000P (25,000)
Cost incurred each year450,000 ? 1,025,000
The journal entry for revenue recognition recorded at the end of 2015 will
include a
A. debt to CIP for P325,000
B. credit to CIP for P175,000
C. debit to Construction Cost of P325,000
D. credit to Construction Revenue of P750,000

2. 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. Interest on average capital balances.
C. Bonus as a percentage of net income before the bonus.
D. Bonus as a percentage of sales in excess of a targeted amount.

The next three questions are based on the following information

Solid Construction Company has started work on three long-term projects early in
2016. Relevant data on these projects as of December 31, 2016 follow:
Contract Billed thruCollected thruActual CostsAdditional Cost
Project Price 12/31/16 12/31/16to end of 2016to Complete
ManilaP1,920,000P1,920,000P1,760,000 P1,290,000 -
Cebu 2,160,000 900,000 600,000 720,000 P1,530,000
Davao1,960,000 1,140,000 1,060,000 1,350,000 450,000

3. Which of the following should be shown on the balance sheet at December 31,
2016 related to the Manila project?
A. Current asset, P0 C. Current liability, P160,000
B. Current asset, P160,000 D. Current liability, P630,000

4. Which of the following should be shown on the income statement for 2016
related to the Cebu project?
A. Gross loss, P28,800 C. Gross profit, P14,745.60
B. Gross loss, P90,000 D. Gross profit, P46,080

5. Which of the following should be shown on the balance sheet at December 31,
2016 related to the Davao project?
A. Inventory, P100,000 C. Inventory, P330,000
B. Inventory, P260,000 D. Inventory, P405,000

6. Assume that C has a P50,000 equity in the partnership of “A, B, and C.” Partner
C arranges to sell his entire interest to D for P80,000 Cash. Partners A and B
agree to the admission of D. At what amount will the equity of the incoming
partner, D, be shown in the balance sheet?
A. at P50,000.
B. at P80,000

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C. at P50,000 and the P30,000 will be divided equally among the original
partners.
D. at P80,000 and the P30,000 will represent Goodwill which will be
apportioned between the existing equities of A and B.

The next three questions are based on the following information.

DU30 BUILDERS, INC. has a contract to construct a P200 million cruise ship at an
estimated cost of P160 million. The company will begin construction of the cruise
ship in early January 2015 and expects to complete the project in about two and a
half years (2-1/2 years). DU30 has never constructed a cruise ship before, and the
customer has never operated a cruise ship. Due to this and other circumstances,
DU30 believes there are inherent hazards in the contract beyond the normal
recurring business risks. DU30 expects to recover all its costs under the contract.

7. Under these circumstances, DU30 should

A. use the cost recovery (zero-profit) method.
B. wait for the completion of construction before it recognizes revenue.
C. use the percentage of completion method and measure progress toward
completion using the cost-to-cost method.
D. use the percentage of completion method and measure progress toward
completion by actual surveys of work accomplishment.

8. In continuation above, during 2015 and 2016, the company has the following
activity:
(in millions) 2015 2016
Costs to date P39.20 P81.60
Estimated costs to complete 120.80 78.400
Progress billings during the year 40.00 40.00
Cash collected during the year 25.92 51.20
For the year ended December 31, 2016, how much revenue should DU30, INC.
recognize in its income statement?
A. P39.2 million C. P52.0 million
B. P42.4 million D. P81.6 million

9. On its statement of financial position at December 31, 2016, what amount is

reported in the cost of construction and billings presentation by DU30, INC.
A. P0.8 million billings in excess of costs. C. P1.6 million costs in excess of
billings.
B. P1.6 million billings in excess of costs. D. P4.08 million costs in excess of
billings.

10. When an investment of a new partner exceeds the new partners’ initial capital
balance and goodwill is not recorded, who will receive the bonus?
A. The new partner.
B. The old partners in their old profit or loss ratio.
C. The old partners in the new profit or loss ratio.
D. The old and the new partners in their new profit and loss ratio.

The next four questions are based on the following information.

