ADVANCED FINANCIAL ACCOUNTING AND REPORTING

NATIONAL FEDERATION OF JUNIOR PHILIPPINE INSTITUTE OF ACCOUNTANTS

NATIONAL CAPITAL REGION
2017 Search for the NCR Frontliners
October 8, 2017

Multiple Choice
Identify the choice that best completes the statement or answers the question.

____ 1. How should a company undergoing reorganization report the gains and losses resulting from the
reorganization?
a. on the statement of retained earnings
b. on the income statement, combined with the gains and losses from operations
c. on the statement of stockholders' equity
d. on the income statement, separate from other gains and losses
e. on the statement of cash flows
____ 2. The statement of financial affairs should be prepared
a. under the going concern assumption
b. under the concept of conservatism
c. under the assumption that liquidation will occur
d. under the continuity concept
e. only for a company in Chapter 7 bankruptcy
____ 3. Which of the following is not one of the more common reorganization plan elements?
a. plans for plant expansion
b. plans for generating additional monetary resources
c. plans to settle the debts of the company that existed when the order for relief was entered
d. plans proposing changes in the company's operations
e. plans for changes in the management of the company
____ 4. What is normally required before a reorganization plan can be implemented?
a. The plan must be presented by the company and confirmed by the court
b. The plan must be approved by each class of creditors and each class of stockholders, and
confirmed by the court
c. The plan must be presented by the company, approved by two-thirds of each class of
stockholders, and confirmed by the court
d. The plan must be presented by the company, approved by three-fourths of each class of
stockholders, and confirmed by the court
e. The plan must be approved by three-fourths of each class of creditors, approved by three-
fourths of each class of stockholders, and confirmed by the court
____ 5. Jason Corporation about to be liquidated, has the following amounts for its assets and liabilities:

Book value Net realizable value

Current assets 200,000 140,000
Land 70,000 100,000
Building 500,000 350,000
Equipment 300,000 160,000
Accounts payable 240,000 -
Income taxes payable 60,000 -
Mortgage payments 510,000 -
Note payable 80,000 -

The mortgage is secured by the land and building, and the note payable is secured by the equipment. Jason
expects that the expenses of administering the liquidation will total P40,000

How much should Jason expect to pay on the accounts payable?

a. 240,000
b. 128,000
c. 120,000
d. 96,000
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e. 146,000
____ 6. Miguel Corporation owned the following assets when it came out of a bankruptcy:

Book value Fair value

Inventory 200,000 160,000
Land 80,000 150,000
Buildings 300,000 340,000
Equipment 400,000 250,000

Miguel Corporation had a fresh start reorganization value of P1,000,000. What amount of goodwill should
have been recognized in recording the reorganization?
a. 20,000
b. 100,000
c. 60,000
d. 210,000
e. 98,000
____ 7. How are assets and liabilities valued on a Statement of Financial Affairs?
Assets Liabilities
A. Fair value Book value
B. Book value Amount required for settlement
C. Book value Book value
D. Fair value Amount required for settlement
E. Net realizable value Amount required for settlement

a. Entry A
b. Entry B
c. Entry C
d. Entry D
e. Entry E
____ 8. Assuming all of the following expenses have priority, in what order are they prioritized?
a. Administrative expenses, employee claims for wages, unpaid taxes, claims for the return
of customer deposits
b. Employee claims for wages, unpaid taxes, administrative expenses, claims for the return of
customer deposits
c. Unpaid taxes, administrative expenses, employee claims for wages, return of customer
deposits
d. Administrative expenses, employee claims for wages, claims for the return of customer
deposits, unpaid taxes
e. Unpaid taxes, return of customer deposits, employee claims for wages, administrative
expenses

____ 9. Which statement is false regarding a plan for reorganization?

a. The plan is the heart of every bankruptcy
b. The provisions of the plan specify the treatment of all creditors and equity holders upon
approval by the Court
c. The plan shapes the financial structure of the entity that emerges
d. The plan may contain numerous provisions as solutions to financial difficulties
e. The plan may contain provisions for changes in the management of the company
____ 10. Which statement is false regarding the acceptance and confirmation of a reorganization plan?
a. The plan must be voted on by the creditors and the stockholders of the company
b. A separate vote is required of each class of stockholders
c. Any class of creditors that is not damaged by a reorganization is assumed to have accepted
the plan without voting
d. Even if creditors and stockholders approve of the plan, the court can reject the plan
e. Acceptance of the plan requires the approval of two-thirds in number of claims and one-
half in dollar amount of creditors that cast votes

