CPA REVIEW SCHOOL OF THE PHILIPPINES

Manila

ADVANCED FINANCIAL ACCOUNTING AND REPORTING GERMAN and VALIX

PREWEEK SELF-TEST No. 1

Number 1

Which of the following would guide you in distinguishing a main product from a by-product?
A. Number of units per processing period
B. Joint costs incurred up to the split-off point
C. Percentage of total sales value
D. Weight or volume of outputs per period

Number 2

Which of the following statements regarding Partnership Accounting is FALSE?

A. A partnership loan that was made from a partner who has a capital deficiency may be offset against
the debit balance in his capital account.
B. Gains and losses incurred at liquidation are distributed to the partners using the residual profit and
loss sharing ratios when these amounts represent profits and losses from prior periods that would
have been shared using the remainder profit and loss ratios.
C. In dividing the profit or loss to the partners, all types of withdrawals made by a partner affects the
computation of the ending capital balance used as a basis in providing an allowance as to interest.
D. When partners agree to make their capital ratio in conformity with their profit and loss ratio using the
transfer of capital method, the partner whose agreed capital is lower than his contributed capital, may
receive a payment from the partner whose agreed capital is higher than his contributed capital.

Number 3

Which of the following statements regarding Partnership Accounting is TRUE?

A. In installment liquidation, a safe payment is the amount of distribution that can be made to the
partners which will not have to be returned to the partnership.
B. When the result of partnership operation is net income then it is always assured that bonus will be
given to a partner(s).
C. Fixed assets contributed by a partner in the partnership shall be credited to his capital account at
original cost.
D. In a partnership liquidation, with more than one deficient partner, partner or partners with personal
liabilities higher than his personal assets are the first to be eliminated in the distribution of cash.

Number 4

Which of the following statements regarding Partnership Accounting is FALSE?

A. In the preparation of a schedule of safe payments to partners, cash withheld for future liquidation
expenses and unrecorded liabilities that may be discovered are treated as loss on realization.
B. In an installment liquidation, a partner whose share in the maximum possible loss is greater than his
total interest will not receive cash for that period but may receive distributions from the partnership
by the next period.
C. Admission by investment will result in a bonus to the new partner and an asset revaluation upward if
the total contributed capital of all partners is less than the total agreed capital of the new partnership
while the agreed capital of the new partner is higher than the amount he contributed.
D. If a partner who retired from the partnership receives settlement from the partnership less than his
capital balance before retirement which also resulted in a decrease in the capital balance of remaining
partners, an impairment loss is recognized before the retirement.
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Number 5
Which of the following statements regarding Accounting for Foreign Currency Transactions is
FALSE?
A. If a sale on account by an Australian Company is made with a foreign company, and the Australian
Company has no foreign currency risk, then the Australian Company has denominated the transaction
in its local currency.
B. A Japanese importer that acquired merchandise from a firm in Thailand would be exposed to a net
exchange gain on the unpaid balance if the yen strengthened relative to the baht and the foreign
currency was the denominated currency.
C. Accounts representing an accumulated depreciation are translated into U.K. pounds at current rates
regardless of the functional currency.
D. Accounting exposure is the exposure to changes in exchange rates as a result of a firm making export
sales to a foreign customer or import purchase from a foreign vendor.

Number 6
Which of the following statements regarding Derivatives and Hedging is TRUE?
A. The sole purpose for entering into derivative contracts is to manage market risks such as foreign
exchange risk and interest rate risk.
B. When a firm commitment is hedged using a derivative financial instrument, fair value hedge
accounting requires explicit recognition of the statement of financial position at fair value of both the
derivative financial instrument and the firm commitment.
C. Options are frequently used to mitigate risks associated with fluctuations in the market prices of
securities or commodities. A call option is purchased to limit the price it will have to pay for a
commodity, a put option is purchased to limit potential price declines in the value of a financial asset
or commodity.
D. All derivative instruments are presented in the Statement of Financial Position at a positive fair value.

Number 7
J and K decided to form a Partnership and provided the following transactions:
 J invested P250,000 cash and equipment with a fair value of P150,000.
 K invested P350,000 cash, merchandise with an agreed value of P550,000, and Land with an
appraised value of P500,000 subject to a mortgage payable of P250,000 which the partnership will
assume.
 The partners also agreed to an equal interest in the partnership capital.
Compute the amount reported as total capital of the partners after formation
A. 1,800,000
B. 1,550,000
C. 1,750,000
D. 1,500,000

Number 8
On January 1, 2024, Q and R were partners with capital balances of P1,500,000 and P1,150,000
respectively. The profit and loss agreement of the partners included the following:
 Monthly salaries of P30,000 and P25,000 respectively for Q and R
 6% interest based on their January 1, 2024 capital balances
 Remainder to be shared equally
At the end of 2024, the partnership generated a net income of P500,000.
Compute the share of Partner R in the net income
A. 250,000
B. 227,500
C. 209,500
D. 217,000
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Number 9

On December 31, 2024, the Statement of Financial Position of LMN Partnership provided the following
data with profit or loss ratio of 1:6:3:

Current Assets 2,500,000 Total Liabilities 1,500,000

Noncurrent Assets 5,000,000 L, Capital 2,250,000
M, Capital 2,000,000
N, Capital 1,750,000
On January 1, 2025, O was admitted to the partnership by purchasing 40% of the capital interest of M at a
price of P1,250,000.
Compute the capital balance of M after the admission of O on January 1, 2024
A. 1,350,000
B. 1,200,000
C. 1,050,000
D. 750,000

Number 10

O and P have capital balances of P1,400,000 and P1,540,000 respectively before admission of N. Their
profit and loss agreement was 35:65. On January 1, N was to be admitted for 40% interest in the
partnership and 20% in the profits and losses by contributing used equipment which had a cost of
P1,435,000 and a fair value of P1,260,000. After the admission of N, O and P agreed to share profits and
losses equally. At the end of the year the new partnership generated net income of P910,000.
Assuming there is an implied undervaluation or (overvaluation) of an asset, compute the capital
balance of P at the end of the year
A. 3,269,000
B. 539,000
C. 2,586,500
D. 1,221,500

Number 11

On December 31, 2024, the Statement of Financial Position of TUV Partnership provided the following
data with profit or loss ratio of 5:1:4:
Current Assets 3,750,000 Total Liabilities 1,250,000
Noncurrent Assets 5,000,000 T, Capital 2,750,000
U, Capital 3,000,000
V, Capital 1,750,000
On January 1, 2025, S was admitted to the partnership by investing P1,250,000 to the partnership for 10%
capital interest. The total agreed capitalization of the new partnership is P7,500,000.
Compute the capital balance of V after the admission of S to the Partnership
A. 1,450,000
B. 2,050,000
C. 1,250,000
D. 1,950,000
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Number 12
On December 31, 2024, the Statement of Financial Position of DEF Partnership with profit or loss ratio of
5:2:3 of partners D, E and F respectively revealed the following data:

Cash 2,500,000 Liabilities 5,000,000

Non Cash assets 6,250,000 D, Capital 1,750,000
E, Capital 1,250,000
F, Capital 750,000
On January 1, 2025, the partners decided to liquidate the partnership. All partners are legally declared to
be personally insolvent. The noncash assets were sold for P4,500,000. Liquidation expenses amounting to
P750,000 were incurred and paid.
Compute the amount of cash received by Partner D after liquidation
A. 1,750,000
B. 875,000
C. 1,375,000
D. 500,000

Number 13

On September 30, 2024, The R, S, and T Partnership had the following fiscal year-end Statement of
Financial Position.

Cash P 48,000 Accounts Payable P 84,000

Accounts Receivable 72,000 Loan from T 60,000
Merchandise Inventory 168,000 R, Capital (20%) 168,000
Fixed Assets, net 144,000 S, Capital (20%) 120,000
Loan to R 72,000 T, Capital (60%) 72,000
P504,000 P504,000
The partners dissolved the partnership on October 1, 2024 and began the liquidation process. During
October the following events occurred:
a. Accounts receivables of P36,000 were collected
b. All the merchandise inventory was sold for P48,000.
c. Cash withheld for anticipated expenses amount to P24,000
Compute the amount of cash S would receive in the first distribution
A. 24,000
B. 4,800
C. 14,400
D. 0
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Number 14, 15 and 16

Loco Company bought the net assets of Coco Company by issuing 100,000 shares with P20 par value.
The fair value of the shares was P4,800,000. Immediately before the acquisition, the following balances
were ascertained for Coco Company:
Book Value Fair Value
Current assets 2,000,000 2,500,000
Noncurrent assets 3,000,000 4,400,000
Liabilities 600,000 1,700,000
Ordinary shares 4,000,000
Retained earnings 400,000
Loco Company also incurred the following costs:
 Professional fees to arrange business combination P50,000.
 SEC registration of newly issued shares P20,000.
 Printing and issuing of stock certificates P10,000.

14. What amount should Loco Company report as result of the business combination?
A. 400,000 goodwill
B. (400,000) gain on bargain purchase
C. 600,000 goodwill
D. (600,000) gain on bargain purchase

15. What amount should Loco Company record as additional paid in capital after acquisition?
A. 2,780,000
B. 2,800,000
C. 2,770,000
D. 2,720,000

16. What amount should Loco Company report as net increase (decrease) in the retained earnings
after acquisition?
A. 400,000
B. 320,000
C. (50,000)
D. 350,000

Number 17

On January 1, 2024, Entity A acquired 80% of the outstanding shares of Entity B for a cash consideration
of P1,185,000. On this date, the book value of the shareholders' equity of Entity B was P1,350,000. At the
acquisition date, the inventory of Entity B was understated by P75,000 and the equipment was
understated by P150,000. The acquisition date fair value of the noncontrolling interest was P300,000.

What amount should Entity A report as result of the business combination?

A. 90,000 gain on bargain purchase

B. 90,000 goodwill
C. 75,000 gain on bargain purchase
D. 75,000 goodwill
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Numbers 18 and 19

On January 1, 2024, Pei Company acquired 75% of the outstanding shares of Dari Company that resulted
at a gain on acquisition in the amount of P75,000. On this date the Ordinary shares and Retained earnings
of Dari Company were P1,200,000 and P300,000 respectively.
All of the book values of the assets and liabilities of Dari Company equal their fair values except for the
equipment which was understated by P156,000. The equipment had a remaining life of 10 years.
For the year ended, December 31, 2024, Pei Company reported a net income of P600,000, while Dari
Company reported a net income of P360,000 and declared dividends of P240,000

18. What amount should Pei Company report as consolidated net income attributable to parent for
the year ended December 31, 2024?
A. 600,000
B. 776,700
C. 678,300
D. 753,300

19. What amount should Pei Company report as noncontrolling interest net income for the year
ended December 31, 2024?
A. 360,000
B. 90,000
C. 93,900
D. 86,100

Number 20

A parent company that uses the equity method in accounting for its investment in subsidiary has
neglected to adjust the investment balance for its share in the subsidiary’s net income or net loss. The
parent’s share in the net income of the subsidiary was P60,000 last year and P40,000 this year. If the
subsidiary did not declare any dividends during the year, which of the following statements is true?
A. The net income of the parent this year should be increased by P100,000.
B. The retained earnings of the parent should be increased by P100,000.
C. The net income of the parent this year should be increased by P40,000 and retained earnings should
be increased by P60,000.
D. Any of the choices is true, depending on the company’s accounting policy.

Number 21

On January 1, 2024, Pint Company has acquired 100% controlling interest in Sterest Company. The net
assets of Sterest Company were all fairly value except for a note payable. The face value of the note is
P1,000,000 with a stated rate of 10%, but the effective rate in the market for a similar type of note is only
8%. The principal of the note is payable in lumpsum after 2 years and interest is payable annually. Which
of the following is true?
A. The book value of the net assets of the subsidiary on date of acquisition is less than its fair value.
B. Amortization of the excess will ultimately increase the consolidated retained earnings.
C. The difference in nominal and effective rate will not affect the measurement of the net assets
acquired by the acquirer.
D. All of the choices are true
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Number 22

Statement 1: On the consolidated working papers, the net income of the parent is allocated between the
controlling and non-controlling interests.
Statement 2: On the consolidated working papers, the net income of the subsidiary is allocated between
the controlling and non-controlling interests.
A. Both statements are true
B. Both statements are false
C. Statement 1 is true; statement 2 is false
D. Statement 2 is true; statement 1 is false

Number 23

A parent company provided a P10,000 non-interest bearing loan to its wholly owned subsidiary. With a
market rate of 9%, the fair value of the loan is determined to be P7,722. Which of the following is false?
A. In the books of the parent, the journal entry at the end of the first year will include a debit to
intercompany loan receivable for P695
B. In the books of the subsidiary, the journal entry at the end of the second year will include a debit to
interest expense for P758
C. The working paper entries at the end of the second year will include a debit to intercompany loan
payable for P758
D. The working paper entries at the end of the first year will include a credit to interest income for P695.

Number 24

Parent company has an investment in a subsidiary which it accounts for using the cost method.
Accordingly, the original cost of P250,000 is its carrying value. On December 1, 2024, the parent
declared its subsidiary as property dividends to its shareholders, to be distributed on January 30, 2025.
The fair value of the subsidiary shares amounted to P280,000 on December 1, 2024, and P270,000 on
December 31, 2024. In the books of the parent, which of the following is true?
A. The entry on December 1, 2024 will include a debit to asset held for distribution at P280,000.
B. The entry on December 1, 2024 will include a credit to property dividends payable for P280,000.
C. The entry on December 31, 2024 will include a debit to property dividends payable for P270,000
D. The entry on December 31, 2024 will include a debit to equity for P10,000.

Number 25

Which of the following statements is true?

A. A statutory merger occurs when exactly 2 companies combine, while a statutory consolidation occurs
when more than 2 companies combine.
B. A statutory merger is recorded in the books of the acquirer while a statutory consolidation is recorded
in the books of the acquiree.
C. A statutory merger legally dissolves all the companies in a business combination except for one,
while a statutory consolidation legally dissolves all the companies in a business combination.
D. A statutory merger is exactly the same as a statutory consolidation.
 Page 8

Numbers 26 and 27
Department of Health (DOH) received Notice of Cash Allocation (NCA) in the amount of P240,000 from
Department of Budget and Management (DBM). DOH made a total cash disbursements in the amount of
P228,000.

26. What is the journal entry to record the receipt of NCA from the DBM?
A. Cash-Modified Disbursement System (MDS), Regular 240,000
Subsidy Income National Government 240,000
B. Cash-Modified Disbursement System (MDS), Regular 240,000
Revenue 240,000
C. Cash-Modified Disbursement System (MDS), Regular 240,000
Advances from DBM 240,000
D. Cash-Modified Disbursement System (MDS), Regular 240,000
Accounts Receivable 240,000

27. What is the journal entry to recognize reversion of unused Notice of Cash Allocation?
A. Subsidy Income National Government 12,000
Cash-Modified Disbursement System (MDS), Regular 12,000
B. Retained earnings of DOH 12,000
Cash-Modified Disbursement System (MDS), Regular 12,000
C. Expenses of DOH 12,000
Cash-Modified Disbursement System (MDS), Regular 12,000
D. Investment in DOH 12,000
Cash-Modified Disbursement System (MDS), Regular 12,000

Number 28

Leyte Hospital, a nonprofit organization, reported the following information for the year ended December
31, 2024:
Gross patient service revenue 3,940,000
Bad debt expense 70,000
Contractual adjustments, VAT 267,270
Allowance for discounts to hospital employees 45,000
In Leyte Hospital’s statement of activities for the year ended December 31, 2024, what amount
should be reported as net patient service revenue?
A. 3,940,000
B. 3,627,730
C. 3,597,730
D. 3,895,000
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Numbers 29, 30 and 31

SPKH Foundation, a nonprofit organization, provided the following transactions during its first year of
operations:
 The nonprofit organization received P500,000 cash from a donor who stipulated that it shall be
used based on the discretion of the Board of Trustees of the nonprofit organization. The nonprofit
organization used P100,000 for the acquisition of souvenir items which were sold by the nonprofit
organization for P150,000. The remaining P400,000 was designated by the Board of Trustees for
future fundraising projects
 The nonprofit organization received P750,000 cash from a donor who stipulated that it shall be
used for the acquisition of service car. The nonprofit organization used P400,000 of the fund for
the acquisition of a service car with useful life of 4 years. The car was acquired at the middle of
the year.
 The nonprofit organization received P1,500,000 cash from a donor who stipulated that it shall be
invested indefinitely and the dividend from such investment shall be used for research project of
the organization. Dividend amounting to P225,000 was received during the year but only P75,000
was spent for the research project.

29. What amount should SPKH Foundation report as permanently restricted net assets at the end
of the first year?
A. 1,650,000
B. 1,950,000
C. 1,800,000
D. 1,500,000

30. What amount should SPKH Foundation report as temporarily restricted net assets at the end
of the first year?
A. 1,150,000
B. 500,000
C. 750,000
D. 975,000

31. What amount should SPKH Foundation report as unrestricted net assets at the end of the first
year?
A. 900,000
B. 500,000
C. 975,000
D. 950,000

Numbers 32 and 33

ABC Company is a manufacturer that sells its product to local retailers. Retailers sell the product to its
customers and for each product purchased by the customers, a coupon of P200 discount is given and may
be used on future purchase of the same product. Retailers are reimbursed for the discount by the
manufacturer when customers redeem their coupons. During 2024, the manufacturer sold 8,000 products
to the retailers at P1,100 each product. It is expected that 75% of the coupons will be redeemed. By
December 31, 2024, the manufacturer had paid the retailers P500,000 as reimbursement.

32. What amount should ABC record as sales revenue for 2024?
A. 7,200,000
B. 8,400,000
C. 8,800,000
D. 7,744,000

33. What amount should ABC report as rebate liability on December 31, 2024?
A. 556,000
B. 1,056,000
C. 1,200,000
D. 1,600,000
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Numbers 34 and 35

XYZ Company, a high street chain, is offering a promotion whereby a customer who purchases three
boxes of chocolates at P400 per box in a single transaction shall receive a coupon for one free box of
chocolates if the customer fills out a request form and mails it before a set expiration date. It is expected
that 75% of the coupons will be redeemed. During 2024, the entity sold 30,000 boxes of chocolates at
P400 per box. During 2025, the entity delivered 6,000 additional free boxes of chocolates.

34. What amount should XYZ report as sales revenue in 2024?

A. 4,800,000
B. 9,600,000
C. 6,000,000
D. 12,000,000

35. What amount should XYZ report as sales revenue from the delivery of free products in 2025?
A. 1,440,000
B. 960,000
C. 1,200,000
D. 1,800,000

Numbers 36 and 37

On July 1, 2024, DEF Company, a manufacturer of office furniture, supplied goods to GHI Company for
P12,000,000 on condition that this amount is paid in full on July 1, 2025.
GHI Company had earlier rejected an alternative offer from DEF Company whereby it could have bought
same goods by paying cash of P10,800,000 on July 1, 2024.

36. What amount should DEF Company recognize as sales revenue on July 1, 2024?
A. 10,000,000
B. 13,400,000
C. 12,000,000
D. 10,800,000

37. What amount should DEF Company reported as interest income for 2024?
A. 1,200,000
B. 600,000
C. 1,000,000
D. 0

Numbers 38 and 39

On July 1, 2024, ABC Company handed over to a client a new computer system. The contract price for
both the supply of the system and after-sales support for 12 months was P8,000,000.
The entity estimated the cost of the after-sales support at P1,200,000 and it marked up such cost by 50%
when tendering for support contracts.

38. What amount should ABC report as revenue from the sale of computer system for 2024?
A. 8,000,000
B. 6,800,000
C. 6,200,000
D. 9,200,000

39. What amount should ABC report as contract revenue from the after-sales support system for
2024?
A. 1,800,000
B. 900,000
C. 1,200,000
D. 600,000
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Numbers 40 and 41

On January 1, 2024, CD Company accepted a long-term construction project for a fixed contract price of
P4,000,000 to be completed on November 30, 2025. The entity provided the following data concerning
the direct costs related to the said project for 2024 and 2025:
2024 2025
Costs incurred to date 1,200,000 3,000,000
Remaining estimated costs to complete at year-end 4,800,000 750,000

40. Under IFRS 15, what amount should CD Company report as gross profit or (loss) for the year
ended December 31, 2025?
A. 200,000
B. 250,000
C. 2,200,000
D. (1,800,000)

41. Under IFRS 15, what amount should CD Company report as construction in progress balance
on December 31, 2025?
A. 3,000,000
B. 3,200,000
C. 4,400,000
D. 5,200,000

Number 42

On January 1, 2024, Entity X, a public entity, and Entity Y, a public entity, incorporated Entity Z which
has its fiscal and operational autonomy. The contractual agreement of the incorporating entities provided
that the decisions on relevant activities of Entity Z will require the unanimous consent of both entities.
Entity X and Entity Y will have rights to the net assets of Entity Z.
Entity X and Entity Y invested P4,000,000 and P6,000,000, respectively, equivalent to 40:60 capital
interest of Entity Z. The financial statements of Entity C provided the following data for its two-year
operation:
Net income / (Net loss) Dividends declared
2024 800,000 400,000
2025 (2,000,000) -
What amount should Entity X report as Investment in Entity Z on December 31, 2024?
A. 4,000,000
B. 4,320,000
C. 4,160,000
D. 4,480,000

Numbers 43 and 44

On January 1, 2024, Entity X and Entity Y, both SMEs, incorporated Entity Z, a jointly controlled entity
by investing P10,000,000 each in exchange for 100,000 ordinary shares representing 50% interest each of
Entity Z. Entity X and Entity Y each incurred P400,000 transaction costs.
The contractual agreement of the incorporating entities provided that the decisions on relevant activities
of Entity Z will require the unanimous consent of both entities. Entity X and Entity Y will have rights to
the net assets of Entity Z.
For the year ended December 31, 2024, Entity C reported net income of P2,000,000 and declared
dividends in the amount of P600,000.
On December 31, 2024, the ordinary shares of Entity C are quoted at P112.
 Page 12
43. If Entity X elected fair value model to account for its investment in Entity Z, what is the net
effect on Entity X’s profit or loss for the year ended December 31, 2024?
A. 1,100,000 net income
B. 1,200,000 net income
C. 300,000 net income
D. 800,000 net income

44. If Entity Y elected equity method to account for its investment in Entity Z, what is the carrying
amount of Entity Y’s Investment in Entity C on December 31, 2024?
A. 10,400,000
B. 10,900,000
C. 10,700,000
D. 11,100,000

Numbers 45 and 46

On January 1, 2024, Entity A and Entity B, both SMEs, incorporated Entity C, a jointly controlled entity
by investing P400,000 each in exchange for 50,000 ordinary shares each representing 50% share of Entity
C. Entity A and Entity B each incurred P20,000 transaction costs.
The contractual agreement of the incorporating entities provided that the decisions on relevant activities
of Entity C will require the unanimous consent of both entities. Entity A and Entity B will have rights to
the net assets of Entity C.
For the year ended December 31, 2024, Entity C reported net income of P100,000 and declared dividends
in the amount of P20,000.
On December 31, 2024, the investment in Entity C has a value in use of P430,000.