BREXIT CORPORATION consigned 500 men’s suits to EURO GALLERY, Inc. at a
suggested retail price of P500 each. The freight cost of P2,000 for the consignment
was paid by EURO upon receipt of the consigned goods. The agreement between
BREXIT and EURO is that any sales in excess of the suggested retail price will accrue
to EURO. EURO paid delivery expenses of P2,100 for units sold, subject to
subsequent settlement. EURO submitted an account sales on the sale of 270 suits,
40% of which was sold at P640 each and the balance at P580 per suit. All these
sales were in cash. BREXIT’s cost is P375 each suit. BREXIT determines
consignment profit for each consignee and uses the Consignment-Out account.
EURO uses the Consignment-In account for all consignment sales transactions.

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11. How much should EURO remit to BREXIT for the aforementioned sales to
customers?
A. P105,400 C. P130,340
B. P107,500 D. P130,900

12. The balance of BREXIT’s Consignment-Out account after the adjustment for the
recognized profit or loss will be
A. P30,570 C. P81,700
B. P70,300 D. P87,170

13. The reclassification entry of the consignment profit for BREXIT’s income
statement will not include
A. A debit to delivery expense, P2,100.
B. A debit to consignment profit, P30,570.
C. A credit to consignment sales, P163,080.
D. A debit to cost of consignment sales, P102,330.

14. The summarized journal entry for the consignment sales by EURO will include
A. a debit to cash of P135,000.
B. a credit to Commissions, P28,080.
C. a debit to Consignment-In, P4,100.
D. a credit to Consignment-In of P130,900.

15. When a partner retires and receives cash less than his capital balance, how
should the difference be treated?
A. The difference should be debited to all the partners in their profit or loss
ratio.
B. The difference should be credited to all the partners in their profit or loss
ratio.
C. The difference should be debited to the remaining partners in their
remaining profit or loss ratio.
D. The difference should be credited to the remaining partners in their
remaining profit or loss ratio.

16. How much is the gain or loss on repossession for income statement purposes?
A. P6,240 loss. C. P6,240 gain
B. P0 D. P16,800 gain

17. Since there is no reasonable basis for estimating the degree of collectability,
Candy Company uses the installment method of revenue recognition for the
following sales:
2016 2016
Installment sales P2,700,000 P1,800,000
Collection from
2015 installment sales 300,000 600,000
2016 installment sales 900,000 --
Accounts defaulted
2015 installment sales 300,000 150,000
2016 installment sales 450,000
Value assigned to repossessed items
2015 installment sales 150,000 82,500
2016 installment sales 225,000
Gross profit rate 40% 30%
How much is the net realized gross profit in 2016?
A. P90,000 C. P450,000
B. P345,000 D. P540,000

18. State the proper order of partnership liquidation.

I. Outside creditors
II. Owners’ interests
III. Inside creditors

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A. I, II and III. C. II, I and III.

B. I, III, II. D. III, I and II.

19. Davao Corporation has two branches to which merchandise is transferred at

cost plus 20% plus freight charges. In November 30, 2016, Davao shipped
merchandise that cost P400,000 to its Maguindanao branch and the P12,000
shipping charges were paid by Davao. On December 15, 2016, the Zamboanga
branch encountered an inventory shortage, and the Maguindanao branch
shipped the merchandise to the Zamboanga branch at a freight cost of P9,600
paid by Zamboanga. Shipping charges from the home office to the Zamboanga
branch would have been P18,000.
As a result of the inter-branch inventory transfer, determine the total amount
debited to the Home Office account by the Maguindanao branch.
A. P462,000 C. P552,000
B. P540,000 D. P561,600

20. What conditions are to be met to determine franchisor’s services are

substantially performed?
A. No other material conditions or obligations exist.
B. The franchisor is not obligated in any ways to refund cash already received
or forgive unpaid debt.
C. The initial services required of the franchisor by contract or otherwise have
been substantially performed.
D. All of the above.