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____ 11. Agency AA's allotment and Notice of Cash Allocation (NCA) for the year were P5,000,000 and P3,000,000,
respectively. Checks issued amounted to P1,500,000. What closing entry should be made for the unused NCA
as of year-end?
a. Cash - National Treasury, MDS (P1,000,000); Subsidy income from National Government
(P1,000,000)
b. Subsidy income from National Government (P1,500,000); Cash- National Treasury, MDS
(P1,500,000)
c. Subsidy income from National Government (P3,500,000); Cash- National Treasury, MDS
(P3,500,000)
d. Memorandum entry
____ 12. Caring Hospital has the following account balances:

Interest income 25,000

Bad debt expense 15,000
Unrestricted gifts 70,000
Charity care 75,000
Amounts charged to patients 384,000
Contractual adjustments 90,000
Revenue from parking spaces 52,000

What is the hospital's net patient service revenue?

a. 204,000
b. 219,000
c. 294,000
d. 271,000

____ 13. USC, a nonprofit university, received the following cash contributions from donors during the year 2014:

Unrestricted contributions 250,000

Contributions restricted by donors for scholarship programs 100,000
Contributions from a donor who stipulated that the money be spent in
accordance to the wishes of the hospitals board of trustees 75,000
Contributions restricted by donors for equipment acquisitions 125,000

Assuming the university spent P 75,000 of the donors' contributions for scholarship programs on financing
this year' scholars, how much should be included in its current funds revenue for the year ended December 31,
2014?
a. 350,000
b. 325,000
c. 400,000
d. 250,000

____ 14. CC Corp. owns a subsidiary in Japan whose balance sheet in Japanese Yen for the last years follows:
December 31, 2013 December 31, 2014
Figures in Yen
Assets
Cash and Cash equivalents 30,000 25,000
Receivables 122,500 147,500
Inventory 160,000 170,000
Property and Equipment, net 255,000 230,000
Total assets 567,500 572,500
Liabilities and Equity
Accounts Payable 55,000 75,000
Long-term debt 322,500 285,000
Common stock 115,000 115,000
Retained earnings 75,000 97,500
Total Liabilities and Equity 567,500 572,500

Relevant exchange rates are (Yen to Peso):

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January 1, 2013 45
December 31, 2013 42.50
December 31, 2014 47.50
September 12, 2013 40

CC formed the subsidiary on January 1, 2013. Income of the subsidiary was earned evenly throughout the
years and the subsidiary declared dividends worth 15,000 on September 12, 2013 and none were declared
during 2014. How much is the cumulative translation adjustment for 2014?
a. 625,000
b. 568,750
c. 1,006,250
d. 875,000
____ 15. On October 31, 2014, Ideagem Philippines took delivery from a British firm of inventory costing 725,000.
Payment is due on January 31, 2015. At the same time, Ideagem paid
P8,250 cash to acquire a 90-day call option for 725,000.

October 31, 2014 December 31, 2014 January 31, 2015

Strike Price 3.60 3.60 3.60
Spot Rate 3.61 3.62 3.64
Forward Rate 3.72 3.77 3.78
Fair value of Call Option 8,250 17,000 ?

Given the information above, compute for the following:

Foreign exchange gain or loss on option contract due to change in time value on December 31,2014 if
changes in time value will be excluded from the assessment if hedge effectiveness, and foreign exchange gain
or loss due to change in intrinsic value on January 31, 2015 if changes in time value will be excluded from the
assessment of hedge effectiveness.
a. 1,500 gain; 14,500 gain
b. 5,250 loss; 14,000 gain
c. 5,250 loss; 7,250 gain
d. 1,500 gain; 7,250 gain
____ 16. On May 1, 2014, Janice Company anticipated the purchase of 85,000 units merchandise from a foreign
vendor. The purchase would probably occur on October 28, 2014 and require the payment of 1,250,000
foreign currencies (FC). On May 1, 2014, the company purchased a call option to buy 1,250,000 FC at a
strike price of 1FC= 0.27. An option premium of P14,000 was paid. Changes in the value of the option will be
excluded from the assessment of hedge effectiveness. For the year 2014, the following rates are as follows:

May 1 May 31 June 30 October 28

Spot Rate 0.25 0.28 0.30 0.32
Strike Price 0.27 0.27 0.27 0.27
FV of call option 14,000 17,500 39,000 ?

The foreign exchange gain (loss) on option contract to be recognized in equity on June 30
a. (37,500)
b. 25,000
c. (25,000)
d. 37,500

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____ 17. On April 1, 2014, AV Corp. acquired 80% of the outstanding stocks of SR Corp. for P2,500,000. SR Corp.'s
stockholders' equity at the end of 2014 is as follows: Common stock, P80 par P2, 000,000, additional paid-in
capital P500,000, and Retained Earnings P750,000. The fair value of the non- controlling interest is P685,000.
All the assets of SR were fairly valued except for its inventories which are undervalued by P90,000, Land
which is undervalued by P50,000, and the Patent which is undervalued by P125,000. The said patent has a
remaining useful life of five years. Both companies use the straight line method for depreciation and
amortization. Shareholders' equity of AV Corp. on December 31,2014 is composed of: Common stock, P50
par P3,500,000, APIC P750,000, and retained earnings P2,460,000. Goodwill, if any, should be decreased by
P22,500 every year-end. No additional issuance of capital stocks occurred.