45. If Entity A elected cost method to account its Investment in Entity C, what is the carrying
amount of Entity A’s Investment in Entity C on December 31, 2024?
A. 420,000
B. 430,000
C. 460,000
D. 400,000

46. If Entity B elected equity method to account its Investment in Entity C, what is the net effect in
Entity B’s profit or loss for the year ended December 31, 2024?
A. 50,000 net profit
B. 10,000 net profit
C. 20,000 net profit
D. 30,000 net profit

Number 47

Under IFRS for SMEs, the income of the SME-venturer for its investment in joint venture under fair
value model consists of
A. Share in net income of joint venture
B. Dividend income
C. Gain on changes in fair value of investment
D. Dividend income and gain on changes in a fair value of investment

Number 48

Under IFRS for SMEs, the income of the SME-venturer for its investment in joint venture under cost
method consists of
A. Share in net income of joint venture
B. Dividend income
C. Gain on changes in fair value of investment
D. Both C and D
 Page 13

Numbers 49, 50 51 and 52

Silay Company is employing process costing regarding its production cycle.

Conversion costs are added uniformly during the production process while direct materials are added 20%
at the start of production process, 45% at the middle of the production process and the remainder at the
end of production process. Normal spoilage is 10% of units started during the year.

The entity is conducting inspection when the production process is at 45% of conversion cost. The entity
provided the following production data during the year:

Beginning Work in Process Inventory 20,000 units (40% incomplete as to conversion costs)
Units started during the year 80,000 units
Ending Work in Process Inventory 10,000 units (80% complete as to conversion costs)
Units completed during the period 76,000 units

49. What is the equivalent unit of production for direct material under average process costing?
A. 85,300 units
B. 82,300 units
C. 76,500 units
D. 87,500 units

50. What is the equivalent unit of production for conversion cost under average process costing?
A. 89,300 units
B. 90,300 units
C. 86,500 units
D. 92,300 units

51. What is the equivalent unit of production for direct material under FIFO costing?
A. 70,300 units
B. 74,500 units
C. 72,300 units
D. 76,900 units

52. What is the equivalent unit of production for conversion cost under FIFO costing?
A. 78,300 units
B. 82,500 units
C. 74,900 units
D. 77,300 units

Number 53

In job order costing, normal spoilage which is a characteristic of a given production cycle shall be
A. Expensed as incurred
B. Charged or capitalized to a specific job
C. Closed to factory overhead account
D. Debited to work in process account
 Page 14

Number 54

On December 31, 2024, the Home Office Current account in the books of Quezon Branch had a balance
of P975,000. In analyzing the activity in each of these accounts for December, you found the following
differences:
a. A P20,000 branch remittance to the home office initiated on December 21, 2024 was recorded twice
by the home office on December 26 and 28.
b. The home office incurred P36,000 of advertising expenses and allocated 1/3 of this amount to the
branch on December 20. The branch recorded this transaction on December 22 amounting to P
1,200.
c. Inventory costing P50,300 was sent to the branch by the home office on December 15. The billing
was at cost, but the branch recorded the transaction at P53,000.
The adjusted balance of the reciprocal accounts on December 31, 2024?
A. 966,900
B. 988,500
C. 961,500
D. 983,100

Number 55

The home office in Alabang shipped merchandise costing P55,500 to the Davao branch and paid the
freight amounting to P4,200. The home office transfers merchandise to the branch at a 20% mark-up
based on cost. Davao branch was subsequently instructed to transfer the merchandise to Cebu branch
wherein the latter paid P2,800 freight. If the shipment was made directly from Alabang to Cebu, the
freight cost would have been P6,200.
Compute the amount credited to Home Office Current account in the books of Cebu branch
A. 72,800
B. 61,700
C. 70,000
D. 71,240

Number 56

Phoenix Trading Co. has a branch in Quezon City. On December 31, 2024, Investment in Quezon City
Branch account in the home office books showed a balance of P386,000. The interoffice accounts were in
agreement at the beginning of the year. For purposes of reconciling the reciprocal accounts, the
following facts were ascertained:
a. The home office erroneously recorded a remittance for P4,800 from its Bacolod branch as a
remittance from its Quezon City branch.
b. The branch failed to take up a P1,500 debit memo from the home office representing its share in
marketing expenses.
c. Home office credit memo representing a discount on merchandise for P2,100 was not recorded by
the branch.
Compute the unadjusted balance of the Home Office Current account on December 31, 2024
A. 390,800
B. 391,400
C. 390,200
D. 381,800
 Page 15
Number 57

A home office ships inventory to its branch at a mark-up of 125% based on cost. The required balance of
the unrealized intercompany account is P285,000. During the year, the home office sent merchandise to
the branch costing P1,800,000. At the start of the year, the branch's books showed P360,000 of inventory
on hand that was acquired from the home office.
Compute the realized mark-up
A. 2,450,000
B. 2,165,000
C. 237,000
D. 522,000

Number 58

During the year 2024, goods billed at P650,000 were shipped to the branch at 130% of cost. The account
Loading in Branch Inventory has a balance of P245,000 before adjustment. The beginning inventory of
the branch from the home office at cost is P475,000; the beginning inventory of the branch from outsiders
is P108,000; purchases from outsiders is P290,000.
Compute the total goods available for sale of the branch from the home office
A. 1,061,667
B. 1,267,500
C. 1,618,000
D. 1,220,000

Number 59

Roven Co. operates a branch in Pasig. At the end of the year, the home office current account in the
books of the branch shows a balance of P150,000. The following information were ascertained in
reconciling the reciprocal accounts:
a. A Home Office accounts receivable for P10,500 was collected by the branch. The home office
was not yet notified by the branch.
b. Supplies of P4,500 were returned by the branch to the home office but the home office has not yet
reflected in its records the receipt of the supplies.
c. The branch has not received the cash in the amount of P18,000 sent by the home office on
December 31.
Compute the adjusted balance of the Investment in Branch account in the books of the home office
on December 31
A. 168,000
B. 162,000
C. 174,000
D. 132,000

Number 60

The Home Office in Makati shipped merchandise costing P280,000 to the Manila branch and paid for the
freight charges of P2,100. The home office bills the branch at 125% of cost. Manila branch was
subsequently instructed to transfer one-half of the merchandise to Quezon City branch wherein Quezon
City branch paid for P700 freight. If the shipment was made directly from Makati to Quezon City, the
freight cost would have been P1,400.
By how much will the Manila Branch charge the Home Office Current account?
A. 179,550
B. 177,100
C. 176,050
D. 176,750
 Page 16

Number 61

The Home Office in Palawan shipped merchandise costing P280,000 to Mindoro branch, the freight
collect amounting to P2,100. Mindoro branch was subsequently instructed to transfer 60% of the
merchandise to Batangas branch wherein Batangas branch paid for P700 freight. Had the merchandise
been shipped directly from Palawan to Batangas, the freight cost would have been P1,400.
Compute the excess freight chargeable to Palawan
A. 560
B. 0
C. 1,400
D. 280

Number 62

The accountant of XYZ Corporation prepared a Statement of Financial Affairs. Assets in which there are
no claims or liens are expected to produce P600,000. Unsecured claims of all classes totaled to
P1,050,000. The following data are claims deemed outstanding:
● Accrued salaries, P15,000.
● A note for P10,000, on which P600 of interest has accrued, held by NOP Co.
● A note for P30,000 secured by P40,000 receivable, estimated to be 60% collectible held by JKL Co.
● A P15,000 note, on which P300 interest has accrued, held by QRS Company, property with a book
value of P10,000 and estimated realizable value of P18,000 is pledged to guarantee payment of
principal and interest.
● Unpaid income taxes of P35,000.
Compute the expected percentage settlement to JKL
A. 65%
B. 60%
C. 59%
D. 92%

Number 63

Statement 1. The required balance of the Allowance for Overvaluation account is the mark-up in the total
ending inventory of the branch.
Statement 2. The combined net income of the home office and its branches is presented in the separate
Statement of Comprehensive Income of the Home office.
A. Both statements are true
B. Both statements are false
C. Only statement 1 is true
D. Only statement 2 is true

Number 64

Statement 1. Assuming the home office ships merchandise to the branch at a mark-up based on cost, the
account Shipments from Home Office in the published income statement is reported at billed price.
Statement 2. A credit memo received by the branch may be a notification from the home office about
allocation of expenses incurred by the latter.
A. Both statements are true
B. Both statements are false
C. Only statement 1 is true
D. Only statement 2 is true
 Page 17

Number 65

Statement 1. The accounts Shipments to Branch and Shipments from Home Office are eliminated in the
working paper and closed in the separate books.
Statement 2. A branch may debit an Investment in “another” Branch account for purposes of inter branch
transactions.
A. Both statements are true
B. Both statements are false
C. Only statement 1 is true
D. Only statement 2 is true

Numbers 66 and 67

Fox, Greg, and Howe are partners with average capital balances during 2024 of P120,000, P60,000, and
P40,000, respectively. Partners receive 10% interest on their average capital balances. After deducting
salaries of P30,000 to Fox and P20,000 to Howe, the residual profit or loss is divided equally.

66. In 2024, the partnership sustained a P33,000 loss before interest and salaries to partners. By
what amount should Fox’s capital account change?
A. 7,000 increase
B. 11,000 decrease
C. 35,000 decrease
D. 42,000 increase

67. If the partnership agreement does not specify how income is to be allocated, profits and loss
should be allocated
A. Equally
B. In proportion to the weighted average of capital invested during the period
C. Equitably so that partners are compensated for the tine and effort expended on behalf of the
partnership
D. In accordance with their capital contributions.

Number 68

A and B formed a partnership. The partnership agreement stipulates the following:

 A shall contribute noncash assets with carrying amount of P60,000 and fair value of P100,000.
 B shall contribute cash of P200,000.
 A and B shall have interests of 80% and 20%, respectively, on both the initial partnership capital
and in subsequent partnership profits and losses.
 No outside cash settlements shall be made between and among the partners.
The adjusted capital account of B after the formation is
A. 100,000
B. 200,000
C. 60,000
D. None of these
 Page 18

Number 69, 70 and 71

On June 30, 2024, the condensed balance sheet for the partnership of Eddy, Fox and Grimm, together
with their respective profit and loss sharing percentages were as follows:
Assets, net of liabilities 320,000

Eddy, capital (50%) 160,000

Fox, capital (30%) 96,000
Grimm, capital (20%) 64,000
320,000

69. Eddy decided to retire from the partnership and by mutual agreement is to be paid P180,000
out of partnership funds for his interest. No goodwill is to be recorded. After Eddy’s
retirement, what is the capital balance of Fox?
A. 84,000
B. 102,000
C. 108,000
D. 120,000

70. Assume instead that Eddy remains in the partnership and that Hamm is admitted as a new
partner with a 25% interest in the capital of the new partnership for a cash payment of
P140,000. The bonus method shall be used to record the admission of Hamm. Immediately
after admission of Hamm, Eddy’s capital account balance should be
A. 280,000
B. 172,500
C. 160,000
D. 140,000

71. The admission of a new partner effected through purchase of interest in the partnership is
A. Recorded in the partnership books as a debit to cash or other asset and credit to the incoming
partner’s capital account
B. Recorded in the partnership books as a transfer within equity
C. Recorded in the partnership books as a transfer from equity to liability
D. Not recorded in its entirety

Numbers 72 and 73

Jack and Beans, who share profits and losses at a ratio of 3:7, decided to liquidate their Talk Partnership.
The partners’ capital balances are P300,000 and P190,000, respectively.

72. The partnership has total liabilities of P200,000. If all partnership assets are realized for
P500,000, how much would Jack receive from the liquidation?
A. 243,000
B. 57,000
C. 300,000
D. 133,000

73. If on final settlement of partners’ claims, Beans received P99,000, how much did Jack receive?
A. 261,000
B. 234,000
C. 89,000
D. 0
 Page 19
Number 74

Statement of Financial Position for Puro Corporation and Sato Company on December 31, 2024 are given
below:
Puro Sato
Cash and cash equivalents P70,000 P90,000
Inventory 100,000 60,000
Property and equipment 500,000 250,000
Investment in Sato Company 260,000 -
Total assets 930,000 400,000

Current liabilities 180,000 60,000

Long-term liabilities 200,000 90,000
Common stock 300,000 100,000
Retained earnings 250,000 150,000
Total liabilities and SHE 930,000 400,000
Puro Corporation purchased 80% ownership of Sato Company on December 31, 2024, for P260,000. On
that date, Sato Company’s property and equipment had a fair value of P50,000 more than the book value
shown, while its long-term liabilities had a market value of P150,000. All other book values
approximated fair values. In the consolidated statement of financial position on December 31, 2024:
What amount of goodwill will be reported?
A. 0
B. 85,000
C. 25,000
D. 60,000

Numbers 75, 76 and 77

Statement of financial position reflecting uniform accounting procedures, as well as fair values that are to
be used as basis of the combination are prepared on September 1, 2024, as follows:
A Company B Company C Company
Assets 5,250,000 6,800,000 900,000

Liabilities 3,950,000 2,650,000 530,000

Capital stock, all P10 par 1,700,000 1,200,000 275,000
APIC 500,000 140,000
Retained Earnings (deficit) (400,000) 2,450,000 (45,000)
A company (Acquirer) shares have a market value of P22 per share.
On September 1, 2024, A Company acquires all of the assets and assumes the liabilities of B Company
and C Company by issuing 200,000 shares of its stock to B Company and 29,000 of its stock to C
Company. A Company pays P10,000 share issuance costs and P20,000 for other acquisition costs of
combination.

75. What is the total goodwill to be recorded by A Company arising from the acquisition of B and
C?
A. 518,000
B. 250,000
C. 268,000
D. 500,000

76. What is the total stockholders’ equity in the combined statement of financial position after
combination?
A. 6,308,000
B. 7,148,000
C. 6,728,000
D. 1,300,000
 Page 20

77. Direct costs incurred in a business combination are

A. Capitalized
B. Expensed
C. Capitalized, except for costs of issuing equity and debt instruments
D. Expensed, except for costs of issuing equity and debt instruments

Number 78

On January 2, 2024, Peter Co. acquired 80% of Sato’s outstanding common stock for P500,000. Sato’s
book value on that date was P500,000. There were no significant differences between the market value
and book value of Sato’s net assets. Goodwill, if any, is not impaired. During 2024, Peter and Sato
reported the following:
Peter Sato
Comprehensive income, excluding dividends from Subsidiary 1,000,000 200,000
Dividends declared and paid 300,000 120,000
How much is the CNI attributable to parent?
A. 1,143,750
B. 1,160,000
C. 1,146,875
D. 1,150,000

Numbers 79, 80 and 81

Papa Corporation owns 75% of the outstanding stock of San Company, acquired at book value in 2021.
Selected information from the accounts of Papa Corporation and San Company for 2024 are as follows:
Papa San
Sales 900,000 500,000
Cost of goods sold 490,000 190,000
During 2024, Papa sold merchandise to San for P50,000 at a gross profit of P20,000. Half of this
merchandise remained in San’s inventory at December 31, 2024. San’s December 31, 2023(beginning
inventory of 2024) included unrealized profit of P4,000 on goods acquired from Papa.
In the consolidated CI for Papa Corporation and subsidiary for 2024, compute for the following:

79. Consolidated Sales

A. 1,450,000
B. 1,350,000
C. 1,250,000
D. 1,400,000

80. Consolidated Cost of Goods Sold

A. 640,000
B. 636,000
C. 634,000
D. 625,000

81. The realized gross profit of P4,000 would be:

A. Deducted from Consolidated Cost of Goods Sold
B. Added to Consolidated Cost of Goods Sold
C. Ignored in the determination of Consolidated Net Income
D. Added to Consolidated Sales
 Page 21

Numbers 82 and 83

On January 1, 2024, Pete Company sold equipment to Sison Company, its wholly-owned subsidiary, for
P400,000. The equipment had a cost of P500,000; the accumulated depreciation at the time of sale was
P250,000. Pete used a 10-year life, no salvage value, and straight-line depreciation. Sison will continue
this practice. In the consolidated statement of financial position at December 31, 2024, compute for the
following balances:

82. Cost of equipment

A. 500,000
B. 400,000
C. 300,000
D. 150,000

83. Gain (Loss) on sale of equipment

A. (100,000)
B. 150,000
C. (150,000)
D. 0

Numbers 84 and 85

On November 1, 2024, LLL Corporation imported goods from a foreign supplier for $5,900, with
payment due on March 1, 2025. To hedge against this foreign currency exposure, LLL Corporation
entered into a forward contract to purchase $5,900 on November 1, 2024. The following relevant rates
were made available:
Offer rates November 1, 2024 December 31, 2024 March 1, 2025
Spot rate P50.50 P50.95 P51.20
Forward rate P50.90 P51.05 P51.20

84. How much is the fair value of the forward contract on November 1, 2024?
A. nil
B. 295 asset
C. 885 asset
D. 885 liability

85. How much is the fair value of the forward contract on December 31, 2024?
A. nil
B. 295 asset
C. 885 asset
D. 885 liability
 CPA REVIEW SCHOOL OF THE PHILIPPINES

ADVANCED FINANCIAL ACCOUNTING AND REPORTING GERMAN and VALIX

PREWEEK SELF-TEST No.2

Number 1
Which statement is not true about a partnership?
A. Any natural person who possesses the right to enter into a contract can become a partner.
B. All partners are co-owners of partnership property and co-owners of profits and losses of the
partnership.
C. A partnership may be formed to perform any legal business, trade or profession or other service.
D. Nonprofit organizations may form a partnership.

Number 2
Which statement is not a characteristic of a partnership?
A. A partnership has a juridical personality separate and distinct from each of the partners.
B. The formation of partnership requires formalities as in a corporation.
C. Any change in the agreement of the partners terminates the partnership contract.
D. Generally, each partner may be held personally liable for all the dents of the partnership and all of his
business and personal properties may be used for the settlement of partnership liabilities.

Number 3
Which statement is incorrect about the capital and drawing accounts of partners?
A. Normally, increases or decreases in capital that are interpreted as permanent capital changes are
recorded in the drawing account.
B. Withdrawals which are considered equivalent to salaries made by the partners in anticipation of
profits are recorded in the drawing account.
C. At the end of the accounting period, the debit and credit balances in the drawing accounts are closed
to the respective partner’s capital account.
D. The share of each partners in the profit or loss is recorded in the respective capital account.

Numbers 4 and 5
A, B and C decided to form ABC Partnership. It was agreed that A will contribute an equipment with
assessed value of P200,000 with historical cost of P1,600,000 and accumulated depreciation of
P1,200,000. A day after the partnership formation, the equipment was sold for P600,000.

B will contribute a land and building with carrying amount of P2,400,000 and fair value of P3,000,000.
The land and building are subject to a mortgage payable amounting to P600,000 to be assumed by the
partnership. The partners agreed that B will have 60% capital interest in the partnership. The partners also
agreed that C will contribute sufficient cash to the partnership.

4. What is the total agreed capitalization of the ABC Partnership?

A. 3,000,000
B. 4,000,000
C. 5,000,000
D. 6,000,000

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

A. 1,000,000
B. 1,200,000
C. 1,400,000
D. 1,600,000
 Page 2

Number 6

On January 1, 2024, A, B and C formed ABC Partnership with total agreed capitalization of P1,000,000.
The capital interest ratio of the ABC Partnership is 5:1:4 while the profit or loss ratio is 3:2:5,
respectively for A, B and C.

During 2024, A and B made additional investments of P200,000 and P500,000, respectively. At the end
of 2024, B and C made drawings of P300,000 and P100,000, respectively. On December 31, 2024, the
capital balance of B is reported at P200,000.

What is the capital balance of C on December 31, 2024?

A. 150,000
B. 50,000
C. 200,000
D. 250,000

Number 7

On December 31, 2024, ABC Partnership’s Statement of Financial Position shows that A, B and C have
capital balances of P400,000, P300,000 and P100,000 with profit or loss ratio of 1:4:5. On January 1,
2025, C retired from the partnership and received P80,000. At the time of C’s retirement, an asset of the
partnership is overvalued.

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

A. 284,000
B. 308,000
C. 316,000
D. 320,000

Number 8

On December 31, 2024, the Statement of Financial Position of ABC Partnership provided the following
data with profit or loss ratio of 1:6:3:

Current Assets 2,600,000 Total Liabilities 600,000

Noncurrent Assets 4,000,000 A, Capital 2,800,000
B, Capital 1,400,000
C, Capital 1,800,000

On January 1, 2025, D is admitted to the partnership by investing P2,000,000 to the partnership for 20%
capital interest.

If the all the assets of the existing partnership are properly valued, what is the capital balance of C
after the admission of D?
A. 1,920,000
B. 1,800,000
C. 1,680,000
D. 2,400,000
 Page 3

Number 9

On December 31, 2024, the Statement of Financial Position of ABC Partnership with profit or loss ratio
of 6:1:3 of partners A, B and C respectively, revealed the following data:

Cash 2,000,000 Other Liabilities 4,000,000

Receivable from A 1,000,000 Payable to B 2,000,000
Other noncash assets 4,000,000 Payable to C 200,000
A, Capital 1,400,000
B, Capital (1,300,000)
C, Capital 700,000

On January 1, 2025, the partners decided to liquidate the partnership. All partners are legally declared to
be personally insolvent. The other noncash assets were sold for P3,000,000. Liquidation expenses
amounting to P200,000 were incurred.