21. De Santos Co. opened its Alabang branch on October 1, 2016. Shipments of
merchandise to the branch during the month, billed at 120% of cost, amounted
to P375,000. The branch returned P46,860 of defective merchandise to the
home office. On October 31, the branch reported a net loss from its operation
of P6,810 and an inventory of P252,000.
The realized inventory profit to be taken up in the home office books would be
A. P(6,810) C. P5,880
B. P(5,070) D. P12,690

22. A partner’s maximum loss absorption is calculated by

A. multiplying distributable assets by the partners’ profit-sharing percentage.
B. dividing the partners’ capital balance by his or her percentage interest on
capital.
C. dividing the partner’s capital balance by his or her profit-and-loss-sharing
percentage.
D. multiplying the partner’s capital balance by his or her profit-and-loss-sharing
percentage.

23. The Pharma Branch of Driven Co. submitted the following trial balance as of
December 31, 2016 after its first year of operations
Debit Credit
Cash 31,200
Accounts receivable 189,600
Shipments from Home Office 504,000
Expenses 32,400
Sales P403,200
Home Office 354,000
The true net income of the Branch during 2016 was
A. P18,000 C. P118,800
B. P100,800 D. P162,000

24. Trial balances for the home office and the branch of Tripartite Company show
the following accounts before adjustments on December 31, 2016. The home
office policy of billing the branch for merchandise is 20% above cost.
Home Office Branch
Allowance for overvaluation P180,000

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Shipments to branch 720,000

Purchases (outsiders) P225,000
Shipments from home office 864,000
Merchandise inventory, December 1, 2016 300,000
The branch Merchandise inventory on December 31, 2016 of P150,000 includes
purchases from outsiders of P60,000.
The working paper entry to eliminate the profit in beginning inventory includes
a debit to
A. Branch income, P15,000.
B. Allowance for overvaluation, P36,000.
C. Allowance for overvaluation, P144,000.
D. Merchandise inventory, December 1, P36,000.

25. The entry on the books of the home office to recognize mark-up includes a
credit to
A. Branch income, P15,000.
B. Branch income, P165,000.
C. Allowance for over-valuation, P15,000.
D. Merchandise inventory, December 31, P15,000.

26. Which of the following is not a liability that has priority in a corporate
liquidation?
A. Payroll taxes due to government.
B. Salary payable owed to employees.
C. Administrative expenses incurred in the liquidation.
D. Advertising expense incurred before the company became insolvent.

27. W, X AND Y, partners of the W, X & Y Partnership, share net income and losses
in a 5:3:2 ratio, respectively. The capital account balances on April 1, 2016,
were: W, capital – P37,000; X, capital – P65,000; Y, capital – P48,000. The
carrying amount of the assets and liabilities of the partnership were the same
as their current fair values. Z is to be admitted to the partnership with a 20%
capital interest and a 20% share of net income and losses in exchange for a
cash investment. No goodwill or bonus is to be recorded.
The amount that Partner Z should invest in the partnership is
A. P30,000 C. P37,500
B. P36,000 D. P40,000

The next two questions are based on the following information.

The following balance sheet was prepared for the A, B, and C Partnership on July 1,
2016.
Assets Liabilities & Capital
Cash P 25,000 Accounts payableP52,000
Noncash assets 180,000 A, Capital (40%) 40,000
B, Capital (40%) 65,000
. C, Capital (20%) 48,000
Total Assets P205,000 Total Liab. & CapitalP205,000
The partnership is being liquidated on the installment basis. The first sale of
noncash assets with book value of P90,000 realized P50,000.

28. The amount of cash each partner should receive in the first installment is
A. B. C. D.
Partner A P 0 P 0 P12,000 P27,000
Partner B P 5,000 P 5,000 P 13,000 P 5,000
Partner C P18,000 P22,000 P22,000 P18,000

Assume that each partner properly received some cash after the second sale of
assets. The cash to be distributed amounts to P14,000 from the third sale of assets,
and unsold assets with a P6,000 book value remain.