How much cash was received by B at the end of partnership liquidation?

A. 500,000
B. 300,000
C. 580,000
D. 540,000

Number 10

On December 31, 2024, the Statement of Financial Position of ABC Partnership with profit or loss ratio
of 5:3:2 of respective partners A, B and C. showed the following information:

Cash 3,200,000 Total Liabilities 4,000,000

Noncash assets 2,800,000 A, Capital 200,000
B, Capital 1,000,000
C, Capital 800,000

On January 1, 2025, the partners decided to liquidate the partnership in installment. All partners are
legally declared to be personally insolvent.

As of January 31, 2025, the following transactions occurred:

 Noncash assets with a carrying amount P2,000,000 were sold at a gain of P200,000.
 Liquidation expenses for the month of January amounting to P100,000 were paid.
 It is estimated that liquidation expenses amounting to P300,000 will be incurred for the month of
February, 2024.
 20% of the liabilities to third persons were settled.
 Available cash was distributed to the partners.

What is the amount of cash received by partner C on January 31, 2025?

A. 520,000
B. 480,000
C. 600,000
D. 700,000
 Page 4

Number 11
Cebu Company is experiencing financial problems which resulted to ultimate bankruptcy. The statement
of financial position of the entity before liquidation is presented below:

Cash 100,000 Income tax payable 200,000

Inventory 300,000 Salaries payable 300,000
Land 200,000 Note payable 800,000
Mortgage payable 100,000
Accounts payable 400,000
Contributed capital 500,000
Deficit (1,700,000)

 The note payable is secured by the inventory with net realizable value of P250,000.
 The mortgage payable is secured by the land with fair value of P120,000.

What is the amount received by the employees at the end of corporate liquidation concerning their
salaries?
A. 100,000
B. 120,000
C. 72,000
D. 300,000

Number 12

AAA Company is bankrupt and has undergone corporate liquidation. Presented below is its statement of
financial position before the start of liquidation:

Cash 300,000 Accounts Payable 100,000

Machinery 500,000 Salaries Payable 200,000
Building 1,200,000 Income tax Payable 300,000
Loan Payable 400,000
Mortgage payable 500,000
Contributed capital 800,000
Deficit (300,000)

 Liquidation expenses amounting to P600,000 were paid.

 The loan payable is secured by the machinery with fair value of P300,000.
 The mortgage payable is secured by the building with fair value of P1,380,000.

What is the amount of net free assets available at the end of liquidation?
A. 80,000
B. 40,000
C. 120,000
D. 200,000

Number 13
In every corporation liquidation, which type of credit will not share from the free assets of the
corporation?
A. Unsecured claims with priority
B. Unsecured claims without priority
C. Fully secured claims
D. Partially secured claims
 Page 5

Number 14

In accounting for corporate liquidation, which of the following statements is incorrect?

A. Fully secured creditors no longer share in the remaining free assets after payment of unsecured
liabilities
without priority.
B. Assets used as security for partially secured liabilities are offsetted against their secured debts and can
no longer be used to pay unsecured liabilities.
C. Unsecured credits with priority such as liabilities to employees and taxes due to government can
always be fully recovered by the said creditors in every corporate liquidation.
D. The unsecured portion of the liabilities to partially secured creditors are added to unsecured credits
without priority in the computation of recovery percentage of the unsecured creditors without priority.

Number 15

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

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

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

Inventory 2,000,000 Accounts payable 4,000,000

Land 6,000,000 Note payable 2,000,000
Building 10,000,000 Loan payable 8,000,000
Share capital 2,000,000
Retained earnings 2,000,000
Sales revenue 10,000,000

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

 Entity A owns the land and incurs the loan payable of Entity C.

 Entity B owns the building and incurs the note payable of Entity C.

 The other assets and liabilities are owned or owed by Entity A and Entity B on the basis of their
capital interest in Entity C.

 The sales revenue of Entity C includes sales to Entity A and Entity B in the amount of P2,000,000 and
P4,000,000, respectively. As of the end of the first year, Entity A and Entity B were able to resell
30% and 60% of the inventory coming from Entity C to third persons.

What is the amount of total assets to be reported by Entity A concerning its interest in Entity C?
A. 10,800,000
B. 6,000,000
C. 7,200,000
D. 10,000,000
 Page 6

Number 16

On January 1, 2024, Entity A, a public entity, and Entity B, a public entity, incorporated Entity C which
has its fiscal and operational autonomy. The contractual agreement of the incorporating entities provided
that the decisions on relevant activities of Entity C will require the unanimous consent of both entities.
Entity A and Entity B will have rights to the net assets of Entity C.

Entity A and Entity B invested P1,000,000 and P1,500,000, respectively, equivalent to 40:60 capital
interest of Entity C. The financial statements of Entity C provided the following data for its two-year
operation:

Net income (loss) Dividends declared

2024 200,000 100,000

2025 (2,000,000) -

What is the balance of Investment in Entity C to be reported by Entity A in its Statement of

Financial Position on December 31, 2025?
A. 1,080,000
B. 1,040,000
C. 240,000
D. 200,000

Number 17

Two entities established a joint arrangement in an incorporated entity. The assets and liabilities of the
entity shall be in the name of the incorporated entity. The activities of the arrangement shall be decided
by its own board of directors. The rights of the two parties are limited only to the net assets of the
incorporated entity. How should the two parties account for their investment?
A. Either joint venture or joint operation
B. Joint venture
C. Joint operation
D. Trading investment

Number 18

On January 1, 2024, Entity A and Entity B, both SMEs, incorporated Entity C, a jointly controlled entity
by investing P2,000,000 each in exchange for 50,000 ordinary shares each of Entity C. Entity A and
Entity B each incurred P250,000 transaction costs.
The contractual agreement of the incorporating entities provided that the decisions on relevant activities
of Entity C shall require the unanimous consent of both entities. Entity A and Entity B shall have rights to
the net assets of Entity C.
For the year ended December 31, 2024, Entity C reported net income of P1,000,000 and declared
dividends in the amount of P750,000.
On December 31, 2024, the ordinary shares of Entity C are quoted at P55. Entity A elected the fair value
model to account its investment in Entity C.

What amount should be reported as investment income by Entity A for 2024?

A. 875,000
B. 500,000
C. 1,125,000
D. 1,000,000
 Page 7
Number 19
Under IFRS 15, in which of the following instances will the revenue from contracts with customers be
recognized at a point in time instead of over time?
A. When the customer simultaneously receives and consumes all of the benefits provided by the entity as
the entity performs.
B. When the entity’s performance creates or enhances an asset that the customer controls as the asset is
created.
C. When the entity’s performance does not create an asset with an alternative use to the entity and the
entity
has an enforceable right to payment for performance completed to date.
D. When the entity has transferred physical possession and legal title to the asset to the customer.

Number 20
Under IFRS 15, which statement is true in contract of sale with a right of return?
A. The sales revenue is recognized at the amount of gross sales.
B. The refund liability is measured at the sale price of the expected sale return.
C. The recover asset and the reduction of cost of goods sold should be recorded at cost.
D. The sales revenue is not recognized.

Number 21

On January 1, 2024, BBB Company started the construction of a building at a fixed contract price of
P2,000,000. On January 1, 2025, the contract price increase by P1,500,000. The entity provided the
following data concerning the direct costs related to the said project:
2024 2025 2026
Cumulative costs incurred at year-end 720,000 1,600,000 1,740,000
Remaining estimated costs to complete at year-end 1,680,000 400,000 100,000
Under IFRS 15, what is the realized gross profit for the year ended December 31, 2025?
A. 1,200,000
B. 800,000
C. 1,600,000
D. 1.900,000

Number 22
On January 1, 2024, Entity A granted franchise right to franchisee for the operation of selling crispy
french fries. Entity A shall allow the franchisee the right to access its trade-name for a period of 10 years.
The franchisee is required to pay an upfront nonrefundable initial franchise fee of P40,000,000 and a
continuing franchisee fee of 10% of the annual sales. It is the obligation of Entity A to construct the
franchise stall and to deliver 10,000 units of materials to the franchisee.
The stand-alone selling price of the right to access Entity A’s trade-name was P800,000. The stand-alone
selling price of the construction of the stall was P600,000 and the stand-alone selling price for the
delivery of 10,000 units of materials was P200,000.
On October 1, 2024, Entity already finished the construction of the stall and on December 31, 2024,
Entity A only delivered 2,000 units of materials. The franchisee reported sales revenue on December 31,
2024 in the amount of P8,000,000.

Under IFRS 15, what amount should be reported as total revenue from initial franchise fee?
A. 18,000,000
B. 18,800,000
C. 22,000,000
D. 22,800,000
 Page 8

Number 23

On January 1, 2024, an entity granted a franchise to a franchisee. The contract provided that the
franchisee shall pay an initial franchise fee of P10,000,000 and on-going payment of royalties equivalent
to 10% of the sales of the franchisee. On January 1, 2024, the franchisee paid down payment of
P4,000,000 and issued a 3-year 12% interest bearing note for the balance payable in three equal annual
installments starting December 31, 2024.

On June 30, 2024, the entity completed the performance obligation of the franchise at a cost of
P6,000,000. Aside from that, the entity incurred indirect cost of P1,000,000. The franchisee started
operation on July 1, 2024 and reported sales revenue amounting to P8,000,000 for the year ended
December 31, 2024.

Under IFRS 15, what amount should be reported as net income for the year ended December 31,
2024?
A. 3,800,000
B. 4,800,000
C. 4,520,000
D. 5,520,000

Number 24

On December 31, 2024, Company B authorized an entity to operate as a franchisee for an initial franchise
fee of P6,800,000. An amount of P1,800,000 was received upon signing of the contract, and the balance
is to be paid by a noninterest-bearing note, due in five equal annual installments beginning December 31,
2025. The prevailing market rate is 12%. The present value of an ordinary annuity of 1 for 5 years at 12%
is 3.60. The down payment is nonrefundable and represents a fair measure of the services already
performed. However, with regards to the balance, substantial future services are still required.

What amount should be reported as deferred franchise revenue on December 31, 2024?
A. 3,600,000
B. 5,400,000
C. 1,800,000
D. 0

Number 25

On January 1, 2024, an entity granted a franchise to a franchisee. The contract provided that the
franchisee shall pay an initial franchise fee of P10,000,000 and on-going payment of royalties equivalent
to 10% of the sales of the franchisee. On January 1, 2024, the franchisee paid downpayment of
P4,000,000 and issued a 3-year noninterest bearing note for the balance payable in three equal annual
installments starting December 31, 2024. The note has present value of P4,800,000 with effective interest
rate of 12%.

On June 30, 2024, the entity completed the performance obligation of the franchise at a cost of
P7,000,000. Aside from that, the entity incurred indirect cost of P600,000. The franchisee started
operation on July 1, 2024 and reported sales revenue amounting to P12,000,000 for the year ended
December 31, 2024. The franchisee paid the first installment on its due date.

Under IFRS 15, what amount should be reported as net income by the franchisor for the year
ended December 31, 2024?
A. 2,976,000
B. 4,000,000
C. 8,800,000
D. 5,200,000
 Page 9
Number 26
Continuing franchise fees should be recorded by the franchisor as
A. Deferred revenue and amortized over the term of the franchise.
B. Revenue when received.
C. Revenue using installment method.
D. Revenue when earned and receivable from the franchise.

Number 27
You Company had the following transactions during December:
Inventory shipped on consignment to See Company 4,000,000
Freight paid by You 200,000
Inventory received on consignment from Wer Company 3,000,000
Freight paid by Wer 100,000
No sales of consigned goods were made in December.

What amount should be reported as inventory on December 31?

A. 4,200,000
B. 4,000,000
C. 7,300,000
D. 7,000,000

Number 28
A consignor consigned 100 items to consignee and the items had a cost of P40,000 each. The freight from
consignor to consignee amounting to P600,000 was paid by the consignor. The sales price of each item
was P100,000. The consignee paid on behalf of the consignor selling expense P300,000 and cartage cost
upon receipt of the consigned goods P400,000. Under the consignment agreement, the consignee is
entitled to a 15% commission. At the end of the year, the consignee sold 60 items to customers.

What amount should be reported as net income of the consignor from the consignment sales?
A. 6,000,000
B. 3,000,000
C. 1,800,000
D. 1,600,000

Number 29
On December 31, 2024, the Branch current account had a balance of P2,625,000. The home office
account had a balance of P2,000,000. The following errors were discovered:

 The home office shipped merchandise to the branch at cost of P750,000 and the merchandise was still
in transit as of December 31, 2024.
 The branch paid the accounts payable of the home office in the amount of P250,000 and the home
office recorded the payment as P25,000.
 The branch collected P350,000 from a home office customer but the home office was not notified of
the said transaction.

What is the adjusted balance of the reciprocal accounts?

A. 2,625,000
B. 2,975,000
C. 3,200,000
D. 2,750,000
 Page 10

Number 30

The home office in Makati City ships and bills merchandise to its provincial branch at cost. The branch
carries its own accounts receivable and makes its own collections. The branch also pays its expenses. The
branch transactions for 2024 are reflected in the following information:

Home office account 450,000

Shipments from Home Office 625,000
Sales 550,000
Expenses 150,000
December 31, 2024 inventory 162,500

What amount should be reported as balance of the Investment in Branch account in the home
office book?
A. 537,500
B. 512,500
C. 387,500
D. 450,000

Number 31

Bacolod Company decided to open a branch in Iloilo. Shipments of merchandise to the branch totaled
P270,000 which included a 20% markup on cost. All accounting records are kept at the home office. The
branch submitted the following report summarizing the operations for the year ended December 31, 2024:

SalSales on account 1,2 600,000

SalSales on cash basis 250,000
Co Collections of accounts receivable 400,000
Ex Expenses paid 140,000
E Expenses unpaid 60,000
Pu Purchases from outside suppliers for cash 125,000
InvInventory on hand, December 31; 80% from home office 150,000
Re Remittance to home office 275,000

What amount should Bacolod Company report as Iloilo branch net income for 2024?
A. 430,000
B. 385,000
C. 490,000
D. 300,000

Number 32

Which is the best reason why the net income reported by the branch is less than the net income computed
by the home office concerning the branch operation?
A. Overstatement of goods in the beginning inventory of the branch for the goods coming from the home
office.
B. Understatement of goods in the beginning inventory of the branch for the goods coming from the
outside supplier.
C. Understatement of cost of goods sold reported by the branch for the goods coming from the outside
supplier.
D. Overstatement of cost of goods sold reported by the branch for the goods coming from the home
office.
 Page 11

Numbers 33 and 34

Entity A acquired the net assets of Entity B by issuing 10,000 ordinary shares with par value of P20 and
bonds payable with face amount of P1,000,000. The bonds are classified as financial liability at amortized
cost. At the time of acquisition, the ordinary shares are publicly quoted at P40 per share. On the other
hand, the bonds payable are trading at 110.

Entity A paid P20,000 share issuance costs and P40,000 bond issue costs. Entity A also paid P80,000
acquisition related costs and P60,000 indirect costs of business combination. Before the date of
acquisition, Entity A and Entity B reported the following data:

Entity A Entity B
Current assets 2,000,000 1,000,000
Noncurrent assets 4,000,000 2,000,000
Current liabilities 400,000 800,000
Noncurrent liabilities 600,000 1,000,000
Ordinary shares 1,000,000 400,000
Share premium 2,400,000 600,000
Retained earnings 1,600,000 200,000

At the time of acquisition, the current assets of Entity A have fair value of P2,400,000 while the
noncurrent assets of Entity B have fair value of P2,600,000. On the same date, the current liabilities of
Entity B have fair value of P1,200,000 and the noncurrent liabilities of Entity B have fair value of
P1,000,000.

33. What amount should be reported as goodwill or gain on bargain purchase arising from business
combination?
A. 100,000 goodwill
B. 300,000 gain on bargain purchase
C. 240,000 goodwill
D. 140,000 gain on bargain purchase

34. What amount of total assets should be reported by Entity A after the business combination?
A. 9,040,000
B. 9,620,000
C. 9,500,000
D. 8,880,000

Number 35

Entity A acquired 80% of the outstanding ordinary shares of Entity B which enabled the former to obtain
control of the latter at an acquisition price of P2,000,000. Entity A paid P200,000 acquisition related costs
and P100,000 indirect costs of business combination.

At the date of acquisition, the net assets of Entity B are reported at P3,200,000. An asset of Entity B is
overvalued by P120,000 while one liability is undervalued by P80,000.

What amount should be reported as goodwill or gain on bargain purchase arising from business
combination?
A. 500,000 gain on bargain purchase
B. 300,000 gain on bargain purchase
C. 100,000 goodwill
D. 400,000 gain on bargain purchase
 Page 12
Number 36
On January 1, 2024, an acquirer acquired the identifiable net assets of an acquiree. On this date, the
identifiable assets acquired and liabilities assumed have fair value of P8,000,000 and P5,000,000,
respectively. The acquirer incurred acquisition-related cost of legal fees P250,000, due diligence cost
P50,000, general and administrative costs of maintaining an internal acquisition P100,000.
As consideration, the acquirer transferred 9,500 of its own shares with par value and fair value per share
of P400 and P500, respectively, to the acquiree’s former owners. Costs of registering the shares amounted
to P175,000 of which P25,000 pertains to listing fees of previously issued shares.
What amount should be charged to profit or loss in relation to the acquisition?
A. 350,000
B. 425,000
C. 100,000
D. 300,000

Number 37
Acquisition costs incurred and related to a business combination should be
A. Allocated on a prorata basis to nonmonetary assets acquired.
B. Capitalized as part of goodwill and tested annually for impairment
C. Deferred and amortized over a reasonable period.
D. Expensed as incurred in the current period.

Number 38
Under IFRS 3, which reason would not contribute to the creation of negative goodwill?
A. Errors in measuring the fair value of the acquiree’s net identifiable assets or the cost of the business
combination.
B. A bargain purchase.
C. A requirement in IFRS to measure net assets acquired at a value other than fair value.
D. Making acquisitions at the top of a “bull” market for shares.

Numbers 39 and 40
On January 1, 2024, Entity A acquired 90% of outstanding ordinary shares of Entity B at a price of
P1,800,000. Entity A paid P40,000 costs related to acquisition of shares. At the acquisition date, the net
assets of Entity B were reported at P1,900,000. All the assets of Entity B are properly valued except for a
machinery which is undervalued by P300,000. The machinery has a remaining useful life of 5 years.
For the year ended December 31, 2024, Entity B reported net income of P400,000 and declared dividends
of P60,000. The fair value of Investment in Entity B on December 31, 2024 is P2,000,000 while the cost
of disposal is 5% of fair value. Entity A voluntarily prepared its separate financial statements.

39. What amount should be reported as investment income for 2024 if Entity A elected the cost
method to account its Investment in Entity B in its separate financial statements?
A. 14,000
B. 54,000
C. 360,000
D. 214,000

40. What amount should be reported as investment income for 2024 if Entity A elected the fair
value model to account its Investment in Entity B in its separate financial statements?
A. 14,000
B. 54,000
C. 360,000
D. 214,000
 Page 13

Number 41
Investment in subsidiaries should be accounted for by the parent in its separate financial statements using
A. Cost method
B. Cost method or fair value model
C. Equity method
D. Cost method, fair value model or equity method

Numbers 42 and 43
On January 1, 2024, Entity A acquired 80% of outstanding ordinary shares of Entity B at a price of
P1,100,000. On the same date, the net assets of Entity B were reported at P1,250,000. On January 1,
2024, Entity A reported retained earnings of P1,000,000 while Entity B reported retained earnings of
P100,000.
All the assets and liabilities of Entity B are fairly valued except machinery which was undervalued by
P375,000 and inventory which was overvalued by P125,000. The said machinery had remaining useful
life of five years while 60% of the said inventory remained unsold at the end of 2024.
For the year ended December 31, 2024, Entity A reported net income of P2,000,000 and declared
dividends of P500,000 in the separate financial statements while Entity B reported net income of
P750,000 and declared dividends of P250,000 in the separate financial statements. Entity A accounted the
investment in Entity B using cost method in the separate financial statements.

42. What amount should be reported as noncontrolling interest in net assets on December 31, 2024?
A. 445,000
B. 300,000
C. 495,000
D. 395,000

43. What amount should be reported as consolidated net income attributable to parent
shareholders for the year ended December 31, 2024?
A. 2,480,000
B. 2,100,000
C. 1,800,000
D. 2,380,000

Numbers 44 and 45
On January 1, 2024, Entity A acquired 60% of outstanding ordinary shares of Entity B at a gain on
bargain purchase of P20,000. For the year ended December 31, 2025, Entity A and Entity B reported
sales revenue of P1,000,000 and P500,000 in their respective separate income statements. Entity A and
Entity B reported cost of goods sold of P600,000 and P350,000 in their respective separate income
statements for 2025.
During 2024, Entity A sold inventory to Entity B at a selling price of P140,000 with gross profit rate of
40% based on cost. On the other hand, Entity B sold inventory to Entity A at a selling price of P200,000
with gross profit rate of 30% based on sales during 2025.
On December 31, 2024, 25% of the goods coming from Entity A remained in Entity B’s inventory but all
were eventually sold to third persons during 2025. As of December 31, 2025, 40% of the goods coming
from Entity B were eventually sold to third persons.
For the year ended December 31, 2025, Entity A reported net income of P250,000 while Entity B
reported net income of P100,000 and distributed dividends of P25,000. Entity A accounted for its
investment in Entity B using the cost method in its separate financial statements.
 Page 14

44. What amount should be reported as consolidated sales revenue for the year ended December 31,
2025?
A. 1,300,000
B. 1,160,000
C. 1,500,000
D. 1,360,000

45. What amount should be reported as consolidated net income attributable to parent
shareholders for the year ended December 31, 2025?
A. 383,400
B. 298,400
C. 303,400
D. 283,400

Number 46

Which of the following is not a valid condition that will exempt an entity from preparing consolidated
financial statements?

A. The parent entity is a wholly owned subsidiary of another entity or partially owned and the other
owners do not object to the nonconsolidation.
B. The parent entity’s debt or equity capital is not traded in the stock exchange.
C. The ultimate parent entity produces consolidated financial statements available for public use that
comply with IFRS.
D. The parent entity is in the process of filing financial statements with a securities commission for the
purpose of issuing any class of instruments in a public market.