29. How should the P14,000 be distributed to A, B and C, respectively?

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A. B. C. D.
Partner A P 5,000 P 5,500 P 5,600 P 5,600
Partner B P 5,000 P 5,500 P 5,600 P 6,500
Partner C P 4,000 P 3,000 P 2,800 P2,800

30. State whether the following is True or False

Statement 1: On a statement of affairs, liabilities are classified as current and
noncurrent.
Statement 2: On a statement of affairs, a company’s liabilities should be
valued at the amount required for settlement.
A. B. C. D.
Statement 1 True True False False
Statement 2 True False True False

31. Marvin admits Ancho as a partner in the business. Balance Sheet accounts of
Marvin on September 30, 2016 just before admission of Ancho, show
Cash P 2,600
Accounts receivable 12,000
Merchandise inventory 18,000
Accounts payable 6,200
Marvin, capital 26,400
It is agreed that for the purpose of establishing Marvin’s interest, the following
adjustments shall be made:
1. An allowance for doubtful accounts of 2% is to be established.
2. Merchandise inventory is to be valued at P20,200.
3. Prepaid expenses of P350 and accrued liabilities of P400 are to be
recognized.
Ancho is to invest sufficient cash to obtain 1/3 interest in the partnership.
The investment of Ancho should be in the amount of
A. P7,920 C. P14,305
B. P14,155 D. P17,600

32. On April 30, 2016, Atty. Manuel Malvar, trustee in bankruptcy liquidation for BPA
Company, paid P12,140 in full settlement of a BPA liability under product
warranty, which had been carried in Atty. Malvar’s accounting records at
P10,000.
The appropriate journal entry in Atty. Malvar’s records is
A. Liability under product warranty 12,140
Cash 12,140
B. Liability under product warranty 10,000
Estate equity 2,140
Cash 12,140
C. Liability under product warranty 10,000
Product warranty expense 2,140
Cash 12,140
D. Liability under product warranty 10,000
Retained earnings (PPA) 2,140
Cash 12,140

33. The following items were taken from the statement of affairs of Distressed
Company.
Assets pledged with fully-secured creditors P71,000
Assets pledged with partially secured creditors 12,500
Free assets 11,000
Preferred creditors 3,000
Fully secured creditors 69,000
Partially secured creditors 20,000
Unsecured creditors without priority 18,000
The estimated deficiency to unsecured creditors is
A. P5,000 C. P14,500
B. P12,500 D. P15,500

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34. Partners C and D share profits in the ratio of 6:4 respectively. On December 31,
2016, their respective accounts were C, P120,000 and D, P100,000. On that
date, A was admitted as partner with 1/3 interest in capital and profits for an
investment of P90,000. The new partnership began in 2016 with total capital of
P300,000.
Immediately after A’s admission, C’s capital should be
A. P108,000 C. P114,000
B. P110,000 D. P120,000

35. Determine the true statement under PFRS 11.

A. Joint arrangement is either joint venture or joint operation.
B. Joint operation is either joint arrangement or joint venture.
C. Joint venture is either joint arrangement or joint operation.
D. Joint arrangement, joint venture and joint operation are one and the same.

36. On January 1, 2016, Antipolo, Inc. granted a franchise to Ram de Leon to

operate a sales outlet for an initial fee of P4,000,000 and 5% monthly
continuing fee based on gross sales. Ram paid a downpayment of P1,000,000
and issued a promissory note for the balance payable in six (6) annual
installments starting December 31, 2016. Prevailing cost of money is 12%. (PV
of an annuity of P1 for six periods at 12% is 4.1114).
Ram commenced operations on August 1, 2016 and reported the following
monthly sales:
August P200,000
September 320,000
October 605,000
November 712,500
December 865,000
Assuming Ram issued an 18% interest-bearing note, how much will be the
amount of franchise revenue to be recognized for the year 2016?
A. P3,190,825 C. P4,000,000
B. P3,192,125 D. P4,135,125

37. What is the realized gross profit to be recognized on December 31, 2015?
A. P1,500,000 C. P2,000,000
B. P1,800,000 D. P5,000,000