Number 47

A subsidiary shall be excluded from consolidation when

A. The investor is a venture capital organization, mutual fund, unit trust or similar entity.
B. The business activities of the subsidiary are dissimilar from those of the other entities within the
group.
C. The subsidiary is acquired with the intention to dispose of it within twelve months from date of
acquisition.
D. The subsidiary is operating under severe long-term restrictions that significantly impair its ability to
transfer funds to the parent.

Number 48

On December 1, 2024, Entity A imported goods at a price of $25,000 payable on March 1, 2025. In order
to hedge this foreign currency denominated importation. Entity A entered into a forward contract with a
bank to purchase $25,000. Entity A is operating in Philippine economy where the functional currency is
Philippine peso. The relevant direct exchange rates are:

December 1, 2024 December 31, 2024 March 1, 2025

Buying spot P53 P51 P51
Sli Selling spot 55 54 56
What amount should be reported as foreign currency gain or loss on the hedged item for 2024?
A. 25,000 gain
B. 10,000 loss
C. 25,000 loss
D. 10,000 gain
 Page 15
Number 49
An entity purchased inventory on November 30, 2024 for $20,000 payable March 1, 2025. On December
1, 2024, the entity entered into a forward contract to purchase $20,000 in 90 days to hedge the purchase
of inventory on November 30, 2024. The relevant exchange rates are:
Spot rate Forward rate
No November 30, 2024 P55 P57
December 1, 2024 56 58
De December 31, 2024 60 61
What amount of foreign currency transaction gain from the forward contract should be included in
net income for 2024?
A. 100,000
B. 80,000
C. 60,000
D. 0

Number 50
On November 1, 2024, an entity entered into a firm commitment for the exportation of goods at a price of
$40,000. Delivery will happen on January 31, 2025. In order to hedge this foreign currency denominated
firm commitment, the entity entered into a forward contract with a bank to sell $40,000. The entity is
operating in Philippine economy where the functional currency is Philippine peso. The entity elected to
use fair value hedge to account this hedge of firm commitment. The relevant direct exchange rates are:

November 1, 2024 December 31, 2024 January 31, 2025

Spot rate P53 P50 P54
90-day forward rate 51 53 54
60-day forward rate 55 52 51
30-day forward rate 57 56 22

What amount should be reported as forward contract gain or loss for 2024?
A. 200,000 gain
B. 200,000 loss
C. 400,000 loss
D. 400,000 gain

Number 51
On November 1, 2024, an entity anticipated the purchase of equipment on January 31, 2025 at a price of
$30,000. In order to hedge this highly probable forecasted importation, the entity entered into a forward
contract with a bank to purchase $30,000. The entity is operating in Philippine economy where the
functional currency is Philippine peso. The relevant direct exchange rates are:
November 1, 2024 December 31, 2024 January 31, 2025
St Spot rate P55 P54 P53
90-day forward rate 52 51 53
60-day forward rate 56 55 50
30-day forward rate 58 54 50
What amount of unrealized holding gain or loss should be recognized as component of other
comprehensive income for the year ended December 31, 2024?
A. 60,000 gain
B. 60,000 loss
C. 90,000 loss
D. 90,000 gain
 Page 16

Numbers 52 and 53

Entity A owned majority of the outstanding ordinary shares of Entity B which is operating in United
States of America wherein the functional currency is the USA dollar. However, the presentation currency
of Entity B is the Philippine Peso because that is the presentation currency of Entity A. For the year
ended December 31, 2024, Entity B presented its Statement of Financial Position in its functional
currency of USA dollar:

Current assets $20,000 Current liabilities $20,000

Noncurrent assets 80,000 Noncurrent liabilities 40,000
Ordinary share capital 10,000
Preference share capital 16,000
______ Retained earnings 14,000
Total Assets $100,000 Total Liabilities and shareholders $100,000

 The ordinary shares are issued on January 1, 2023 while the preference shares are issued on July 1,
2023.
 Entity B reported $2,000 net income during 2024 and declared dividends of $1,000 on December 1,
2024.
 The translated amount of retained earnings on December 31, 2023 was P6,000,000.

The relevant direct exchange rates are:

January 1, 2023 P50 December 1, 2024 P51

July 1, 2023 52 December 31, 2024 55
December 31, 2023 53 Average rate 2024 54

52. What amount of net assets in US dollars should be reported on December 31, 2023?
A. 39,000
B. 40,000
C. 38,000
D. 43,000

53. What amount should be reported as translated retained earnings balance on December 31,
2024?
A. 6,000,000
B. 6,057,000
C. 6,108,000
D. 6,159,000

Number 54

An entity has subsidiary that operates in a hyperinflationary economy. The subsidiary’s financial
statements are measured in terms of local currency which is the zloty. The parent is located in USA and
prepares statements in dollars. Under IAS 29, which procedure is correct in terms of consolidation of the
subsidiary’s financial statements?
A. The subsidiary’s financial statements should be retranslated to USA dollars.
B. The subsidiary’s financial statements should be restated in accordance with IAS 29 and
retranslated to USA dollars.
C. The subsidiary’s financial statements should be remeasured in USA dollars and restated in accordance
with IAS 29.
D. The subsidiary’s financial statements should be deconsolidated.
 Page 17

Number 55

A nonprofit organization provided the following transactions during the first year of operations:

 The nonprofit organization received P2,000,000 from a donor who stipulated that it shall be invested
indefinitely and the dividend from such investment shall be used for research project of the
organization. Dividend amounting to P200,000 was received from the investment during the year.

 The nonprofit organization received P500,000 from a donor who stipulated that it shall be used for the
acquisition of computer equipment. No computer equipment was acquired during the year.

 The nonprofit organization received P750,000 from a donor who stipulated that it shall be used based
on the discretion of the Board of Trustees of the nonprofit organization. The nonprofit organization
used P250,000 for the acquisition of a service car with a useful of 5 years. The remaining P500,000
was designated by the Board of Trustees for future fundraising projects.

What amount should be reported as net cash flows from financing activities by the nonprofit
organization for the year?
A. 2,700,000
B. 2,250,000
C. 3,700,000
D. 3,450,000

Number 56

A voluntary health and welfare organization received a contribution from a donor in the current year. The
donor did not specify any use restriction but specified that the donation should be used next year. The
governing board of the organization spent the contribution in the next year for fund raising expense. The
organization should report the contribution in the current year in the
A. Statement of financial position as deferred revenue
B. Statement of activities as unrestricted revenue
C. Statement of financial position as an increase in fund balance
D. Statement of activities as temporarily restricted

Number 57

On December 31, 2023, the Department of Finance billed its lessee on one of its buildings in the amount
of P1,000,000. On January 31, 2024, the Department of Finance collected all of the accounts receivable.
On February 28, 2024, the Department of Finance remitted the entire collected amount to the Bureau of
Treasury. What is the journal entry to record the remittance by the Department of Finance to the Bureau
of Treasury?
A. Debit – Accounts Receivable P1,000,000 and Credit – Rent Income P1,000,000
B. Debit – Accounts Receivable P1,000,000 and Credit – Retained Earnings P1,000,000
C. Debit – Cash Collecting Officers P1,000,000 and Credit – Accounts Receivable P1,000,000
D. Debit – Cash – Treasury/Agency Deposit, Regular – P1,000,000 and
Credit Cash – Collecting Officer – P1,000,000
 Page 18

Number 58

Department of Health (DOH) received Notice of Cash Allocation in the amount of P2,000,000 from
Department of Budget and Management. DOH made a total cash disbursements in the amount of
P1,900,000. What is the journal entry to recognize reversion of unused Notice of Cash Allocation by
DOH in its books?
A. Debit Subsidy Income from National Government P100,000 and credit Cash-MDS, Regular
P100,000.
B. Debit Retained Earnings of DFA P100,000 and credit Cash-MDS, Regular P100,000.
C. Debit Expenses of DFA P100,000 and credit Cash-MDS, Regular P100,000.
D. Debit Investment of DFA P100,000 and credit Cash-MDS, Regular P100,000.

Number 59

Underapplied factory overhead results when

A. A plant is operated at less than normal capacity
B. Factory overhead costs incurred are greater than costs charged to production
C. Factory overhead costs are less than the cost charged to production
D. Factory overhead costs are unreasonably low

Number 60

An entity employed normal costing for its production. The entity provided following data during the
current year:
Net purchases of raw materials during the year 250,000
Total labor costs during the year 400,000
Depreciation of factory assets during the year 50,000
Utilities on the factory during the year 150,000
Beginning Ending
Raw materials inventory 100,000 150,000
Work in process inventory 250,000 100,000
Finished goods inventory 300,000 150,000

 The entity used a single account for its direct material and indirect materials. Indirect material used
was one-fourth of the total direct material used.
 The indirect labor cost was 1/8 of the total labor costs.
 The overhead application rate was 80% of direct labor costs.
 Any over or under application of overhead was considered material.

What amount should be reported as total manufacturing cost during the current year?
A. 780,000
B. 750,000
C. 820,000
D. 870,000

Number 61

In a job order cost system, the use of indirect materials is recorded usually as an increase in
A. Work in process control
B. Factory overhead applied
C. Stores control
D. Factory overhead control
 Page 19

Number 62

An entity employed the process costing regarding its production cycle. Conversion costs are added
uniformly during the production process while direct materials are added 10% at the start of production
process, 50% at the middle of the production process and the remainder at the end of production process.
The production data of the entity during the year are:

Beginning Work in Process Inventory 20,000 units (30% incomplete as to conversion costs)
Units started during the year 60,000 units
Ending Work in Process Inventory 10,000 units (75% incomplete as to conversion costs)

 There was no spoilage during the period.

 The costs of beginning inventory consisted of P412,000 costs of direct materials and P430,000
conversion costs.
 The total manufacturing costs consisted of P1,008,000 costs of direct materials and P585,000
conversion costs.

What amount should be reported as cost per unit of conversion cost under FIFO process costing?
A. 16
B. 18
C. 10
D. 14

Number 63

An entity employed the process costing regarding its production cycle. Conversion costs are added
uniformly during the production process while direct materials are added 20% at the start of production
process, 45% at the middle of the production process and the remainder at the end of production process.
Normal spoilage is 10% of units started during the year. The entity is conducting inspection when the
production process is at 45% of conversion cost. The entity provided the following production data
during the year:

Beginning Work in Process Inventory 20,000 units (40% incomplete as to conversion costs)
Units started during the year 80,000 units
Ending Work in Process Inventory 10,000 units (80% complete as to conversion costs)
Units completed during the period 76,000 units

What is the equivalent unit of production for conversion cost under average process costing?
A. 90,300
B. 89,300
C. 86,500
D. 92,300

Number 64

In the computation of manufacturing cost per equivalent unit, the weighted average method of process
costing considers
A. Current costs only
B. Current costs plus cost of ending work in process inventory
C. Current costs plus cost of beginning work in process inventory
D. Current costs less cost of beginning work in process inventory
 Page 20

Number 65

An entity had a cycle of 3 days, used a Raw and In Process Account (RIP) and charged all conversion
costs to cost of goods sold. At the end of each month, all inventories were counted, conversion costs
components were estimated and inventory account balances were adjusted. Raw material cost is
backflushed from Raw and in Process (RIP) Account to finished goods. The following information is
provided for the month of June:

Beginning Balance of RIP account, including P2,000 conversion cost 10,000

Beginning Balance of finished goods account including P12,000 conversion cost 20,000
Raw materials received on credit 800,000
Direct labor cost 600,000
Factory overhead applied 1,000,000
Ending RIP inventory per physical count, including P14,000 conversion cost 40,000
Ending finished goods inventory per physical count, including P8,000 conversion cost 12,000

What is the amount of direct materials backflushed from RIP to finished goods?
A. 782,000
B. 808,000
C. 774,000
D. 790,000

Number 66

An entity employed the activity-based costing. The following data are provided:

Activity-Based Costing

Activity center Cost driver Amount of activity Center cost

Material handling Kilos handled 100,000 kg. 400,000
Painting Units painted 50,000 units 600,000
Assembly Machine hours 10,000 hours 1,000,000

Traditional Costing
Traditional Labor hours 100,000 hours 2,000,000

Job 1 contained 3,000 units, weighed 10,000 kilos and used 300 machine hours. The direct labor hours on
the job totaled 7,000 hours.

What amount should be reported as applied overhead under Activity Based Costing?
A. 106,000
B. 112,000
C. 90,000
D. 86,000
 Page 21
Numbers 67 and 68

An entity is conducting a joint production at a total cost of P3,000,000. The joint production resulted to
the following inventories:
Product A Product B By-product
Units produced 20,000 units 10,000 units 5,000 units
Selling price at split off P150 P200 P25
Product A and Product B are considered main products. The entity considered its by-product as material.
The by-product required additional processing cost per unit of P4.00 and its cost of disposal is P1.00 per
unit.

67. What amount should be reported as cost of the by-product?

A. 125,000
B. 105,000
C. 120,000
D. 100,000

68. What amount should be allocated as joint cost of Product B if the entity employed relative sales
value method?
A. 1,800,000
B. 1,200,000
C. 1,160,000
D. 1,740,000

Number 69

When translating the financial statements of an entity from its functional currency to its selected
presentation currency
A. Exchange difference arising from translation will be recognized in other comprehensive income
B. Asset and liability accounts will be translated using the closing rate
C. Share capital and share premium accounts will be translated using the historical rates
D. All of the choices are applicable.

Number 70

Which of the following is TRUE when using the temporal method of remeasuring the financial statements
of an entity?
A. Non-monetary assets are always remeasured using the historical rates
B. Monetary liabilities are always remeasured using the closing rates
C. All equity accounts are remeasured the same way as the current rate method
D. Exchange difference arising from translation will be recognized in other comprehensive income

Number 71

On December 31, 2024, Parent acquired P250,000 par value of the outstanding P1,000,000 bonds of its
subsidiary, Subsidiary, in the market for P200,000. On that date, Subsidiary had a P100,000 premium on
its total bond liability.
Which one of the following is the amount of premium or discount on Parent's investment in
Subsidiary's bonds?
A. 250,000 premium
B. 100,000 premium
C. 50,000 premium
D. 50,000 discount
 Page 22

Number 72

Subsidiary, Inc. is a wholly owned subsidiary of Parent Inc. On June 1, 2024, Parent declared and paid a
P1 per share cash dividend to stockholders record on May 15, 2024. On May 1, 2024, Subsidiary bought
10,000 shares of Parent's common, stock for P700,000 on the open market when the book value per share
was P30.
What amount of gain should Parent report from this transaction in its consolidated income
statement for the year ended December 31, 2024?
A. 0
B. 390,000
C. 400,000
D. 410,000

Number 73

Entity A owns all of the common stock of Entity B Company and 80% of the common stock of Entity C
Company. Entity B owns the remaining 20% interest in Entity C’s common stock, for which it paid
P8,000, and which it carries at cost, because there is no ready market for Entity C’s stock. The condensed
statements of financial position. for Entity B and Entity C as of December 31, 2024, were:
Entity B Entity C
Assets 300,000 120,000
Liabilities 100,000 60,000
Common stock 50,000 40,000
Retained Earnings 150,000 20,000
Total 300,000 120,000

What amount should be reported as total owners’ equity in a combined statement of financial
position for Entity B and Entity C of December 31, 2024?
A. 260,000
B. 252,000
C. 212,000
D. 200,000

Number 74

Entity A owns 60% of the voting common stock of Entity B and 40% of the voting common stock of
Entity C. Entity A wishes to gain control of Entity C by having Entity B buy shares of Entity C's voting
stock.
Which one of the following minimum levels of ownership of Entity C must Entity B additionally
need to obtain in order for Entity A to have controlling interest of Entity C's voting stock?
A. 11%
B. 17%
C. 26%
D. 50+%
 Page 23

Number 75

On December 31, 2024, Entity A Co. acquired Entity B, Inc. Before the acquisition, a product lawsuit
seeking P10 million in damages was filed against Entity B. As of the acquisition date, Entity A believed
that it was probable that a liability existed and that the fair value of the liability was P5 million.
What amount should Entity A record as a liability as of December 31, 2024?
A. 0
B. 5,000,000
C. 7,500,000
D. 10,000,000

Number 76

Entity A Corp. was organized to consolidate Entity B Company and Entity C Company in a business
combination. Entity A issued 25,000 shares of its newly authorized P10 par value common stock in
exchange for all of the outstanding common stock of Entity B and Entity C. At the time of the
consolidation, the fair value of Entity B's and Entity C's assets and liabilities are equal to their book
values. The shareholders' equity accounts of Entity B and Entity C on the date of the consolidation were:
Entity B Entity C Total
Common stock, at par 100,000 200,000 300,000
Additional paid-in capital 50,000 75,000 125,000
Retained earnings 22,500 47,500 70,000
Total 172,500 322,500 495,000
Which of the following is the amount of goodwill Entity A would recognize upon issuing its
common stock to effect the consolidation?
A. 0
B. 50,000
C. 195,000
D. 245,000

Number 77

On June 19, Entity A, a U.S. company, sold and delivered merchandise on a 30-day account to Entity B, a
German corporation, for 200,000 euros. On July 19, Entity B paid Entity A in full. Relevant currency
exchange rates were:
June 19 July 19
Spot rate $.988 $.995
30-day forward rate .990 1,000
What amount should Entity A record on June 19 as an accounts receivable for its sale to Cologne?
A. 197,600
B. 198,000
C. 199,000
D. 200,000
 Page 24

Number 78

Gordon Ltd., a 100% owned British subsidiary of a U.S. parent company, reports its financial statement
in local currency, the British pound. A local newspaper published the following U.S. exchange rates to
the British pound at year end:
Current rate $1.50
Historical rate (acquisition) 1.70
Average rate 1.55
Inventory (FIFO) 1.60
Which currency rate should Gordon use to convert its income statement to U.S. dollars at year
end?
A. 1.50
B. 1.55
C. 1.60
D. 1.70

Number 79

When an entity’s functional currency is the currency of a hyperinflationary economy, how shall the
elements of the Financial Statements be translated to presentation currency?
A. All amounts (including assets, liabilities, equity, income and expenses) shall be translated at the
closing rate at the date of most recent statement of financial position.
B. Assets and liabilities shall be translated at closing rate while income and expenses at average rate
while equity at transaction rate.
C. All amounts are translated at average rate.
D. All amounts are translated at historical rate.

END

ANSWERS

1. D 16. C 31. A 46. D 61. D 76. A

2. B 17. B 32. D 47. C 62. C 77. A
3. A 18. A 33. A 48. A 63. A 78. B
4. B 19. D 34. C 49. B 64. C 79. A
5. A 20. B 35. D 50. B 65. A
6. B 21. C 36. B 51. A 66. A
7. A 22. A 37. D 52. A 67. D
8. A 23. C 38. D 53. B 68. C
9. A 24. A 39. B 54. B 69. D
10. B 25. A 40. D 55. A 70. B
11. B 26. D 41. D 56. D 71. D
12. A 27. A 42. D 57. D 72. A
13. C 28. C 43. A 58. A 73. B
14. C 29. D 44. A 59. B 74. A
15. C 30. C 45. D 60. A 75. B
 CPA REVIEW SCHOOL OF THE PHILIPPINES

ADVANCED FINANCIAL ACCOUNTING AND REPORTING GERMAN and VALIX

PREWEEK SELF-TEST No. 3

Number 1
On January 1, 2024, Parent Corp. and Subsidiary Corp. had the following condensed statements of
financial position:
Parent Subsidiary
Current assets 140,000 40,000
Noncurrent assets 180,000 80,000
Total assets 320,000 120,000
Current liabilities 60,000 20,000
Long-term debt 100,000 -
Stockholders’ equity 160,000 100,000
Total liabilities and stockholders’ equity 320,000 120,000
On January 2, 2024, Parent borrowed P120,000 and used the proceeds to purchase 90% of the outstanding
common shares of Subsidiary. This debt is payable in ten equal annual principal payments, plus interest,
beginning December 30, 2024. The excess cost of the investment over Subsidiary’ book value of acquired
net assets should be allocated 60% to inventory and 40% to goodwill. On January 1, 2024, the fair value
of Subsidiary shares held by noncontrolling parties was P20,000.
On January 2, 2024, stockholders’ equity including noncontrolling interests should be
A. 160,000
B. 170,000
C. 180,000
D. 260,000

Number 2
On January 1, 2024, Parent, Inc. purchased 80% of the stock of Subsidiary Corp. for P8,000,000 Cash.
Prior to the acquisition, Subsidiary had 100,000 shares of stock outstanding. On the date of acquisition,
Subsidiary's stock had a fair value of P104 per share. During the year Subsidiary reported P560,000 in net
income and paid dividends of P100,000.
What is the balance in the noncontrolling interest account on Parent's statement of financial
position on December 31, 2024?
A. 2,000,000
B. 2,080,000
C. 2,172,000
D. 2,192,000

Number 3
On January 2, 2024, Parent Co. purchased 75% of Subsidiary Co.'s outstanding common stock. On that
date, the fair value of the 25% noncontrolling interest was P70,000. During 2024, Subsidiary had net
income of P40,000. Selected data at December 31, 2024, are:
Parent Subsidiary
Total assets 840,000 360,000
Liabilities 240,000 120,000
Common stock 200,000 100,000
Retained earnings 400,000 140,000
During 2024 Parent and Subsidiary paid cash dividends of P50,000 and P10,000, respectively, to their
shareholders. There were no other intercompany transactions.
In its December 31, 2024 consolidated statement of retained earnings, what amount should Parent
report as dividends paid?
A. 10,000
B. 50,000
C. 52,500
D. 60,000
 Page 2

Number 4

Parent Company acquired goods for resale from its manufacturing subsidiary at Subsidiary's cost to
manufacture of P24,000. Parent subsequently resold the goods to a nonaffiliate for P36,000.
Which one of the following is the amount of the elimination that will be needed as a result of the
intercompany inventory transaction?
A. 0
B. 12,000
C. 24,000
D. 36,000

Number 5

Parent Co. owns 100% of Subsidiary Co.'s outstanding common stock. Parent's cost of goods sold for the
year totals P300,000, and Subsidiary's cost of goods sold totals P200,000. During the year, Parent sold
inventory costing P30,000 to Subsidiary for P50,000. By the end of the year, all transferred inventory was
sold to third parties.
What amount should be reported as cost of goods sold in the consolidated statement of income?
A. 450,000
B. 470,000
C. 480,000
D. 500,000