38. On January 23, 2016, Mantequilla Ice Cream signed an agreement authorizing
G. Ramos to operate as a franchisee for an initial franchise fee of P500,000,
which was received upon signing of the agreement. G. Ramos commenced
operations on August 1, 2016, at which date all of the initial services required of
Mantequilla Ice Cream had been performed at a cost of P50,000. Indirect costs
were P30,000 and P25,000 for Mantequilla and G. Ramos, respectively. The
franchise agreement further provides that G. Ramos must pay a 10% monthly
continuing franchise fee. Franchisee sales reported from August 1 to December
31 amounted to P400,000.
What is the net income from franchise fees to be reported by Mantequilla Ice
Cream in 2016?
A. P435,000 C. P520,000
B. P460,000 D. P540,000

39. One of the important characteristics of a joint arrangement is

A. it should be notarized.
B. the rights of the parties are clearly specified.
C. the parties are bound by a contractual arrangement.
D. the activities of the joint arrangement should be specified.

40. The following summarized balance sheets were prepared for the Gold Company
and Silver Corporation.
Gold Diamond

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Current assets P350,000 P185,000

Land 80,000 25,000
Buildings, net 250,000 325,000
Goodwill 120,000 100,000
P875,000 P560,000
Accounts payable P115,000 P 85,000
Bonds payable 170,000 150,000
Common stocks, P10 par 150,000 75,000
APIC 200,000 40,000
Retained earnings 240,000 210,000
P875,000 P560,000
The appraised values of the Diamond Corporation’s land and buildings are
P20,000 and P258,000, respectively. Gold issues 15,250 shares of common
stocks with a fair value of P12 each. Gold also pays out-of-pocket costs for the
following:
Broker’s fee P10,000
Professional fees to valuers 3,000
Legal fees 2,000
Indirect acquisition costs 5,000
Printing cost of stock certificates 3,000
Costs to issue and register the stocks 30,000
The stockholders’ equity balances of Gold for Capital stock, APIC, and Retained
Earnings, respectively, after the merger will be
A. P302,500; P200,000; P262,500. C. P302,500; P272,500; P280,000.
B. P302,500; P197,500; P265,000. D. P377,500; P197,500; P280,000.

41. the calculation of the income recognized in the third year of a five-year
construction contract accounted for using the percentage-of-completion method
includes the ratio of
A. total costs incurred to date to total billings to date.
B. costs incurred in year three to total billings to date.
C. total costs incurred to date to total estimated costs.
D. costs incurred in year three to total estimated costs.

The next two questions are based on the following information.

Summary information is given for SBMA, Inc. and PCIB Company at July 1, 2016.
The quoted market price of SBMA and PCIB shares are P36 and P40, respectively.
SBMA and PCIB are both SMEs.
SBMA, Inc. . PCIB Company .
Book value Fair value Book value Fair value
Current assets P 8,000,000P 9,000,000P24,000,000P24,000,000
Plant assets 22,000,000 26,000,000 26,000,000 25,000,000
Totals P30,000,000P35,000,000P50,000,000P49,000,000
Liabilities 5,000,000 5,000,00015,000,00015,500,000
Common stocks, P10 par10,000,000 20,000,000
APIC 1,000,000 3,000,000
Retained earnings 14,000,000 12,000,000
Totals P30,000,000 P50,000,000

PCIB Company acquires all the net assets of SMBA by issuing 1,000,000 of its own
shares. PCIB Company incurred the following out of pocket costs relating to the
acquisition.
Legal fees to arrange business combination P25,000
Cost of SEC registration 12,000
Cost of printing and issuing new stock certificates 3,000
Indirect cost of combination 20,000
Finder’s fees 35,000

42. Calculate the goodwill from the business combination.

A. P10,000,000 C. P10,040,000
B. P10,025,000 D. P10,060,000

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43. The total Retained Earnings of the surviving company after the combination is
A. P13,920,000 C. P11,920,000
B. P13,980,000 D. P11,980,000

44. A joint arrangement that is structured without a separate vehicle is a joint

venture.
Under PFRS 11, joint arrangements that are joint ventures are accounted for
under the proportionate consolidation method in accordance with PAS 31.
A. True, True C. False, True
B. True, False D. False, False

The next two questions are based on the following information.