Number 6

Parent Co. owns 100% of Subsidiary, Inc. On January 2, 2024, Parent sold equipment with an original
cost of P160,000 and a carrying amount of P96,000 to Subsidiary for P144,000. Parent had been
depreciating the equipment over a five-year period using straight-line depreciation with no residual value.
Subsidiary is using straight-line depreciation over three years with no residual value.
In Parent's December 31, 2024, consolidating worksheet, by what amount should depreciation
expense be decreased?
A. 0
B. 16,000
C. 32,000
D. 48,000

Number 7
Parent corp. has several subsidiaries that are included in its consolidated financial statements. In its
December 31, 2024 trial balance, Parent had the following Intercompany balances before eliminations.
Debit Credit
Current receivable due from M Co. 64,000
Noncurrent receivable from M Co. 228,000
Cash advance to C Corp 12,000
Cash advance from K Co. 30,000
Intercompany payable to K Co. 202,000
In its December 31, 2024 consolidated statement of financial position, what amount should Parent
report as intercompany receivables?
A. 304,000
B. 292,000
C. 72,000
D. 0
 Page 3

Number 8
A company acquires another company for P1,500,000 in cash, P5,000,000 in stock, and the following
contingent consideration:
 P500,000 after 2024, P500,000 after 2025, and P250,000 after 2026, if earnings of the subsidiary
exceed P5,000,000 in each of the three years.
The fair value of the contingent-based consideration portion is P1,050,000.
What is the total consideration transferred for this business combination?
A. 7,750,000
B. 7,550,000
C. 6,500,000
D. 2,550,000

Number 9
Parent, Inc. acquired 100% of the voting common stock of Subsidiary Inc. by transferring the following
consideration to Subsidiary’s shareholders:
Cash P200,000
5,000 new shares of Parent’s P20 par common stock (which 100,000 (par)
is less than 1% of Parent’s outstanding stock)
In addition, Parent paid P24,000 direct cost of carrying out the combination.
At the date of the acquisition, Parent's for common stock was selling in an active market for P18 per
share. Also, at the date of the acquisition, Subsidiary had the following assets and liabilities with the book
values and fair values shown:
Book Value Market value
Accounts Receivable 40,000 40,000
Property and Equipment 160,000 200,000
Land 120,000 160,000
Other Assets 80,000 80,000
Total Assets 400,000 480,000
Accounts Payable 30,000 30,000
Other short-term Debt 20,000 20,000
Long-term Debt 70,000 70,000
Total Liabilities 120,000 120,000
Which one of the following is the fair value of Subsidiary’s net assets at the date of the business
combination?
A. 280,000
B. 360,000
C. 384,000
D. 480,000

Number 10
Parent Co. issued 200,000 shares of 10 par value common stock to acquire Subsidiary Co. in an
acquisition-business combination. The market value of Parent's common stock is P24 per share. Legal
and consulting fees incurred in relation to the acquisition are P220,000 paid in cash. Registration and
issuance costs for the common stock are P70,000.
What should be recorded in Parent's additional paid-in capital account for this business
combination?
A. 3,090,000
B. 2,800,000
C. 2,730,000
D. 2,510,000
 Page 4

Number 11
On December 12, 2024, Entity A entered into a forward exchange contract to purchase 200,000 units of a
foreign currency in 90 days.
The contract was designated and qualified as a fair value hedge of a purchase of inventory made that day
and payable in March 2025. The relevant direct exchange rates between the foreign currency and the
dollar are as follows.
Spot Rate Forward Rate (for March 12, 2025)
December 1, 2024 $0.88 $0.90
December 31, 2024 0.98 0.93
At December 31, 2024, what amount of foreign currency transaction net gain or loss should Entity
A recognize in income as a result of its foreign currency obligation and related hedge contract?
A. 0
B. 6,000
C. 14,000
D. 20,000

Number 12, 13 and 14

Cebu Company, a Philippine company acquired inventory items from a supplier in Singapore on
December 1, 2024 for 250,000 SGD due on February 28, 2025, when the selling spot rate was P33.60. On
December 31, 2024, the selling spot rate was P33.10. On the due date, on February 28, 2025, the selling
spot rate was P33.20.

12. Compute the amount Cebu Company should report as forex gain or loss for the year ended
December 31, 2024
A. 125,000 gain
B. 125,000 loss
C. 100,000 gain
D. 0

13. Compute the amount Cebu Company should report as liability on December 31, 2024
A. 8,275,000
B. 8,400,000
C. 8,300,000
D. 8,250,000

14. Compute the amount Cebu Company should report as forex gain or loss for the year ended
December 31, 2025
A. 25,000 loss
B. 25,000 gain
C. 100,000 gain
D. 0

Number 15

On January 1, 2024, ABC Inc. paid a premium to acquire a put option from a writer. This is in relation to
a forecasted sale of merchandise worth $130,000. (option price = P4.965)
1/1/2024 3/31/2024 6/20/2024
Spot rate P4.934 P4.908 P4.750
Fair value of option P19,600 P22,800 P27,950
Compute the gain/loss affecting earnings for the first quarter of 2024?
A. 3,380
B. (3,380)
C. 3,200
D. (180)
 Page 5
Number 16
Ortigas Company sold merchandise for 105,000 pounds to a customer in London on October 01, 2024.
Collection in British pounds was due on January 30, 2025. On the same date, Ortigas entered into a 120-
day forward contract to sell 105,000 pounds to a writer. Direct exchange rate for pound on different
dates are as follows:
Oct. 1 Dec. 31 Jan. 30
Spot rate 52.6 52.1 51.8
30-day forward 50.2 52.3 50.4
60-day forward 52.2 52.4 53.1
90-day forward 51.7 52.1 52.5
120-day forward 52.5 52.5 53.3
Compute the fair value of the derivative instrument on December 31, 2024?
A. 21,000 negative
B. 21,000 positive
C. 42,000 negative
D. 42,000 positive

Numbers 17, 18 and 19

SGT Foundation received the following donations:

 Cash of P1,500,000 internally restricted by the board of trustees
 Cash of P2,200,000 restricted by the donor for acquisition of a piece of machinery
 Trust fund of P3,000,000 to be invested perpetually in equity instruments
SGT Foundation acquired the piece of machinery using P2,200,000. The trust fund yielded an investment
income of P100,000 cash for the year.

17. Under a fund accounting system, the entry to record the receipt of the trust fund in the
permanently restricted fund records will include a debit to an investment account and a credit
to
A. Contribution revenue, P3,000,000
B. Agency fund liability, P3,000,000
C. Cash P3,000,000
D. Net assets released from restriction, P3,000,000

18. Under a fund accounting system, the entry to record the funds released from restriction will
include a debit to “net assets released from restriction” account for P2,200,000, and credit cash
P2,200,000 in the
A. Unrestricted fund
B. Temporarily restricted fund
C. Permanently restricted fund
D. None of the above

19. Under a fund accounting system, the entry to record the receipt of P100,000 dividends will
include a debit to cash P100,000 and credit to dividend income P100,000 in the
A. Unrestricted fund
B. Temporarily restricted fund
C. Permanently restricted fund
D. None of the above
 Page 6
Number 20
ABL Medical Clinic, a non-profit hospital, had the following transactions:

 P300,000 sales of hospital cafeteria

 P50,000 fees of hospital parking lot
 A professional consultant rendered services to the hospital worth P500,000. The consultant waived
80% of this fee.
 A pharmaceutical company donated P400,000 worth of medicine to the hospital.
How much is treated as “other revenue” in the hospital’s statement of activities?
A. 1,250,000
B. 1,150,000
C. 900,000
D. 800,000

Number 21

Which of the following will allow the NPO to recognize revenue?

A. Receipt of services from a non-professional
B. Receipt of a work of art to be held for public exhibition
C. Receipt of relief goods to be distributed to fire victims
D. Receipt of services that enhance an existing asset

Number 22
The keeping of the general accounts of the government, supporting vouchers, and other documents is
tasked to the
A. Department of Budget and Management
B. House of Representatives
C. Commission on Audit
D. Senate of the Philippines

Number 23
Which of the following is the most common payment medium used by NGA’s and GOCC’s?
A. Cash
B. Credit Card
C. Cryptocurrency
D. Modified Disbursement System Checks

Number 24
The entry of a NGA to record a receipt of P1,000,000 NCA will include a debit to Cash - Modified
Disbursement System (MDS), Regular and a credit to
A. Accounts receivable
B. Cash – Tax Remittance Advice (TRA)
C. Subsidy Income from National Government
D. Advances from the Department of Budget and Management

Number 25
A receipt of a P1,000,000 allotment by a NGA will be:
A. Debited to Cash – Modified Disbursement System (MDS), Regular
B. Credited to Subsidy Income from National Government
C. Recorded in the RAPAL only
D. Recorded in the RAPAL and RAOD
 Page 7

Numbers 26 and 27

A National Government Agency in the Philippines paid one of its accounts payable and withheld cash of
P9,000, which represents the 5% withholding VAT in accordance with relevant tax laws.

26. The entry of the NGA will include a debit to

A. Accounts payable P180,000
B. Accounts payable P171,000
C. Cash - Modified Disbursement System (MDS), Regular P171,000
D. Cash - Modified Disbursement System (MDS), Regular P180,000

27. The entry of the NGA will include a credit to

A. Accounts payable P180,000
B. Accounts payable P171,000
C. Cash - Modified Disbursement System (MDS), Regular P171,000
D. Cash - Modified Disbursement System (MDS), Regular P180,000

Numbers 28 and 29
During the first year of operations, the books of Bacolod Branch showed the following balances:
Sales 1,200,000
Shipments from home office 1,120,000
Purchases 120,000
Ending inventory 200,000
Operating expenses 150,000
Shipments to branch were billed at 140% of cost. The ending inventory of the branch included P26,400
from outside purchases.

28. What amount should be reported as ending inventory of the Bacolod branch at cost?
A. 200,000
B. 173,600
C. 150,400
D. 269,440

29. What amount should be reported as true net income of Bacolod branch?
A. 280,400
B. 10,000
C. 254,000
D. 270,400
 Page 8

Numbers 30 and 31

On October 1, 2024 the Home Office established a branch and on December 31, 2024, in the books of the
Home Office, the balance of the Investment in Branch account was P132,000. However, there were some
errors in recording the reciprocal accounts. The following were the relevant transactions that were
investigated:
a) The branch purchased for cash P30,000 machine for its use. The policy of the home office was that
the fixed asset accounts were maintained by the home office. Notification was sent to the home office
by the branch, but the home office did not record the transaction.
b) Cash of P4,000 was received by the branch from the home office, and was erroneously recorded by
the branch as P40,000.
c) Notification was sent by the home office to the branch, informing the branch of P10,000 worth of
expenses were paid on behalf of the branch. However, the branch did not receive the said notification
and the branch had not recorded the transaction.
d) Merchandise costing P16,000 was sent by the home office to the branch at a billed price of P18,000.
The merchandise is still in transit.
e) Cash of P20,000 was remitted or forwarded to the home office by the branch. However, the home
office did not record the transaction.

30. What is the adjusted balance of the reciprocal accounts?

A. 82,000
B. 182,000
C. 122,000
D. 142,000

31. What is the unadjusted balance of the home office account in the branch books?
A. 174,000
B. 82,000
C. 124,000
D. 90,000

Number 32

The unadjusted balance in the allowance for overvaluation account at the end of the year represents
A. The mark-up on the merchandise shipped to the branch during the year
B. The mark-up on cost of goods sold by the branch for the year
C. The mark-up on the merchandise available for sale by the branch for the year
D. The mark-up on the merchandise shipped to the branch during the year less the mark-up on the
merchandise returned by the branch during the year

Number 33

Which of the following reconciling transactions will require a credit to the home office account in Branch
X's books?
A. Credit memo received by Branch X from the home office
B. Collection by Branch X of Branch Y's accounts receivable
C. Reshipment of goods received by Branch X to Branch Y
D. Payment of Branch X of home office's accounts payable
 Page 9

Number 34
Neither Branch A nor the Home Office had any intracompany transactions for the month of October.
However, the balance of the Home Office Current account in the books of Branch A was greater than the
Investment in Branch account in the books of the Home Office. What is the most likely reason for the
discrepancy?
A. The branch reported a net income for the month of October
B. The home office reported a net loss for the month of October
C. The branch returned merchandise to the home office
D. The branch reported a net loss for the month of October

Number 35

If the under or over applied factory overhead is significant, it shall be closed to

A. Cost of goods sold only
B. Finished goods and cost of goods sold proportionately
C. Work in process, finished goods and cost of goods sold proportionately
D. Raw materials, work in process, finished goods, and cost of goods sold proportionately

Numbers 36 and 37
Boeing Company used a job order costing system. The entity had three jobs in process: #7, #10, and #13.
The entity provided the following information:

Raw material used P130,000

Direct labor per hour P9.50
Overhead applied based on direct labor cost 125%

Direct material was requisitioned for each job respectively: 25 percent, 30 percent, and 30 percent. The
balance of the requisitions was considered indirect. Direct labor hours per job are 2,800, 3,300 and 4,000,
respectively for Job #7, Job #10 and Job #13. Indirect labor is P45,000. Other actual overhead costs
totaled P50,000.

36. What amount should Boeing Company report as prime cost for Job #7?
A. 59,100
B. 59,850
C. 32,500
D. 65,750

37. What amount should Boeing Company report as overhead applied for Job #13?
A. 45,000
B. 47,500
C. 50,000
D. 62,500
 Page 10
Numbers 38 and 39
Bacolod Manufacturing Corp. has the following cost of production data for the month of October:
Work-in-process October 1:
Job 03 Job 04
Direct materials 2,400 1,500
Direct labor 3,600 2,880
Applied overhead 2,340 1,872
Finished goods October 1:
Job 01 Job 02
Direct materials 18,000 6,720
Direct labor 24,000 8,400
Applied overhead 15,600 5,460
Total manufacturing cost added during the month of October:
Job 03 Job 04 Job 05 Job 06
Direct materials 10,920 13,200 36,000 4,800
Direct labor 14,400 16,800 42,000 7,200
Applied overhead 9,360 10,920 27,300 ?
During the month of October, Job 03, Job 04, Job 05, were completed. The predetermined overhead rate
was 65% of direct labor cost. Actual overhead at the end of the year was P33,000.

38. What is the cost of goods manufactured for the month of October?
A. 195,492
B. 180,900
C. 143,700
D. 180,912

39. Assuming Job 06 was also completed, what is the cost of goods manufactured of Job 06?
A. 6,252
B. 20,580
C. 40,920
D. 16,680

Numbers 40 and 41
Airbus Company produces two products from a joint process: X and Z. Joint processing costs for this
production cycle are P8,000.
Yards Sale price per Disposal cost per Further processing Final sale price
yard at split off yard at split off per yard per yard
X 1,000 P6.00 P4.00 P1.00 P 7.00
Z 2,000 9.00 5.00 3.00 10.00

40. What amount of joint cost should be allocated to product Z if the company opted to use the
relative sales value at split off method?
A. 4,800
B. 6,400
C. 6,000
D. 5,200

41. Assuming that after further processing, Product X yielded 800 yards of Final Product X. What
is the approximated / estimated net realizable value of the Final Product X at the split-off
point?
A. 6,000
B. 4,800
C. 1,600
D. 2,000
 Page 11
Numbers 42 and 43
C17 Company provided the following information for June of the current year:
Beginning work in process inventory (20% complete as to conversion) 12,000 units
Started 150,000 units
Ending work in process inventory (25% done as to conversion) 35,000 units
Beginning work in process inventory costs:
Direct materials P2,500
Conversion P2,650
Costs added during the year:
Direct materials P36,000
Conversion P112,750
All materials were added at the beginning of production.
42. Under FIFO, what is the Conversion EUP?
A. 135,750
B. 126,150
C. 133,350
D. 150,850
43. Under Weighted Average, what is the Direct material EUP?
A. 150,000
B. 162,000
C. 153,250
D. 185,000
Number 44
Which of the following formulas would calculate the net realizable value of a product?
A. Final sales value less cost of goods sold
B. Sales value multiplied by the constant gross margin
C. Sales value at the split-off point less cost to produce up to the split-off point
D. Final sales value less separable cost

Number 45
Under IFRS 15, how shall an entity recognize revenue from contracts with customers?
A. An entity shall recognize revenue when (or as) the entity satisfies a performance obligation by
transferring a promised good or service (i.e. an asset) to a customer.
B. An entity shall recognize revenue when it is probable that future economic benefits will flow to the
entity and it can be measured reliably.
C. An entity shall recognize revenue at the time of collection of cash.
D. An entity shall recognize revenue at the time of signing of contract.

Number 46
J and K decided to form a Partnership and provided the following transactions:
 J invested P250,000 cash and equipment with a fair value of P150,000.
 K invested P350,000 cash, merchandise with an agreed value of P550,000, and Land with an
appraised value of P500,000 subject to a mortgage payable of P250,000 which the partnership will
assume.
 The partners also agreed to an equal interest in the partnership capital.
Compute the amount reported as total capital of the partners after formation
A. 1,800,000
B. 1,550,000
C. 1,750,000
D. 1,500,000
 Page 12

Number 47

On January 1, 2024, Q and R were partners with capital balances of P1,500,000 and P1,150,000
respectively. The profit and loss agreement of the partners included the following:
 Monthly salaries of P30,000 and P25,000 respectively for Q and R
 6% interest based on their January 1, 2024 capital balances
 Remainder to be shared equally
At the end of 2024, the partnership generated a net income of P500,000.
Compute the share of Partner R in the net income
A. 250,000
B. 227,500
C. 209,500
D. 217,000

Number 48

On December 31, 2024, the Statement of Financial Position of LMN Partnership provided the following
data with profit or loss ratio of 1:6:3:

Current Assets 2,500,000 Total Liabilities 1,500,000

Noncurrent Assets 5,000,000 L, Capital 2,250,000
M, Capital 2,000,000
N, Capital 1,750,000

On January 1, 2025, O was admitted to the partnership by purchasing 40% of the capital interest of M at a
price of P1,250,000.
Compute the capital balance of M after the admission of O on January 1, 2024
A. 1,350,000
B. 1,200,000
C. 1,050,000
D. 750,000

Number 49
O and P have capital balances of P1,400,000 and P1,540,000 respectively before admission of N. Their
profit and loss agreement was 35:65. On January 1, N was to be admitted for 40% interest in the
partnership and 20% in the profits and losses by contributing used equipment which had a cost of
P1,435,000 and a fair value of P1,260,000. After the admission of N, O and P agreed to share profits and
losses equally. At the end of the year the new partnership generated net income of P910,000.
Assuming there is an implied undervaluation or (overvaluation) of an asset, compute the capital
balance of P at the end of the year
A. 3,269,000
B. 539,000
C. 2,586,500
D. 1,221,500
 Page 13

Number 50
On December 31, 2024, the Statement of Financial Position of TUV Partnership provided the following
data with profit or loss ratio of 5:1:4:
Current Assets 3,750,000 Total Liabilities 1,250,000
Noncurrent Assets 5,000,000 T, Capital 2,750,000
U, Capital 3,000,000
V, Capital 1,750,000
On January 1, 2025, S was admitted to the partnership by investing P1,250,000 to the partnership for 10%
capital interest. The total agreed capitalization of the new partnership is P7,500,000.
Compute the capital balance of V after the admission of S to the Partnership
A. 1,450,000
B. 2,050,000
C. 1,250,000
D. 1,950,000

Number 51

On December 31, 2024, the Statement of Financial Position of DEF Partnership with profit or loss ratio of
5:2:3 of partners D, E and F respectively revealed the following data:
Cash 2,500,000 Liabilities 5,000,000
Non Cash assets 6,250,000 D, Capital 1,750,000
E, Capital 1,250,000
F, Capital 750,000
On January 1, 2025, the partners decided to liquidate the partnership. All partners are legally declared to
be personally insolvent. The noncash assets were sold for P4,500,000. Liquidation expenses amounting to
P750,000 were incurred and paid.
Compute the amount of cash received by Partner D after liquidation
A. 1,750,000
B. 875,000
C. 1,375,000
D. 500,000

Number 52
On September 30, 2024, The R, S, and T Partnership had the following fiscal year-end Statement of
Financial Position.
Cash P 48,000 Accounts Payable P 84,000
Accounts Receivable 72,000 Loan from T 60,000
Merchandise Inventory 168,000 R, Capital (20%) 168,000
Fixed Assets, net 144,000 S, Capital (20%) 120,000
Loan to R 72,000 T, Capital (60%) 72,000
P504,000 P504,000
The partners dissolved the partnership on October 1, 2024 and began the liquidation process. During
October the following events occurred:
a. Accounts receivables of P36,000 were collected
b. All the merchandise inventory was sold for P48,000.
c. Cash withheld for anticipated expenses amount to P24,000
Compute the amount of cash S would receive in the first distribution
A. 24,000
B. 4,800
C. 14,400
D. 0
 Page 14

Numbers 53, 54 and 55

On January 1, 2024, Cindy Company accepted a long-term construction project for an initial contract
price of P2,000,000 to be completed on November 30, 2026. On January 1, 2025, the contract price was
increased by P1,000,000 by reason of change in the design of the project. The outcome of the
construction contract can be estimated reliably. The project was completed on December 31, 2026 which
resulted to penalty amounting to P400,000. The entity provided the following data concerning the direct
costs related to the said project for 2024 and 2025:
2024 2025
Costs incurred to date 880,000 2,240,000
Remaining estimated costs to complete at year-end 1,320,000 560,000

53. What is the construction revenue for the year ended December 31, 2025?
A. 800,000
B. 1,600,000
C. 2,400,000
D. 1,200,000

54. What is the realized gross profit for the year ended December 31, 2025?
A. 400,000
B. 160,000
C. 360,000
D. 200,000

55. What is the balance of construction in progress on December 31, 2025?

A. 2,400,000
B. 2,040,000
C. 2,240,000
D. 1,800,000

Numbers 56, 57 and 58

On January 1, 2024, SDC Company granted a franchise to a franchisee. The franchise agreement required
the franchisee to pay a nonrefundable upfront fee in the amount of P1,600,000 and on-going payment of
royalties equivalent to 10% of the sales of the franchisee. The franchisee paid the nonrefundable upfront
fee on January 1, 2024.
In relation to the nonrefundable upfront fee, the franchise agreement required the entity to render the
following performance obligations which were separate and distinct from each other:
 To construct the franchisee’s stall with stand-alone selling price of P400,000.
 To deliver 20,000 units of raw materials to the franchisee with stand-alone selling price of P500,000.
 To allow the franchisee to access the entity's tradename for a period of 5 years starting January 1,
2024. The stand-alone selling price of the use of the tradename was P100,000.

On July 31, 2024, the entity completed the construction of the franchisee’s stall. On December 31, 2024,
the entity was able to deliver 15,000 units of raw materials to the franchisee. For the year ended
December 31, 2024, the franchisee reported sales revenue amounting to P1,000,000.

56. Under IFRS 15, what amount should SDC Company recognize as revenue in relation to the
delivery of the raw materials on December 31, 2024?
A. 800,000
B. 500,000
C. 600,000
D. 375,000
 Page 15

57. Under IFRS 15, what amount should SDC Company recognize as revenue in relation to the
construction of the franchisee's stall on December 31, 2024?
A. 640,000
B. 400,000
C. 1,600,000
D. 0

58. Under IFRS 15, what amount should SDC Company recognize as total revenue for the year
ended December 31, 2024?
A. 1,600,000
B. 1,372,000
C. 1,700,000
D. 1,276,000

Numbers 59 and 60

JKL Corporation provided the following balances in May 1, 2024: Statement of Financial Position:

Cash 400,000 Accounts payable 700,000

Accounts receivable 100,000 Wages payable 180,000
Inventories 400,000 Tax payable 120,000
Furnitures 300,000 Notes payable 600,000
Equipment 600,000 Ordinary shares 300,000
Deficit/(RE) (100,000)

Total 1,800,000 Total 1,800,000

In the Statement of Realization and Liquidation the following data were ascertained for the month of
May:
▪ Interests not accrued for the month were for the notes payable P90,000.
▪ P40,000 of the existing accounts receivable at the beginning of the month was collected for
only P25,000.
▪ P240,000 of the total inventories were sold for P300,000 cash.
▪ Furniture was sold for P220,000.
▪ Administrative expenses of P50,000 were paid.
▪ Additional sales on account amounting to P190,000 were made for the remaining inventories.
▪ Remaining non-cash assets are to be realized and remaining liabilities are to be paid in the next
period(s) of liquidating JKL Corporation.

59. Compute the profit or (loss) of the trustee for the month of May
A. 55,000
B. (145,000)
C. (100,000)
D. 200,000

60. Compute the estate equity(deficit) at the end of May

A. 55,000
B. (145,000)
C. (100,000)
D. 200,000
 Page 16

Number 61

JKL Company is currently experiencing severe financial difficulties and is considering the possibility
of liquidation. At this time, the company has the following assets at estimated realizable value and
liabilities:
Assets (pledged against liabilities of P350,000) 580,000
Assets (pledged against liabilities of P650,000) 250,000
Other Assets 400,000
Liabilities with priority 210,000
Unsecured without priority 1,000,000
Compute the estimated payment to partially secured creditors
A. 650,000
B. 250,000
C. 370,000
D. 1,000,000

Number 62

XY Company has filed for liquidation. The following data is available:

Total free assets at realizable value 500,000
Unsecured liabilities per books 800,000
Unrecorded liabilities:
Trustee expense 30,000
Wages 50,000
Compute the expected percentage claim of the unsecured creditors
A. 52.50%
B. 62.50%
C. 69.36%
D. 56.82%

Number 63

Statement 1. The current and noncurrent classification of assets and liabilities are considered relevant to
companies undergoing liquidation.
Statement 2. In the Statement of Affairs, the expected recovery percentage may be relevant in some
circumstances to creditors who are fully secured.
A. Both statements are true
B. Both statements are false
C. Only statement 1 is true
D. Only statement 2 is true

Number 64

Statement 1. The expected recovery percentage for unsecured liabilities with priority is always 100
percent.
Statement 2. Interest payable on bonds may be categorized as unsecured liabilities with priority claims as
long as the related principal is fully secured.
A. Both statements are true
B. Both statements are false
C. Only statement 1 is true
D. Only statement 2 is true
 Page 17

Number 65

On January 1, 2024, Entity X, a public entity, and Entity Y, a public entity, incorporated Entity Z which
has its fiscal and operational autonomy. The contractual agreement of the incorporating entities provided
that the decisions on relevant activities of Entity Z will require the unanimous consent of both entities.
Entity X and Entity Y will have rights to the net assets of Entity Z.
Entity X and Entity Y invested P4,000,000 and P6,000,000, respectively, equivalent to 40:60 capital
interest of Entity Z. The financial statements of Entity C provided the following data for its two-year
operation:
Net income / (Net loss) Dividends declared

2024 800,000 400,000

2025 (2,000,000) -
What amount should Entity X report as Investment in Entity Z on December 31, 2024?
A. 4,000,000
B. 4,320,000
C. 4,160,000
D. 4,480,000

Numbers 66 and 67
On January 1, 2024, Entity X and Entity Y, both SMEs, incorporated Entity Z, a jointly controlled entity
by investing P10,000,000 each in exchange for 100,000 ordinary shares representing 50% interest each of
Entity Z. Entity X and Entity Y each incurred P400,000 transaction costs.
The contractual agreement of the incorporating entities provided that the decisions on relevant activities
of Entity Z will require the unanimous consent of both entities. Entity X and Entity Y will have rights to
the net assets of Entity Z.
For the year ended December 31, 2024, Entity C reported net income of P2,000,000 and declared
dividends in the amount of P600,000.
On December 31, 2024, the ordinary shares of Entity C are quoted at P112.
66. If Entity X elected fair value model to account for its investment in Entity Z, what is the net
effect on Entity X’s profit or loss for the year ended December 31, 2024?
A. 1,100,000 net income
B. 1,200,000 net income
C. 300,000 net income
D. 800,000 net income
67. If Entity Y elected equity method to account for its investment in Entity Z, what is the carrying
amount of Entity Y’s Investment in Entity C on December 31, 2024?
A. 10,400,000
B. 10,900,000
C. 10,700,000
D. 11,100,000

Number 68
Under IFRS for SMEs, the income of the SME-venturer for its investment in joint venture under fair
value model consists of
A. Share in net income of joint venture
B. Dividend income
C. Gain on changes in fair value of investment
D. Dividend income and gain on changes in a fair value of investment

END
 CPA REVIEW SCHOOL OF THE PHILIPPINES
Manila
ADVANCED FINANCIAL ACCOUNTING AND REPORTING Sunday, July 28, 2024
FIRST PREBOARD EXAMINATION 1:00 p.m to 4:00 p.m.

Number 1
ABC Trading Co. has a branch in Manila. On December 31, 2024, the Investment in Manila Branch
account in the home office books showed a balance of P3,860,000. The interoffice accounts were in
agreement at the beginning of the year. For purposes of reconciling the reciprocal accounts, the
following facts were ascertained:
a. The home office erroneously recorded a remittance of P48,000 from its Malabon branch as a
remittance from its Manila branch.
b. The branch failed to take up a P15,000 debit memo from the home office representing its share in
training expenses.
c. The branch did not record a Home office credit memo for P21,000 representing collection from
branch customers.
Compute the unadjusted balance of the Home Office Current account on December 31, 2024
A. 3,908,000
B. 3,902,000
C. 3,914,000
D. 3,818,000

Number 2
A home office ships inventory to its branch at a mark-up of 125% based on cost. The required balance
of the unrealized intercompany account is P1,140,000. During the year, the home office sent
merchandise to the branch costing P7,200,000. At the start of the year, the branch's books showed
P1,440,000 of inventory coming from the home office.
The unrealized intercompany account must be decreased by
A. 9,800,000
B. 948,000
C. 2,088,000
D. 8,660,000

Number 3
The Home Office in Ortigas shipped merchandise costing P1,400,000 to the Ayala branch and paid for
the freight charges of P10,500. The home office bills the branch at 125% of the cost. The Ayala
branch was subsequently instructed to transfer one-half of the merchandise to the Pateros branch,
wherein the Pateros branch paid for the P3,500 freight. If the shipment was made directly from Ortigas
to Pateros, the freight cost would have been P7,000.
By how much will the Ayala Branch charge the Home Office Current account?
A. 880,250
B. 897,750
C. 885,500
D. 883,750

Number 4
Which of the following statements regarding Corporate Liquidation is FALSE?
A. The total free assets must deal with unsecured priority claims first.
B. The estimated payment to unsecured without priority claims may be equal to zero.
C. The statement of financial affairs is prepared when the appointed Trustee initiates an entity's actual
realization of assets.
D. In the statement of financial affairs, the estimated settlement to partially secured creditors may be
equal to the realizable value of the asset pledged to them.
 Page 2
Number 5
On December 31, 2024, the Home Office Current account in the books of the Makati Branch has a
balance of P5,850,000. In analyzing the activity in each of these accounts for December, you found
the following differences:
a. A P120,000 branch remittance to the home office initiated on December 21, 2024, was recorded
twice by the home office on December 26 and 28.
b. The home office incurred P216,000 advertising expenses and allocated 1/3 of this amount to the
branch on December 20. The branch recorded this transaction on December 22, amounting to
P7,200.
c. Inventory costing P301,800 was sent to the branch by the home office on December 15. The
billing was at cost, but the branch recorded the transaction at P318,000.
The adjusted balance of the reciprocal accounts on December 31, 2024
A. 5,801,400
B. 5,931,000
C. 5,898,600
D. 5,769,000

Number 6
The home office in Pasig shipped merchandise costing P333,000 to the Bicol branch and paid the
freight amounting to P25,200. The home office transfers merchandise to the branch at a 20% mark-up
based on cost. The Bicol branch was subsequently instructed to transfer the merchandise to the
Palawan branch, wherein the latter paid for P16,800 freight. If the shipment was made directly from
Pasig to Palawan, the freight cost would have been P37,200.
Compute the amount credited to the Home Office Current account in the books of the Palawan
branch
A. 362,800
B. 420,000
C. 370,200
D. 427,440

Number 7
A home office ships inventory to its branch and billed 125% of the cost during 2024. The branch
inventory allowance account shall be adjusted downward to P285,000. During the year, the home
office sent merchandise to the branch costing P1,100,000. At the start of the year, the branch's books
showed P105,000 of inventory on hand that was received from the home office. The branch inventory
allowance account was debited to P20,000 in the books of the home office at the end of 2024.
Compute the 2024 ending inventory in the books of the branch
A. 1,140,000
B. 1,425,000
C. 1,410,000
D. 1,125,000

Number 8
Which of the following statements regarding accounting for the home office and branch is FALSE?
A. The required balance of the branch inventory allowance account is the markup in the branch's
ending inventory from the home office.
B. The combined net income of the home office and its branches is presented in the separate
Statement of Comprehensive Income of the Home office.
C. The stockholders’ equity of the branch is eliminated in the working paper and not extended in the
combined statement of financial position.
D. The realized markup represents the understatement in the net income per branch books.
 Page 3
Number 9
The Home Office in Pasay shipped merchandise costing P1,680,000 to the Mandaluyong branch; the
freight collect amounting to P12,600. Mandaluyong branch was subsequently instructed to transfer
P1,008,000 of the merchandise to the Cainta branch, wherein the Cainta branch paid for P4,200 freight.
Had the merchandise been shipped directly from Pasay to Cainta, the freight cost would have been
P8,400.
Compute the excess freight chargeable to Pasay
A. 0
B. 8,400
C. 1,680
D. 3,360

Number 10
On June 1, 2024, Sta. Rosa, a home office, established an agency in Tagaytay, sending samples costing
P490,000, which are useful until the end of May 2025 and have a salvage value of 10% of cost. A
working fund of P398,125 is to be maintained on an imprest basis. In 2024, the agency submitted to
the home office a sales order amounting to P4,134,375. Sales per invoice were P3,215,625, which the
home office duly approved. Collections during the year amounted to P1,717,021.25 net of a 3% sales
discount. The cost of merchandise sold during the year equals 75% of the gross sales. Vouchers for
expenses amounted to P214,375.
How much net income would be reported by the Tagaytay agency on December 31, 2024?
A. 315,927.50
B. 508,865
C. 279,177.50
D. (95,427.50)

Number 11
Which of the following statements regarding Corporate Liquidation is TRUE?
A. Revenues earned and expenses incurred during the period are part of the Statement of Realization
and Liquidation.
B. Assets not realized in the Statement of Realization and Liquidation are the total assets presented in
the Statement of Financial Position at the end of the period.
C. A debit balance in retained earnings will result in an estate deficiency.
D. An increase in the supplementary debit/charges has a corresponding increase in liabilities.

Number 12
Which of the following statements is TRUE regarding accounting for the home office and branch?
A. Both the Investment in Branch and Home Office Current accounts are eliminated in the books of
the home office and the branch, respectively.
B. A debit memo received by the branch may be a notification from the home office regarding the
payment made by the home office to a branch supplier.
C. A credit memo increases the reciprocal accounts in their respective books.
D. In an interbranch transaction, the branch may use an investment in another branch account.

Number 13
Statement 1: Under IFRS 15, revenue may be recognized even if there is no observable stand- alone
selling price.
Statement 2: There may be one performance obligation per franchise contract.
A. Both statements are true.
B. Both statements are false.
C. Statement 1 is true; statement 2 is false
D. Statement 1 is false; statement 2 is true
 Page 4

Number 14

JKL Corporation provided the following balances on July 1, 2024: Statement of Financial Position:
Cash 480,000 Accounts payable 840,000
Accounts receivable 120,000 Wages payable 216,000
Inventories 480,000 Tax payable 144,000
Furniture 360,000 Notes payable 720,000
Equipment 720,000 Ordinary shares 360,000
Deficit/(RE) ( 120,000)
Total 2,160,000 Total 2,160,000
In the Statement of Realization and Liquidation, the following data were ascertained for the month of
July:
 Interests not accrued for the month were for the notes payable P108,000.
 P48,000 of the existing accounts receivable at the beginning of the month was collected for only
P30,000.
 P288,000 of the total inventories were sold for P360,000 cash.
 Furniture was sold for P264,000.
 Administrative expenses of P60,000 were paid.
 Additional sales on account amounting to P228,000 were made for the remaining inventories.
 Remaining non-cash assets are to be realized, and remaining liabilities are to be paid in the next
period(s) of liquidating JKL Corporation.
Compute the estate equity/(deficiency) at the end of July
A. (294,000)
B. (120,000)
C. 66,000
D. 240,000

Number 15

QRS Company is currently experiencing severe financial difficulties and is considering the possibility
of liquidation. At this time, the company has the following assets at estimated realizable value and
liabilities:
Assets (pledged against liabilities of P1,400,000) 2,320,000
Assets (pledged against liabilities of P2,600,000) 1,000,000
Other Assets 1,600,000
Liabilities with priority 840,000
Unsecured without priority 4,000,000
Compute the estimated payment to partially secured creditors
A. 1,480,000
B. 2,600,000
C. 1,000,000
D. 4,000,000

Number 16
Which of the following statements regarding IFRS 15 is FALSE?
A. A key feature of the revenue arrangement is that the signing of the contract by the two parties is
not recorded until one or both of the parties perform under the contract.
B. A performance obligation is a promise in a contract to provide a product or service to a customer.
C. To determine whether a performance obligation exists, the company must provide a distinct
product or service.
D. Services that are interdependent or interrelated may be accounted for separately.
 Page 5

Numbers 17 and 18

The following selected account balances were taken from the Statement of Financial Position of TUV
Corp. as of December 31, 2024, immediately before the takeover of the trustee:

Trading Securities P1,800,000

Inventories 660,000
Land 900,000
Building 2,400,000

Additional information:

 Trading securities are estimated to be realized in the amount of P1,920,000. These securities
have been pledged to secure notes payable of P1,680,000.
 The estimated worth of inventories is P420,000. However, inventories with a book value of
P300,000 have been pledged to secure notes payable of P360,000. The realizable value of the
inventories pledged is estimated to be P240,000.
 Land and buildings are estimated to have a total realizable value of P2,700,000. These
properties are pledged to secure the mortgage payable of P1,500,000.

17. Compute the estimated amount available for preferred claims and nonpriority claims out of
the assets pledged with fully secured creditors
A. 0
B. 1,440,000
C. 4,620,000
D. 1,620,000

18. Compute the amount of total free assets

A. 1,620,000
B. 4,860,000
C. 4,620,000
D. 1,440,000

Number 19

Statement 1: In some circumstances, the consignee may credit sales revenue upon transfer of control
relating to the merchandise held on consignment.
Statement 2: Freight-in and cartage cost related to returned goods previously held on consignment
affects the computation of the commission earned by the consignee.
A. Both statements are true.
B. Both statements are false.
C. Statement 1 is true; statement 2 is false
D. Statement 1 is false; statement 2 is true

Number 20

Statement 1: Construction in Progress and Progress Billings must equal the contract price upon
completion of the project except when there are variable considerations that change the contract price
on the year of completion.
Statement 2: Anticipated loss may be recognized using the percentage of completion.
A. Both statements are true.
B. Both statements are false.
C. Statement 1 is true; statement 2 is false
D. Statement 1 is false; statement 2 is true
 Page 6

Numbers 21 and 22

A trustee has been appointed for QRS Company, which is being liquidated under the Bankruptcy Law.
The following transactions occurred in the first month of liquidation after the assets were transferred to
the trustee.

1. Credit sales by the trustee were P700,000. The cost of goods sold was P504,000, consisting of all
the inventory transferred from QRS.
2. The trustee sold all P140,000 worth of marketable securities for P105,000.
3. Receivables collected by the trustee: P196,000 from the P350,000 existing at the beginning of the
month and P455,000 from the increase during the period. The remaining receivables are to be
realized by next month.
4. Disbursements by the trustee: Old current payables: P217,000 of the P455,000 transferred;
Trustee's expenses: P42,000. The remaining liabilities are to be liquidated next month.
5. Recorded P168,000 depreciation on the plant assets of P840,000 transferred from QRS.

21. Compute the net income/net loss of the trustee for the period
A. 84,000
B. (49,000)
C. (84,000)
D. (217,000)

22. Compute the total amount of assets not realized at the end of the period in the special report
of the trustee
A. 399,000
B. 1,071,000
C. 826,000
D. 1,239,000

Numbers 23, 24 and 25

TUV Inc. purchased 100,000 units costing P7,000,000 and paid P70,000 freight for its shipment. After
a week, the company consigned these goods to XYZ Inc., stating that the consignee is entitled to 10%
of the revenue from all sold units. The shipment from the consignor to the consignee amounted to
P35,000 with payment terms for freight collect. The gross profit amount to P4,832,100. The consignee
remitted a total of P9,142,000. Other notable expenses paid by the consignee on the consignor’s behalf
were P84,000 in advertising expenses, P21,000 in delivery charges to customers, and P54,600
installation fee on the customer’s premises.

23. Compute the selling price per unit

A. 133
B. 103.74
C. 119.70
D. 181.65

24. Compute the cost of goods still out on consignment

A. 1,540,000
B. 1,547,700
C. 1,555,400
D. 1,563,100

25. Compute the net income of the consignor

A. 3,635,100
B. 3,600,100
C. 3,565,100
D. 3,530,100
 Page 7

Numbers 26 , 27 and 28

JKL Company granted a franchise to a franchisee on the last day of January 2024. The franchise
agreement required the franchisee to pay a nonrefundable upfront fee in the amount of P3,000,000
upon contract signing and ongoing payment of royalties equivalent to 10% of the franchisee's sales.

In relation to the nonrefundable upfront fee, the franchise agreement required the entity to render the
following performance obligations, which were separate and distinct from each other:

 To construct the franchisee’s stall with a stand-alone selling price of P1,600,000.

 To deliver 6,000 units of raw materials to the franchisee with a stand-alone selling price of
P2,000,000.
 To allow the franchisee to access the entity's tradename for a period of 5 years from the date of
contract signing. The stand-alone selling price of the use of the trade name was P400,000.

On June 30, 2024, the entity completed the construction of the franchisee’s stall. On December 31,
2024, the entity delivered 4,500 units of raw materials to the franchisee. For the year ended December
31, 2024, the franchisee reported sales revenue amounting to P4,000,000.

26. Under IFRS 15, compute the amount JKL Company should recognize as revenue from
franchise fees on the Statement of Comprehensive Income for the year ended December 31,
2024
A. 2,385,000
B. 2,780,000
C. 2,785,000
D. 2,380,000

27. Under IFRS 15, compute the amount JKL Company should recognize as unearned revenue
in relation to the construction of the franchisee's stall on January 1, 2024
A. 1,200,000
B. 1,600,000
C. 3,000,000
D. 0

28. Under IFRS 15, compute the amount of franchise fee presented in the Statement of Financial
Position of JKL Company on December 31, 2024
A. 620,000
B. 3,000,000
C. 2,785,000
D. 615,000

Number 29
Statement 1: The consignee acts as an agent of the consignor for the purpose of selling merchandise to
outside customers.
Statement 2: Expenses paid by the consignee on behalf of the consignor may be debited as an expense
in the books of the consignee.
A. Both statements are true.
B. Both statements are false.
C. Statement 1 is true; statement 2 is false
D. Statement 1 is false; statement 2 is true
 Page 8

Numbers 30, 31 and 32

On January 1, 2024, FGH Inc. entered into a long-term construction contract to build an underpass for a
local government. The P60,000,000 construction project is expected to be completed in the last quarter
of 2028. Relevant excerpts from the contract are extracted:

 The contract price is subject to a bonus of P4,000,000 if the project is completed before October 1,
2028.
 A penalty of P6,000,000 shall reduce the contract price if the project is completed after December
31, 2028.