SME RRR issued 120,000 shares of its P25 par ordinary shares for all the net assets
of CCC Company on July 1, 2015. RRR’s ordinary shares were selling at P30 per
share at the acquisition date. In addition, a cash payment of P200,000 was made
plus an agreed deferred cash payment of P990,000 payable on July 1, 2016. The
market rate of interest at the time is 10%.

RRR also agreed to pay additional cash consideration of P250,000 in the event
RRR’s net income falls below the current level within the next two years. RRR’s
financial officers were 99% sure the current level of income will at least be
sustained during the prescribed period.

The following out-of-pocket costs were paid in cash by RRR:

Legal and accounting fees paid to advisers P 8,000

Broker’s fees 4,000
Indirect acquisition costs 3,000
Costs to issue and register the shares 10,400
Total P25,400

45. Determine the cost of the investment for SME RRR

A. P4,702,500 C. P4,174,500
B. P4,147,500 D. P4,714,500

46. With respect to business combinations, PFRS 3 provides that

A. The purchase method must be used for all combinations.
B. The pooling of interest method must be used for all combinations.
C. The purchase method may be used only when specific requirements are met.
D. The pooling of interest method may be used only when specific requirements
are met.

47. On December 31, 2016, Shelll Corporation was merged into Petttron
Corporation. In the business combination, Petttron issued 200,000 shares of its
P10 par common stock, with a market price of P18 a share, for all of Shelll’s net
assets. The stockholders’ equity section of each company’s balance sheet
immediately before the combination was
Petttron Shelll
Ordinary shares P3,000,000 P1,500,000
Additional paid-in capital 1,300,000 150,000
Retained earnings 2,500,000 850,000
In the December 31, 2016 balance sheet, additional paid-in capital should be
reported as
A. P950,000 C. P1,450,000
B. P1,300,000 D. P2,900,000

48. Under this method of GP recognition on installment sales, cash collection is

regarded as a partial recovery of cost and a partial realization of profit
A. Cost recovery method. C. Profit recovery method.
B. Installment method. D. All of the above.

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49. Profit and loss data for Blue Sales Company, and its branch for 2016 follows:
H.O. Branch
Sales P1,060,000 P315,000
Inventory, January 1 115,000
Inventory, - from Home Office 50,000
- from other vendors 35,000
Purchase 820,000 120,000
Shipment to branch 110,000
Shipment from Hone Office 132,000
Inventory, December 31 142,000
Inventory – from Home Office 66,000
- from other vendors 70,000
Operating expenses 200,000 100,000
Records show that the Branch was billed for merchandise shipment as follows:
In 2015, cost + 25%
In 2016, cost + 20%
The combined net income of the Home Office and the Branch on December 31,
2016 is
A. P212,000 C. P247,000
B. P225,000 D. P269,000

50. Which of the following statements is (are) true regarding sales agency and
branch?
I. A sales agency is not a self-contained business but rather acts only on behalf
of the home office.
II. A branch is a self-contained business which acts independently, but within
the bounds of the company policy and subject to the control of the home
office.
A. I only. C. I and II.
B. II only. D. Neither I nor II.

51. Pacific Inc. a dealer of Harley motorcycles, sells on installment basis. One of its
customers, a Mr. Cruz, bought a motorcycle for P45,375. The cost to Pacific Inc.
is P25,410. After making an initial payment of P6,050, Mr. Cruz stopped paying
and defaulted on all subsequent payments. Pacific Inc. lost no time in
repossessing the motorcycle. By then it had an appraised value of P12,650 and
Pacific had to incur additional expenses of P1,650 on repairs and remodeling.
Pacific was able to sell the motorcycle to Mr. Bobadilla on installment for
P27,500 and initial down payment of P6,875.
How much is the realized gross profit on the sale to Mr. Bobadilla?
A. P3,025 C. P3,575
B. P3,300 D. P3,850

52. A Company uses the percentage-of-completion method to account for a four-

year construction contract. Which of the following would be used in the
calculation of the income recognized in the first year?
A. B. C. D.
Progress billings Yes Yes No No
Collection on progress Yes No Yes No
billings