In year one, FGH Inc. estimates that it is 40% likely to complete the project in August 2028 and 25%
likely that the project will be completed in February 2029. This estimate remained unchanged for the
following year. The estimate was readjusted to a 50% chance for early completion and a 20% chance
for delayed completion starting in the third year and fourth year. The project was completed before the
due date. Other relevant information were as follows:

2024 2025 2026 2027 2028

Cost incurred to date 10,200,000 21,000,000 31,000,000 44,800,000 58,000,000
Estimated cost to complete 57,800,000 39,000,000 31,000,000 11,200,000 0

30. Compute the construction revenue of FGH Inc. recognized in the Statement of
Comprehensive Income for the year ended December 31, 2025
A. 12,000,000
B. 18,735,000
C. 9,015,000
D. 12,020,000

31. Compute the construction cost of FGH Inc. presented in the Statement of Comprehensive
Income for the year ended December 31, 2027
A. 13,800,000
B. 16,800,000
C. 13,200,000
D. 23,280,000

32. Compute the gross profit of FGH Inc. realized in the Statement of Comprehensive Income
for the year ended December 31, 2028
A. 6,000,000
B. 960,000
C. 2,160,000
D. 1,200,000

Number 33

Statement 1: Mobilization fee and contract retention are examples of contract liability and contract
asset, respectively.
Statement 2: In long-term construction contracts, a company recognizes revenue over a period of time
if it can reasonably estimate its progress toward satisfaction of the performance obligations.
A. Both statements are true.
B. Both statements are false.
C. Statement 1 is true; statement 2 is false
D. Statement 1 is false; statement 2 is true
 Page 9

Numbers 34 and 35
ABC entered into a long-term construction contract to construct an airport for an initial contract price
of P300,000,000. During 2025, the contract price decreased due to the change in the project design.
The following data were available:
2024 2025 2026
Cost incurred P72,000,000 P120,000,000 ?
Realized gross profit/(loss) ? (48,000,000) P16,000,000
Percentage of completion as of year-end 30% 60% 80%

34. Compute the cost of construction presented in the Statement of Comprehensive Income of
ABC for the year ended December 31, 2026.
A. 51,200,000
B. 74,000,000
C. 62,800,000
D. 42,000,000

35. Compute the Construction in Progress balance in 2026.

A. 229,200,000
B. 232,000,000
C. 259,200,000
D. 0

Numbers 36 and 37

Partners A and B will contribute the following: A will contribute cash, P1,500,000, and B will
contribute a Building with a carrying amount of P1,000,000 and an agreed value of P1,200,000. The
building has a mortgage of P100,000. The partners further agreed to make their capital balances equal
upon formation, and the mortgage would be the obligation of the partnership.

36. What is the contributed capital of Partner B?

A. 1,000,000
B. 1,100,000
C. 1,200,000
D. 1,300,000

37. What is the agreed capital of Partner A?

A. 1,500,000
B. 1,100,000
C. 1,200,000
D. 1,300,000

Number 38

A partner contributes a certain asset that has a mortgage and will be paid personally by that partner.
Which of the following is true when recording in the partnership books?
A. The capital of the partner will be debited in the amount of the mortgage
B. The cash of the partnership will decrease by the amount of the mortgage
C. The capital of the partner will be credited in the amount of the asset at the agreed value
D. The liability of the partnership will increase by the amount of the mortgage
 Page 10

Numbers 39, 40, and 41

Partners A and B formed a partnership on April 1, 2025, with original capital contributions of
P2,000,000 and P1,500,000, respectively. They agreed to distribute profits and losses with the
following provisions:

a) 10% on their original capital contributions

b) quarterly salaries of P15,000 and P20,000, respectively for A and B
c) The remainder shall be shared at 60:40

At the end of the year, due to unfavorable circumstances, the partnership generated a net loss of
P300,000.

39. What is Partner A's share of the net loss?

A. 211,500
B. 205,500
C. 214,000
D. 208,000

40. What is Partner B's share of the net loss?

A. 88,500
B. 86,000
C. 92,000
D. 94,500

41. What is the capital balance of Partner A on December 31, 2025?

A. 1,788,500
B. 1,786,000
C. 1,794,500
D. 1,792,000

Numbers 42 and 43

Partners A and B have capital balances of P500,000 and P300,000, respectively, before admitting
incoming Partner C. The new partner will invest P200,000 for 25% capital interest and 20% in the
profits and losses. Partners A and B share profits and losses 2:3. Partners also agreed that a certain asset
needs to be revalued.

42. What is the undervaluation/overvaluation of a certain asset?

A. 200,000 over
B. 66,667 under
C. 2,200,000 under
D. 0

43. What is Partner B's capital balance after admission?

A. 340,000
B. 1,020,000
C. 300,000
D. 180,000

Number 44

The following decreases the capital balance of the partner except

A. Permanent withdrawals
B. Temporary withdrawals
C. Share in the income summary debit balance
D. Share in the income summary credit balance
 Page 11

Numbers 45 and 46
Partners A and B have capital balances of P200,000 and P100,000, respectively, before admitting
incoming Partner C. The new partner will pay P50,000 for 20% capital interest in the partnership and
25% in the profits and losses. Partners A and B share profits and losses 2:3.

45. Which of the following is true in relation to the admission of Partner C?

A. The capital credit of Partner C is 50,000
B. Partner A will have a debit in the amount of P40,000 from his capital balance.
C. Partner B will have a credit of P20,000 to his capital balance.
D. The total agreed capital is P250,000.

46. Which of the following is false in relation to the admission of Partner C?

A. The capital balance of Partner A after admission is P160,000
B. The capital balance of Partner C after admission is P60,000
C. Partner B's capital balance decreased by P20,000
D. Partner C brings new capital in the amount of P50,000 to the partnership

Numbers 47 and 48
Partners A, B, and C have capital balances of P300,000, P200,000, and P100,000, respectively. The
following were also loan balances in the partnership books: a loan to A in the amount of P50,000 and a
loan from C in the amount of P30,000. Partner A decided to retire from the partnership, and they
agreed to pay P180,000 for his interest. They share profits and losses 30:30:40, respectively.

47. What is Partner C's capital balance after retirement?

A. 168,571
B. 198,571
C. 140,000
D. 170,000

48. What is the bonus to Partner B?

A. 30,000
B. 21,000
C. 51,429
D. 0

Number 49

The following were the balances in the Statement of Financial Position of AB Partnership before
liquidation: Cash P50,000; Non-cash P100,000; Liabilities P30,000; A, Capital P60,000 and B, Capital
P60,000.

All of the non-cash were sold at a loss of P35,000. Liquidation expenses were paid, and all outside
creditors were also paid. The total cash paid to partners was P70,000. All partners were declared
insolvent. The profit and loss ratio was 7:3, respectively.

What is the amount paid for the liquidation expenses?

A. 15,000
B. 45,000
C. 35,000
D. 50,000
 Page 12

Numbers 50 and 51

The following were the balances in the Statement of Financial Position of AB Partnership before
liquidation: Cash P100,000; Non-cash P300,000; Total liabilities P110,000 (including a loan from
Partner A P20,000); A, Capital P180,000 and B, Capital P110,000.

All of the non-cash assets were sold for P250,000. Liquidation expenses were paid in the amount of
P30,000. The outside creditors waived P20,000, and therefore, only P70,000 were paid. All partners
were declared insolvent. The profit and loss ratio was 6:4, respectively.

50. What is the amount of cash received by Partner A after liquidation?

A. 144,000
B. 156,000
C. 140,000
D. 164,000

51. What is the amount of cash received by Partner B after liquidation?

A. 70,000
B. 126,000
C. 86,000
D. 94,000

Numbers 52 and 53

The following were the balances in the Statement of Financial Position of AB Partnership before
liquidation: Cash P100,000; Total non-cash P300,000 (including a loan to Partner B P30,000); Total
liabilities P110,000 (including a loan from Partner A P20,000); A, Capital P180,000 and B, Capital
P110,000.

P170,000 book value of the non-cash assets were sold. Liquidation expenses were paid in the amount
of P30,000. The outside creditors were paid P70,000. Cash withheld for future liquidation expenses
was P20,000. At the end of the first installment liquidation, Partner A received P40,000. The profit and
loss ratio was 6:4, respectively.

52. What are the proceeds from the sale of non-cash assets during the first installment?
A. 96,000
B. 146,667
C. 110,000
D. 80,000

53. What is the total cash withheld during the first installment?
A. 20,000
B. 40,000
C. 60,000
D. 80,000

Number 54

Which of the following is false regarding admission by investment

A. The incoming partner brings new capital to the partnership
B. When the amount contributed by the new partner is less than the amount of capital credited to his
account, the result is a bonus to the new partner
C. When the total agreed capital of the partnership is less than the total contributed capital, an
identifiable asset of the partnership is overstated
D. The capital credit of the new partner is always based on the total agreed capital
 Page 13
Numbers 55, 56 and 57

The following were the balances in the Statement of Financial Position of AB Partnership before
liquidation: Cash P50,000; Non-cash P100,000; Liabilities P30,000; A, Capital P60,000 and B, Capital
P60,000.
The non-cash in the amount of P20,000 was sold for P5,000. Liquidation expenses were paid in the
amount of P12,000. Only P10,000 was paid to the outside creditors. Cash withheld for future
liquidation expenses was P3,000. The profit and loss ratio was 7:3, respectively.

55. What is the amount of cash received by Partner A at the end of the first installment?
A. 41,100
B. 49,500
C. 60,000
D. 0

56. What is the amount of cash received by Partner B at the end of the first installment?
A. 51,900
B. 27,000
C. 10,000
D. 0

57. What is the maximum possible loss in the first installment?

A. 83,000
B. 80,000
C. 103,000
D. 100,000

Number 58
When the amount paid by the partnership is greater than the interest of the retiring partner and the
capital balances of the remaining partner decrease, which of the following best describes the situation?
A. bonus to the retiring partner
B. bonus to the remaining partners
C. there is an overvalued asset of the partnership
D. there is an undervalued asset of the partnership

Number 59
Which of the following is true when a deficient partner is solvent?
A. the cash balance of the partnership will increase due to his contribution
B. the deficient partner will receive cash equal to his contribution
C. the liquidation process will cease
D. the other partners will absorb the deficiency of the said partner

Number 60
The maximum possible loss is computed as
A. The book value of the unrealized non-cash asset plus any cash withheld for future liquidation
expenses and unpaid outside creditors.
B. The fair value of the unrealized non-cash asset plus any cash withheld for future liquidation
expenses.
C. The book value of the unrealized non-cash asset plus any cash withheld for future liquidation
expenses and anticipated liabilities.
D. The fair value of the unrealized non-cash asset plus any cash withheld for future liquidation
expenses and anticipated liabilities.
 Page 14

Numbers 61 and 62

The following were extracted from the cost of production report of the company:

Job 166 Job 167 Job 168

Beginning inventory P15,000 - -
Direct materials used P10,000 P15,000 P22,000
Direct labor hours used 1,000 hrs 1,600 hrs 2,400 hrs
OH applied ? P10,000 P10,000

The direct labor rate per hour was P5 per direct labor hour, and the actual overhead cost was P13,000.
At the end of the period, the manufacturing overhead control account had a credit balance of P15,000.
Jobs 166 and 168 were completed, but only Job 168 were sold by the end of the period.

61. What is the cost of goods manufactured?

A. 67,000
B. 74,000
C. 82,000
D. 59,000

62. What is the cost of finished goods at the end?

A. 33,000
B. 38,000
C. 23,000
D. 30,000

Numbers 63 and 64

The total cost for 2,000 units produced for Job 108, including allowance for spoilage, was P150,000.
The cost of allowance for spoilage was P30,000. After further inspection, there were 500 spoiled units
and 100 defective units. Each spoiled unit can be sold for P40. The unit cost for reworking the
defective units was P35. The spoilage and defective units were due to the customer's exact
specifications.

63. What is the total cost transferred to the finished goods inventory account?
A. 133,500
B. 136,500
C. 103,500
D. 112,500

64. What is the cost per good unit of Job 108?

A. 69
B. 91
C. 89
D. 75

Number 65

It is a costing system that values manufactured products with the actual material costs, actual direct
labor costs, and manufacturing overhead based on a predetermined manufacturing overhead rate.
A. Actual costing system
B. Normal costing system
C. Standard costing system
D. Budgeted costing system
 Page 15

Number 66

If the under or over-applied factory overhead is insignificant, it shall be closed to

A. Cost of goods sold only
B. Finished goods and cost of goods sold proportionately
C. Work in process, finished goods, and cost of goods proportionately
D. Raw materials, work in process, finished goods, and cost of goods sold proportionately

Numbers 67 and 68

Rolex Co. adopted the Just-In-Time (JIT) production system and used Backflush Costing. They also
used a Raw and In-Process account for the materials. The following data were given:
Materials purchased on account P300,000
Decrease in Raw and In-Process P20,000
Direct labor cost P100,000
Overhead cost incurred P50,000
Conversion cost applied P170,000
Units produced 200
Units unsold 25

67. What is the cost of goods sold?

A. 393,750
B. 516,250
C. 376,250
D. 428,750

68. What is the cost of the finished goods inventory at the end?
A. 58,750
B. 61,250
C. 56,250
D. 73,750

Number 69

In job order costing, the rework cost, which is attributable to all jobs, shall be
A. Expensed as incurred
B. Charged or capitalized to that particular job
C. Charged to factory overhead account
D. Debited to work in process account

Number 70

It is a product costing system generally used in a just-in-time inventory environment. This costing
system delays the process until the production of goods is completed by eliminating the detailed
tracking of cost throughout the production system and preparing journal entries only at trigger points.
A. Backflush costing
B. Standard costing
C. Normal costing
D. Traditional costing

END
 CPA REVIEW SCHOOL OF THE PHILIPPINES
MANILA

ADVANCED FINANCIAL ACCOUNTING AND REPORTING Sunday, October 6, 2024

Final Preboard Examination 1:00 p.m to 4:00 p.m.

Number 1

Entities A and B will contribute the following: A will contribute cash, P3,000,000, and B will
contribute a Building with a carrying amount of P2,000,000 and an agreed value of P2,400,000. The
building has a mortgage of P300,000, but it will be assumed by the partnership. One of the provisions
of their agreement is that upon formation, the capital balances of the partners will be equal.
What is the capital credit to B upon formation?
A. 2,000,000
B. 2,100,000
C. 2,400,000
D. 2,550,000

Number 2

Partners A and B started their operations on January 1, 2025, and agreed to distribute profits and losses
with the following provisions:
a) Quarterly salaries of P50,000 and P40,000, respectively, for A and B
b) Bonus to B was 10% of net income after the salaries
c) The remainder shall be shared at 70:30
At the end of the year, the partnership's income summary account had a credit balance of P350,000.
What is the share of A in the net income of the partnership?
A. 200,400
B. 193,000
C. 200,000
D. 206,000

Number 3

Partners A and B have capital balances of P1,000,000 and P600,000, respectively, before admitting
incoming Partner C. Incoming Partner C will pay P300,000 for 25% capital interest and 20% in the
profits and losses. The partners also agreed that there is an asset that is needed to be revalued.
What is the amount of the asset revaluation?
A. 100,000 over
B. 700,000 over
C. 400,000 over
D. 533,333 over

Number 4

Joint costs are most frequently allocated based on relative

A. profitability
B. conversion cost
C. prime cost
D. sales value
 Page 2
Number 5

Partners A, B, and C have capital balances of P600,000, P400,000, and P200,000, respectively. The
following were also loan balances in the partnership books: a loan to A in the amount of P50,000 and a
loan from C in the amount of P30,000. Partner A decided to retire from the partnership, and they
agreed to pay P200,000 for his interest. They share profits and losses 30:30:40, respectively.
What is C's capital balance after retirement?
A. 430,000
B. 340,000
C. 370,000
D. 400,000

Number 6

Partners A, B, and C have capital balances of P300,000, P200,000, and P100,000, respectively. The
liabilities, outside creditors, of the partnership were P70,000, and the cash balance was P250,000.
There was also a loan payable to C in the amount of P30,000. They agreed to liquidate the partnership.
Non-cash assets were sold for P200,000, and liquidation expenses were paid for P80,000. They share
profits and losses 20:40:40. All partners are solvent.
What is the amount of the additional contribution made by the deficient partner?
A. 32,000
B. 38,000
C. 2,000
D. 0

Number 7

Partners A, B, and C have capital balances of P300,000, P200,000, and P100,000, respectively. The
total liabilities of the partnership were P150,000, and the cash balance was P250,000. They agreed to
liquidate the partnership. Only P150,000 of the non-cash assets were sold for P100,000, and liquidation
expenses were paid for P40,000. Cash withheld for future liquidation expenses was P10,000. Only 20%
of the liabilities to outside creditors were paid in the first installment. They share profits and losses
30:40:30.
What is the total maximum possible loss?
A. 200,000
B. 480,000
C. 360,000
D. 330,000

Number 8

Under process costing, the FIFO method will produce the same amount of cost of goods completed as
the Weighted Average method when
A. the goods produced are homogeneous
B. there is no beginning inventory work-in-process
C. there is no ending inventory work-in-process
D. beginning and ending inventory work-in-process is 50% complete

Number 9

Under IFRS 3, on the date of acquisition, we can assume a contingent liability when it is
A. measured reliably and probable
B. measured reliably and reasonably possible
C. not measured reliably, but probable
D. none of the choices
 Page 3
Number 10

Total assets at realizable value

(excluding any excess asset from securing a fully secured creditor) 100,000
Total unsecured liabilities without priority
(including any excess liability from partially secured creditors) 200,000
Unsecured creditors with priorities 30,000
A certain inventory with an estimated realizable value of P30,000 was pledged to accounts payable in
the amount of P40,000.
What is the estimated recovery percentage?
A. 35.00%
B. 33.33%
C. 47.62%
D. 50.00%

Number 11

The following were ascertained for the month of November in the statement of Realization and
Liquidation:
Assets to be realized 12/01 30,000
Assets realized 150,000
Assets not realized 10/31 200,000
Increase in assets during the month 80,000
Liabilities liquidated during the month 130,000
Liabilities not liquidated 10/31 180,000
Liabilities assumed during the month 10,000
Liabilities to be liquidated 12/01 60,000
Supplementary credits 70,000
Supplementary debits 50,000
What is the amount of gain or loss for the period of November?
A. 20,000 gain
B. 20,000 loss
C. 80,000 gain
D. 80,000 loss

Number 12

Stock issuance costs are costs related to issuing new shares. Under the Philippines Interpretations
Committee, stock issuance costs are accounted as
A. a reduction to share premium only
B. a reduction to Retained earnings only
C. a reduction to share premium first, then any excess will be a reduction to Retained earnings
D. an increase in share premium

Number 13

The following affects the consolidated net income except

A. intercompany dividends
B. amortization of excess of fair value over book value of equipment
C. amortization of excess book value over the fair value of an inventory
D. pre-existing goodwill
 Page 4
Number 14
The following affects the non-controlling interest in net income, except
A. impairment loss under partial goodwill
B. amortization of excess book value over the fair value of an inventory
C. amortization of excess of fair value over the book value of a machine
D. net income per book of subsidiary

Number 15
At the beginning of 2024, the company enters into a contract to build an establishment for a client. The
following data were ascertained:
2024 2025
Costs incurred to date P1,800,000 P4,350,000
Estimated costs to complete P2,700,000 P1,450,000
Realized gross profit / (loss) for the year P200,000 P(500,000)
Percentage of completion 40% 75%
What is the construction revenue recognized for the year ended December 31, 2025?
A. 4,125,000
B. 1,925,000
C. 1,750,000
D. 2,125,000

Number 16
On June 1, 2025, Entity A entered into a franchise agreement with Entity B. The franchise fee stated in
the contract was P800,000, of which P250,000 was the down payment, and the balance was shouldered
by a 12% interest-bearing note. Entity A also completed its performance obligation on June 1, 2025,
with a cost of P450,000 and incurred indirect costs of P35,000. Also stated in the contract, Entity A
will have additional revenue from continuing services of 10% of the sales. For the seven months ended
December 31, 2025, the franchise generated P100,000 sales.
What is Entity A's net income for the year ending December 31, 2025?
A. 391,000
B. 363,500
C. 350,000
D. 398,500

Number 17
Cash sales made by the consignee P150,000
Freight paid by consignor P5,000
Freight and other costs paid by consignee (reimbursable by consignor) P15,000
Commission of consignee was 20% of sales
What is the amount of the net remittance to the consignor?
A. 130,000
B. 100,000
C. 105,000
D. 120,000

Number 18
Unrealized profit ending inventory in 2025 will be realized in
A. 2026, when the buying affiliate sells the inventory to outsiders
B. 2026, when the buying affiliate uses the inventory
C. 2025 at year-end
D. none of the choices
 Page 5
Number 19

The Home Office in Manila established a branch in Silay. At the end of the year, the reciprocal account
in Silay's books was P200,000. The following transactions were under examination due to errors:
a) Manila paid an accounts payable of Silay in the amount of P10,000, but Silay was not notified.
b) Silay collected from a customer of Manila in the amount of P25,000, but Manila recorded the
transaction in the amount of P20,000.
c) Silay reported a net loss of P15,000. The Manila branch was not notified.
What is the unadjusted balance of the Investment in Silay account in the books of Manila?
A. 220,000
B. 180,000
C. 210,000
D. 200,000

Numbers 20 and 21

The home office consistently sends merchandise to the branch at a billed price of 120%. During the
year, the home office credited Shipments-to-branch with P180,000. The beginning inventory reported
by the branch was P50,000, of which P30,000 came from home office merchandise. In the combined
statement, the branch's ending inventory was P80,000, of which P20,000 came from outsiders.

20. What is the total goods available for sale from home office merchandise?
A. 205,000
B. 266,000
C. 246,000
D. 210,000

21. What is the additional branch income?

A. 32,333
B. 29,000
C. 31,000
D. 23,000

Number 22

A certain company manufactures a certain product and uses a job order costing system. There is always
spoilage during production. The following are the costs related to the current production:
Total cost inclusive of allowance for spoilage P200,000
Allowance for spoilage P25,000
Units produced 10,000
At the end of the production, 500 units are spoiled. The spoiled units can be sold for P5,000. Spoilage
is charged to all jobs.
What is the total cost transferred to finished goods?
A. 175,000
B. 190,000
C. 170,000
D. 166,250

Number 23

The following affects the consolidated net income attributable to the parent, except
A. downstream UPEI
B. upstream RPBI
C. downstream RPBI
D. none of the choices
 Page 6

Number 24

The following increases the non-controlling interest in net income except

A. upstream realized gain from intercompany sale of land
B. upstream realized gain from intercompany sale of equipment
C. downstream unrealized loss from the sale of land
D. upstream unrealized loss from the sale of the machine

Number 25

The loss on sale from an intercompany sale of land is recorded in the separate books of the Parent
A. is true and correct
B. will be realized in the consolidated financial statements when the Subsidiary sells the land to
outsiders
C. Both A and B are true
D. Both A and B are false

Number 26

The entity had an anticipated purchase commitment, and it shall be designated as

A. fair value hedge
B. cash flow hedge
C. hedge of a net investment
D. undesignated hedge

Number 27

During the month, the spot rate increased, and the entity had a purchase transaction from a foreign
supplier. At the end of the month, the entity will recognize
A. forex gain due to an increase in receivable
B. forex loss due to a decrease in receivable
C. forex gain due to a decrease in payable
D. forex loss due to an increase in payable

Number 28

US Company wants to consolidate with its Japanese subsidiary. In the consolidated financial statements
of the US Company, the Japanese subsidiary's financial statements will be translated to the presentation
currency of the US Company in
A. US Dollar
B. Japanese Yen
C. Philippine Peso
D. Any currency the US Company chooses

Number 29

A joint arrangement, which is classified as a joint venture, will be accounted for by the venturers using
A. equity method
B. proportionate consolidation
C. cost method
D. fair value method
 Page 7
Number 30
When the arrangement is structured through a separate vehicle, and the legal form of the separate
vehicle has the rights to the assets and obligations to the liabilities, however, after assessing the other
relevant facts and circumstances, the separate vehicle does not confer separation from the parties. The
joint arrangement is classified as
A. joint venture
B. joint operation
C. either a joint venture or joint operation
D. cannot be determined

Number 31
It refers to the newest system adopted by the Commission on Audit for analyzing, classifying,
summarizing, and communicating all transactions involved in the receipt and disbursement of all
government funds and properties and interpreting the results thereof.
A. New government accounting system
B. Government accounting manual
C. Fund accounting
D. Public fund accounting

Number 32
Which cash in bank accounts is used by national government agencies for disbursement?
A. Cash Treasury/Agency Deposit Regular
B. Cash – Modified Disbursement System – Regular
C. Cash in Bank Land Bank of the Philippines
D. Cash in Bank Bangko Sentral ng Pilipinas

Number 33
Which of the following cash in bank accounts is used by national government agencies for cash
remittances to the Bureau of Treasury?
A. Cash Treasury/Agency Deposit Regular
B. Cash – Modified Disbursement System – Regular
C. Cash in Bank Land Bank of the Philippines
D. Cash in Bank Bangko Sentral ng Pilipinas

Number 34
In the statement of activities, expenses of nonprofit organizations shall be recorded only as reductions
from
A. Temporarily restricted net assets
B. Unrestricted net assets
C. Permanently restricted net assets
D. Current Liability

Number 35
An NPO received a restricted contribution for the acquisition of equipment. The NPO only used half of
the contribution in acquiring equipment. What is the effect on the net assets about the acquisition of the
equipment
A. the unrestricted net assets will increase by half of the contribution
B. the temporary restricted net assets will increase
C. the temporary restricted net assets will decrease by half of the contribution
D. no effect
 Page 8

Number 36

On September 1, 2024, ABC Co. acquired all the identifiable net assets of JKL. The total assets of JKL
is P2,430,000, while its liabilities amount to P610,000. The book values of the acquired company’s
identifiable assets and liabilities equal their fair values.

As a consideration, ABC issued its own shares of stock with a market value of P1,715,000 and cash
amounting to P375,000. Contingent consideration that was probable and reasonably estimated on the
date of acquisition amount to P148,000. The merger resulted into P648,000 goodwill.

Compute the pre-existing goodwill of JKL Company immediately before the merger.
A. 154,000
B. 230,000
C. 698,000
D. 456,000

Numbers 37 and 38

DEF Corporation acquired all the identifiable net assets of TUV Company on August 1, 2024. TUV
Company reported assets with a book value of P1,520,000 and liabilities of P890,000. The total
consideration of the surviving company is composed of cash amounting to P110,000 and shares with a
par value of P16, which is P4 less than its fair value.

The acquiring company determined that the fair value of the machinery of TUV was P30,000 higher
than its book value, and the recorded amount of the inventory was overvalued by P12,000. All other
identifiable assets and liabilities reported by the acquired company approximated the recorded
amounts.

The following are independent cases relating to the merger:

37. Compute the number of shares issued under the merger, assuming the acquiring company
recorded a gain on a bargain purchase of P212,000.
A. 16,300
B. 13,300
C. 17,500
D. 14,500

38. Assume the total consideration of the surviving company is composed of cash amounting to
P110,000 and bonds traded at 125. Compute the face amount of the bonds issued under the
merger, assuming the acquiring company recorded goodwill of P184,000.
A. 596,800
B. 577,600
C. 529,600
D. 548,800
 Page 9
Number 39

The working paper eliminating entries prepared by TUV Co. on the date of acquisition for FGH Co.
resulted to the following balances:
Account Name Dr (Cr)
Ordinary Shares – FGH Co. 600,000
Share Premium – FGH Co. 200,000
Retained Earnings – FGH Co. (100,000)
Inventory 80,000
Equipment 200,000
Patent (120,000)
Goodwill ?
Investment in FGH Co. (855,000)
Noncontrolling Interest in Net Assets (285,000)
If P70,000 of the full goodwill is attributable to the non-controlling interest, which of the
following is correct?
A. The percentage of ownership of TUV Co. is 67%.
B. Goodwill from business combination is P280,000.
C. The book value of the assets acquired is higher than it’s fair value.
D. Goodwill from business combination is P210,000.

Number 40 and 41

On January 1, 2024, PQR Co. acquired 70% of the outstanding shares of MNO Co. at a price of
P1,350,000. On the date of acquisition, MNO Co. had a total equity of P1,200,000 (Ordinary shares,
P500,000 and Retained Earnings, P700,000). All the assets and liabilities of MNO Co. have book value
equal to its fair value except for machinery which is undervalued by P50,000. The remaining useful life
of the machinery is 2.5 years.

In 2025, the companies resulted to the following:

PQR Co. MNO Co.
Net income 750,000 500,000
Dividends paid 200,000 150,000

During 2025, PQR Co. sold merchandise to MNO Co. at 150% of its cost, the same percentage that
was used last year. The composition of MNO Co. inventory were as follows:
Acquired from PQR Co. Acquired from XYZ Co.
Beginning balance 19,200 100,000
Ending Balance 36,000 135,000

The retained earnings of MNO Co. per books at the beginning of 2025 was P900,000. Non-controlling
interest is measured using the proportionate share. Impairment of goodwill, if any amount to P40,000
and P50,000 in 2024 and 2025, respectively.

40. Compute the consolidated net income attributable to parent in 2025.

A. 939,400
B. 925,400
C. 1,059,400
D. 935,400

41. Compute the non-controlling interest in net assets in 2025.

A. 591,500
B. 545,000
C. 528,000
D. 540,000
 Page 10
Number 42
The QRS Corp. acquired 60% of the outstanding shares of JKL Corp. At the beginning of the year,
JKL Corp sold machinery to QRS Corp. for P490,000. The machinery was acquired 3 years ago with a
carrying value of 700,000 and a total estimated useful life of 10 years. QRS Corp. and JKL Corp
reported net income of P600,000 and P550,000, respectively. Dividends declared and paid by JKL
Corp for the year amounted to P100,000.
Compute the non-controlling interest in net income
A. 292,000
B. 208,000
C. 304,000
D. 220,000

Numbers 43 and 44
On January 1, 2024, ABC Co. acquired 70% of the outstanding shares of LMN Co. at underlying book
value. On January 2, 2024, ABC sold an equipment to LMN for P500,000 cash. The equipment had an
original cost of P1,000,000 and is now 60% depreciated after 3 years from original purchase date. Net
income of ABC and LMN for 2024 amounted to P1,000,000 and P500,000 respectively. Net income of
ABC and LMN for 2025 amounted to P1,500,000 and P900,000 respectively.
43. Assuming the equipment was still being used by LMN at the end of 2024, compute the
consolidated net income attributable to controlling interest 2024.
A. 1,450,000
B. 1,300,000
C. 1,315,000
D. 1,400,000

44. Assuming the equipment was sold by LMN to outsiders on July 1, 2024, which resulted to a
gain of P120,000. Compute the increase or decrease to gain on sale of equipment for
consolidation purposes.
A. 75,000 decrease
B. 75,000 increase
C. 50,000 increase
D. 0

Number 45
DEF Corp. acquired an additional 45% of the outstanding shares of GHI Company on October 1, 2024.
It was noted that DEF owned 10% of the outstanding shares of GHI amounting to P1,000,000 as of
June 30, 2024, accounted as an investment in equity securities through profit or loss.
The following information showed the book value and fair value of GHI Company on October 1, 2024.
Book Value Fair Value
Total Assets 12,070,000 15,300,000
Total Liabilities 2,140,000 2,140,000
Additional information were as follows:
● On October 1, 2024, DEF Corp. paid P6,750,000 inclusive of the control premium of P250,000.
● The fair value of non-controlling interest is P5,500,000.
Compute the goodwill or gain on bargain purchase on October 1, 2024.
A. 1,012,000
B. 1,590,000
C. 590,000
D. 956,444
 Page 11
Numbers 46 and 47

On January 1, 2024, HIJ Corp. acquired 90% of STU Company’s outstanding shares for P1,350,000.
The book value of STU’s net assets is P1,000,000, which is P300,000 lower than its fair value. The
excess of fair value over the book value is attributable to a fixed asset with 2 years remaining life. Net
income for the year 2024 amounted to P2,000,000 for HIJ and P1,780,000 for STU. During 2025, STU
sold merchandise to HIJ, one-fifth were sold to outsiders by the end of 2025. The profit for this
intercompany sale amounted to P10,000. Also during 2025, HIJ sold merchandise to STU, one-third of
which were unsold to outsiders at the end of the same year. The profit for this sale amounted to
P15,000. Net income for the year 2025 amounted to P2,500,000 for HIJ and P2,000,000 for STU.

46. Compute the consolidated net income for 2024.

A. 3,780,000
B. 3,467,000
C. 3,630,000
D. 3,645,000

47. Compute the consolidated net income attributable to non-controlling interest for the year 2025.
A. 185,000
B. 184,200
C. 184,000
D. 184,800

Numbers 48 and 49

ABC Manufacturing Company had the following information for the month of October. All materials
are added at the start of the process. ABC uses the FIFO costing method for its process costing system.

Units:
Beginning work in process (75% done) 12,000
Started in production 128,000
Transferred-out 97,000
Ending work in process (90% to complete) 20,000
Normal loss ?
Abnormal loss 3,000

Beginning costs:
Direct materials 10,400
Conversion cost 20,525

Current costs:
Direct materials 889,600
Conversion cost 979,475

48. Assume the quality inspection of the products is done at the midpoint of the process. Compute
the cost of goods transferred out.
A. 1,439,950
B. 1,470,875
C. 1,675,450
D. 1,706,375

49. Assume losses occur evenly throughout the process. Compute the amount charged to period
cost. (round off the cost per EUP to two decimal places)
A. 35,325
B. 49,800
C. 56,310
D. 57,260
 Page 12
Numbers 50 and 51

LMN Manufacturing Corporation manufactures homogenous products which it accounts for using the
FIFO inventory costing method. One-fourth of the total materials are added at the start of the process,
fifty percent of the total materials are added when the units are 40% done, 10% of the total materials
are added at the 90% stage of production and the remaining materials are added at the end of the
process. The following information are available:

Units in process, beginning 1,300 units

Complete as to conversion 75%

Units started at the beginning of the month 4,800 units

Units completed during the month ?

Units in process, ending 1,100

Complete as to conversion 20%

The following costs were available:

Beginning work in process
Direct Materials P58,525
Conversion Cost P90,450

Current Production
Direct Materials P5,190,100
Conversion Cost P4,711,950

50. Compute the cost of goods manufactured.

A. 8,573,925
B. 8,721,875
C. 9,326,950
D. 9,474,900

51. Assuming the weighted average costing method was used. Compute the cost of the units in
process at the end of the month
A. 576,125
B. 637,175
C. 476,025
D. 421,300

Number 52

ABC Company manufactures two main products, AB and BC, in a joint process which also yields AC,
a by-product. The joint cost amounted to P693,000 and is allocated among the main products using the
sales value at split-off approach. The company treats the revenue from sale of by-products as a
deduction to the manufacturing cost. The following relevant information are available:

Product Units produced Sales value at split-off

AB 15,000 P157,500
BC 21,000 P304,500
AC 9,000 P26,250

Compute the joint cost allocated to BC

A. 227,300
B. 250,924
C. 439,449
D. 456,750
 Page 13
Numbers 53 and 54
NOP Manufacturing Company has two departments in its factory which uses a process costing system
under the weighted average method. Two-fifths of the materials are added at the fifty percent stage of
production. The remaining materials are added at the four-fifths stage of production. The following
information were available for its second department:
BWIP (60% complete as to conversion) 900 units

Units transferred-in during the month 5,000 units

Units transferred-out during the month 4,500 units
EWIP (40% complete as to conversion) ? units

Costs BWIP Current

Transferred-in P11,840 P68,105
Direct materials 0 4,950
Conversion costs 2,615 11,300

53. Compute the cost of the units transferred-out.

A. 78,300
B. 78,910
C. 77,760
D. 77,210

54. Compute the cost of units in process at the end of the month.
A. 19,900
B. 20,510
C. 21,050
D. 21,600

Number 55
XYZ Corp. makes joint products, RS and LM. During 2024, it produced 12,000 units of RS with a
relative sales value of P45,000, and 6,000 units of LM with a relative sales value of P30,000 at the
point of separation. If processed further, additional costs of P10,000 and P3,000, respectively, would
be needed but market values would increase to P60,000 for RS and P36,000 for LM. The joint cost
allocated to RS using the approximated NRV approach amounted to P27,000.
Compute the joint cost for the year 2024.
A. 40,500
B. 44,820
C. 45,000
D. 67,500

Number 56
TUV Manufacturing firm uses activity-based costing to account for its productions. The firm has two
products, products A and B. The following information were extracted for the company budget plans:
Activity Estimated Expected Activity
Cost Pool Cost Product A Product B Total
Activity 1 P 23,760 1,080 405 1,485
Activity 2 16,200 675 270 945
Activity 3 35,100 1,080 540 1,620
Total P 75,060 2,835 1,215 4,050
Compute the activity rate under the activity-based costing system for Activity 3.
A. 18.53
B. 21.67
C. 26.48
D. 32.50
 Page 14
Numbers 57, 58, 59 and 60

Refer to the following direct selling rates against the peso:

JPY (P0.10 spread) 10/31/24 11/30/24 12/31/24 1/31/25 2/28/25

Spot rate 0.55 0.50 0.45 0.44 0.40
30 days forward 0.60 0.55 0.46 0.42 0.35
60 days forward 0.70 0.47 0.59 0.46 0.26
90 days forward 0.85 0.84 0.60 0.38 0.36
120 days forward 0.90 0.77 0.44 0.48 0.50

57. On October 31, 2024, the Manila Company entered a forward contract to speculate on a sale
of 54,300 Japanese Yen, to be delivered on February 28, 2025. How much PHP should Manila
Company receive on the settlement date?
A. 48,870
B. 21,720
C. 43,440
D. 16,290

58. On November 30, 2024, the Manila Company entered into a sales commitment with a
Japanese Company for 1 million Japanese Yen, delivery on January 31, 2025. On the same
date, the Manila Company entered a forward contract to hedge against unfavorable
fluctuations in the foreign exchange rates. How much is the debit or credit to “firm
commitment” account on December 31, 2024?
A. 10,000 credit
B. 10,000 debit
C. 60,000 debit
D. 60,000 credit

59. On November 30, 2024, the Manila Company sold goods to a Japanese Company for
JPY500,000, to be settled on February 28, 2025. How much is the reportable amount of the
accounts receivable on December 31, 2024?
A. 250,000
B. 200,000
C. 175,000
D. 225,000

60. On November 30, 2024, the Manila Company borrowed JPY90,000, evidenced by a 60-day
5% interest-bearing note. On the settlement date in 2025, how much is the effect in profit or
loss?
A. 1,068.75
B. 900.00
C. 907.50
D. 903.75

Number 61

Free Learn College, a private not-for-profit college, received the following contributions during 2024:
I. P3,750,000 from an alumni for the construction of a consultation room to be constructed in 2025.
II. P750,000 from a donor who stipulated that the contribution be retained and that the earnings be
used for scholarships. As of December 31, 2024, earnings from investment amounted to P37,500.
For the year ended December 31, 2024, what amount of these contributions should be reported as
temporarily restricted revenues on the statement of activities?
A. 37,500
B. 3,787,500
C. 3,750,000
D. 4,537,500
 Page 15

Numbers 62 and 63

Refer to the following direct selling rates against PHP:

KRW 10/31/24 11/30/24 12/31/24 1/31/25

Spot rate 0.042 0.043 0.050 0.055

On October 31, 2024, KLM Corporation purchased merchandise from HIJ Inc. on account for
KRW3,000,000, payment due on January 31, 2025. On the same date, to hedge against the foreign
exchange risk exposure, KLM Corporation purchased an at-the-money call option to buy
KRW3,000,000 on January 31, 2025 for PHP21,000. The fair value of the option contract on
December 31, 2024 amounted to PHP30,000.

62. How much is the gain or loss on the hedging instrument as to the effective portion on
January 31, 2025?
A. 9,000 gain
B. 15,000 gain
C. 6,000 loss
D. 0

63. How much is the gain or loss on the hedging instrument as to the time value for the year
ended December 31, 2024?
A. 9,000 gain
B. 15,000 loss
C. 24,000 gain
D. 0

Number 64

Mr. DEF, an accountant, has been rendering services for a nonprofit organization for five months now,
he fills the position of a finance director, a position that normally pays P300,000 per year. Mr. DEF
agreed to help the organization set-up its books and financial reports at no cost.
How should these donated services be recorded?
A. Debit to Salary expense, P125,000
B. Debit to Pledge Receivable, P125,000
C. Credit to Contributions Revenue, P300,000
D. No required entry

Number 65

On December 31, 2024, a foreign subsidiary in Hong Kong submitted the following accounts stated in
its local currency, which is the functional currency of the foreign operation. The subsidiary in Hong
Kong acquired in 2024 is not integrated with the operations of the parent in the Philippines. Moreover,
its cash flows do not directly affect the parent company. The foreign operation is self-sufficient and is
not dependent on the parent company for financing.
Total Assets HK$ 4,410,000
Total Liabilities 882,000
Ordinary Shares 2,205,000
Retained Earnings 1,323,000
The exchange rates were: Current rate, P7.75; Historical rate, P7.10; Weighted average rate, P7.50.
Compute the cumulative translation adjustment (Dr)/Cr on December 31, 2024
A. (4,504,500)
B. 1,764,000
C. 4,504,500
D. 2,293,200
 Page 16
Number 66

The Department of Justice incurred the following expenses:

Meralco Bill P 22,000
PLDT Bill 5,000
Maynilad Bill 3,000

What is the proper entry for the payment of the following utility bills?

A. Water Expenses 22,000

Electricity Expenses 5,000
Telephone Expenses 3,000
Cash-Modified Disbursement System, Regular 30,000

B. Water Expenses 22,000

Electricity Expenses 5,000
Telephone Expenses 3,000
Subsidy From National Government 30,000

C. Cash in Bank-Local Currency, BSP 30,000

Income from Grants and Donations 30,000

D. Water Expenses 22,000

Electricity Expenses 5,000
Telephone Expenses 3,000
Petty Cash Fund 30,000

Number 67

On September 1, 2024, SME A and SME B acquired 30% (each) of the ordinary shares that carry
voting rights at a general meeting of shareholders of Entity Z for P2,850,000 and transaction cost of
P37,500. SME A and SME B immediately agreed to share control over Entity Z. For the year ended
December 31, 2024, Entity Z recognized a profit of P3,600,000. On December 30, 2024, Entity Z
paid a dividend of P315,000 declared in the prior year. On December 31, 2024, the fair value of each
venturers’ investment in Entity Z was P3,195,000 and cost to sell amounted to P54,000. The amount
of value in use is P3,114,000. There is a published price quotation for Entity Z.
The effect on profit or loss to be reported by SME A in 2024 using the fair value model
A. 348,000
B. 307,500
C. 402,000
D. 94,500

Number 68

On March 1, 2024, SME X and SME Y acquired 25% (each) of the ordinary shares that carry voting
rights at a general meeting of shareholders of Entity C for P2,040,000. Transaction cost is 6% of the
transaction price. SME X and SME Y immediately agreed to share control over Entity C. For the year
ended December 31, 2024, Entity C recognized a profit of P2,250,000. On December 30, 2024, Entity
C declared and paid a dividend of P960,000 for the year 2024. On December 31, 2024, the fair value
of each venturers’ investment in Entity C was P2,520,000. Cost to sell is 4% of the fair value. Value
in use amounts to 2,400,000. However, there is no published price quotation for Entity C. Assuming
SME X uses the equity model to account for its investment in Entity C.

Compute the balance of Investment in Entity C on Dec. 31, 2024 using the equity model
A. 2,419,200
B. 2,391,150
C. 2,520,000
D. 2,484,900
 Page 17

Numbers 69 and 70

On January 1, 2024, BCD Company invested P4,500,000 on KLM Corporation for a 50% interest.
BCD Company, together with another entity, has obtained joint control over KLM Corporation. After
assessment of the circumstances in accordance IFRS 11, it was determined that the joint arrangement
should be treated as a joint venture.

The operations of the joint venture for 2024 resulted to a net loss of P12,600,000, but recovered with a
net income of P5,400,000 during 2025.

69. How much is the share in net loss to be recognized by BCD Company from its investment in
KLM Corporation for the year ended December 31, 2024?
A. 12,600,000
B. 4,500,000
C. 6,300,000
D. 9,000,000

70. How much is the investment in joint venture account to be presented by BCD Company as of
the year ended December 31, 2025?
A. 5,400,000
B. 1,800,000
C. 2,700,000
D. 900,000

END