53. On January 1, 2016, Kimchi Inc. signed an agreement authorizing Mr. Castro to
operate as a franchise for an initial franchise fee of P5,000,000. Of this amount,
P2,000,000 was received upon signing of the agreement and the balance
evidenced by a 25% promissory note which is due in three annual installments
of P1,000,000 each beginning December 31, 2016. Mr. Castro started franchise
operations on September 1, 2016, after Kimchi rendered initial services required
at total cost of P1,500,000. The first installment was collected on due date.
The collectability of the note is not reasonably assured.
What is the realized gross profit to be recognized on December 31, 2016?

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A. P2,100,000 C. P4,500,000
B. P2,700,000 D. P5,000,000

54. Which costs should be included in the consideration transferred in a

combination?
A. Fees paid to accountants.
B. Cost of maintaining an acquisition department.
C. Both cost of maintaining an acquisition department and fees paid to
accountants.
D. Neither cost of maintaining an acquisition department nor fees paid to
accountants.

The next two questions are based on the following information.

On April 1, 2016 DDD, EEE, FFF and GGG became joint operators of a joint
arrangement. They contributed equal amounts and agreed to share equally control
over the relevant activities of the undertaking. The contributions were all in cash
except for GGG’s equipment with a fair value of P180,000 and a carrying cost in
GGG’s accounting records at P164,000. The equipment had an estimated remaining
life of 5 years at the date it was contributed.

55. At what amount will DDD and GGG show this equipment at its individual balance
sheet at April 1, 2016, respectively?
A. P45,000 and P38,250 C. P34,450 and P32,800
B. P38,250 and P41,000 D. P45,000 and P41,000

56. At what amount will EEE and GGG show this equipment at its individual balance
sheet at December 31, 2016?
A. P38,250 and P34,850 C. P36,000 and P34,450
B. P34,450 and P36,000 D. P36,000 and P34,850

57. Under the cost-recovery method, no revenue is recognized until

A. The selling price is collected.
B. Collections are less than the cost of goods sold.
C. Collections are equal to the amount of cost of goods sold
D. All of the above.

58. HHH and III are venturers in a joint arrangement sharing control and profits
equally. They contributed P625,000 each to establish Joint Venture JJJ early in
2016. The Joint Venture paid cash dividends of P45,000 and reported a net
income of P180,000 during the year.
On the other hand, HHH paid cash dividends of P22,500 and reported a net
income of P90,000 during the year. Its Retained Earnings at the beginning of
the year is P125,000.
At what amounts will HHH report in its December 31, 2016 balance sheet the
Investment in Joint Venture and Retained Earnings accounts, respectively?
A. P625,900 and P250,000 C. P652,900 and P201,500
B. P629,500 and P251,000 D. P692,500 and P282,500

The next two questions are based on the following information.

On January 1, 2016 KKK Enterprises, an SME, acquired a 35% equity of LLL
Corporation, a Joint Venture. KKK will share with other venturers control and profits
in their respective participation ratios. KKK paid P116,000 for its interest and also
paid P5,800 transaction costs. KKK’s only investment in equity is this Joint
Arrangement.
During the year, LLL Corporation reported the following transactions:
a. Declared and paid a cash dividend of P30,000.
b. Reported a loss of P84,000 during the year.
The fair value of KKK’s investment is determined by appropriate valuation
techniques at P130,000. Costs to sell are estimated at P11,700.

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59. What is the amount of Investment in LLL Corporation will SME KKK report in its
2016 balance sheet if it uses the EQUITY MODEL?
A. P81,900 C. P118,300
B. P116,000 D. P130,000

60. What is the profit (loss) to be recognized by SME KKK in 2016 from Joint Venture
LLL under the FAIR VALUE MODEL?
A. P4,500 C. P16,500
B. P12,000 D. P18,700

61. Which of the following projects should be accounted for as a construction

contract under PAS 11?
A. A warehouse being constructed as an investment property.
B. An item of plant and machinery being constructed to be sold as inventory.
C. A building being constructed for a third party under a specifically negotiated
contract.
D. All of the above.

62. On January 2, 2016 Baguio Company sold a machine to Cagayan Valley

Enterprises for P900,000, resulting in a gain of P270,000. On that date Cagayan
Valley paid P150,000 cash and signed a P750,000 note bearing interest at 10%.
The note was payable in three annual installments beginning January 2, 2017.
Baguio accounted for the sale under the installment method. Cagayan Valley
made a timely payment of the first installment on January 2, 2017, of P325,000,
which included accrued interest. What amount of deferred gross profit should
Baguio report at December 31, 2017?
A. P150,000 C. P180,000
B. P172,500 D. P225,000

63. Contract revenue in construction contract comprises

A. The initial amount of revenue agreed in the contract.
B. Variation in the contract, claim and incentive payment.
C. The initial amount of revenue agreed in the contract and progress billings.
D. The initial amount of revenue agreed in the contract, variation in the control,
claim and incentive payment.

64. On December 31, 2016, Greyhound Bread Co. authorized Bakers, Inc. to operate
as a franchisee for an initial franchise fee of P150,000. Of this amount, P60,000
was received upon signing the agreement and the balance, represented by a
note, is due in three annual payments of P30,000 each beginning December 31,
2017. The present value on December 31, 2016, of the three annual payments
appropriately discounted is P72,000. According to the agreement, the
nonrefundable down payment represents a fair measure of the services already
performed by Greyhound; however, substantial future services are required by
Greyhound. Collectibility of the note is reasonably certain.
If Greyhound’s December 31, 2016 balance sheet, unearned franchise fees from
Baker’s franchise should be reported as
A. P72,000 C. P100,000
B. P90,000 D. P132,000

65. Upon signing of the franchise contract, the franchisee is required to pay the
A. Brokers fee. C. Initial franchise fee.
B. Continuing franchise fee. D. Professional fee.

66. INSOLBENT, INC. has had severe financial difficulties and is considering the
possibility of liquidation. At this time, the distressed company has the following
assets (stated at net realizable value) and liabilities:
Assets (pledged against debts of P70,000) P116,000
Assets (pledged against debts of P130,000) 50,000
Other assets 80,000
Liabilities with priority 42,000

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Unsecured creditors 200,000

In the event of liquidation at this point, how much is the estimated amount
recoverable by partially-secured creditors?
A. P50,000 C. P130,000
B. P74,000 D. P200,000

67. When it is probable that contract costs exceed contract revenue, the expected
loss should be
A. recognized as an expense immediately.
B. set off against profit of other contracts where available.
C. apportioned to the years of the contract according to the stage of
completion.
D. recognized as an expense immediately, unless revenue to date exceeds
costs to date.

68. Ante, Bert, and Carl have decided to liquidate their partnership. At this time,
the partnership has cash of P105,000, non-cash assets of P700,000 and
liabilities of P460,000. The partners’ capital balances, loan balances, and profit
and loss ratios are as follows:
Ante Bert Carl
Capital balances P120,000 P80,000 P110,000
Loan balances 15,000 20,000
Profit and loss ratio 60% 20% 20%
The results of liquidation are summarized below:
January February March
Proceeds from sale of assetsP500,000P90,000 P70,000
Payment of liabilities 280,000 100,000remaining balance
Liquidation expenses paid12,00010,000 5,000
Payment to partners 120,000 90,000remaining cash
How much is the cash withhold in January for future liquidation expenses?
A. P11,000 C. P13,000
B. P12,000 D. P15,000

69. RMV Corp., a consignee, paid the freight costs for goods shipped from ABACA
Corp., a consignor. These freight costs are to be deducted from RMV’s payment
to ABACA when the consigned goods are sold. Until RMV sells the goods, the
freight costs should be included in RMV’s
A. Accounts receivable C. Freight-out costs
B. Cost of goods sold D. Selling expenses

70. The freight on shipments to branch paid by the home office is recorded by the
home office as
A. Credit to cash C. Credit to Investment in Branch.
B. Credit to freight-in D. Debit to Freight-in

 ------- END OF EXAMINATION ------- 

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