During 2015, AV and SR started selling inventories to each other. Of the P2, 850,000 total sales of AV, 25%
were sold to SR, and SR is also sold inventories to AV at a sales price of P250, 000. Gross profit rates of AV
and SR are 30% of sales and 20% above cost, respectively. As of year- end, P225, 000 worth of inventories
from SR are still left with AV and inventories amounting to P75,000 from AV are still left with SR.
Also, on October 31, 2015, SR sold AV a piece of equipment for P350,000. The book value of the said
equipment was P275,000. The gain was reflected in the income statement of SR. The equipment has
remaining useful life of four years from the date of sale.

For the year ended December 31,2015, compute for:

Non- controlling interest in the net income of subsidiary

a. 79,630
b. 76,750
c. 67,525
d. 75, 625
____ 18. SLEX enters into an arrangement under which it will build and operate a toll bridge. Company B is entitled to
charge users for driving over the toll bridge for the period from the completion of construction until 1 million
cars have driven across the bridge, at which point the concession arrangement will end. SLEX incurred a total
cost of P1 billion for the construction of the toll bridge. How shall SLEX account for its infrastructure asset?
a. It shall be classified and treated as financial asset
b. It shall be bifurcated into intangible asset and financial asset
c. It shall be classified and treated as intangible asset to be amortized using straight line
method of presumed life of 10 years.
d. It shall be classified and treated as intangible asset to be amortized on the basis of usage or
unit method of 1 million cars.

____ 19. Which of the following transactions will increase the normal balance of home office account in the separate
statement of financial position of the branch?
a. Collection by the home office of branchs receivable
b. Debit memo received from the home office
c. Credit memo issued by the home office
d. Payment by the branch of home offices loans payable
____ 20. On December 31, 2017, the home office of Trisha Supply Company recorded a shipment of merchandise to
its Glenda branch as follows:

Glenda branch 30,000

Shipments to Glenda branch 25,000
Unrealized profit in Glenda branch inventory 4,000
Cash (for freight charges) 1,000

The Glenda branch sells 40% of the merchandise to outside entities during the rest of December 31, 2017.
The books of the home office and Trisha branches are closed on December 31 of each year. On January 5,
2018, the Glenda branch transfers half of the original shipments to the Sandy branch and the Glenda branch
pays P500 freight on the shipment.

At what amounts should the 60% of the merchandise remaining unsold at December 31, 2017 be included in
the inventory of the Glenda branch on December 31, 2017?
a. 15,000
b. 17,400
c. 15,600
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d. 18,000
____ 21. When the outcome of the construction contract can be estimated reliably, which of the following accounting
treatment is proper?
a. The construction revenue shall be recognized only to the extent of contract costs incurred
that it is probable will be recoverable.
b. The construction costs shall be deferred without reference to the stage of completion of the
contract activity at the end of the reporting period.
c. When it is probable that total contract costs will exceed total contract revenue, the
expected loss shall be recognized as an expense immediately without reference to the stage
of completion of the contract activity at the end of the reporting period.
d. The balance construction in progress account will be equal to cumulative construction
revenue recognized even if it is probable that total contract costs will exceed total contract
revenue.
____ 22. Anas Inc. granted a franchise to Mocca for the Makati area. The franchisee was to pay a franchisee of
P500,000, payable in five equal annual installments starting with the payment upon signing of the agreement.
The franchise was to pay monthly 3% of gross sales of the preceding month. Should the operations of the
outlet prove to be unprofitable, the franchise may be canceled with whatever obligations owing Anas, Inc. in
connection with the P500,000 franchise fee waived. The prevailing interest rate is 14%. The first year
generated a gross sales of P2,500,000.

What is the amount of unearned franchisee fee after the first year of operations?
a. 575,000
b. 291,400
c. 391,400
d. 500,000
____ 23. Baste Company owns an 80% controlling interest in the Bastion Company. Bastion regularly sells
merchandise to Baste, which then sold to outside parties. The gross profit on all such sales is 40%. On
January 1, 2016, Baste sold land and a building to Bastion. The value of the parcel is 20% to land and 80% to
structures. The data are the following:

Baste Bastion
Internally generated net income, 2016 1,560,000 750,000
Internally generated net income, 2017 10,320,000 705,000
Intercompany merchandise sales, 2016 300,000
Intercompany merchandise sales, 2017 360,000
Intercompany inventory, December 31, 2016 45,000
Intercompany inventory, December 31, 2017 60,000
Cost of real estate sold on January 1, 2016 1,800,000
Sales price of real estate on January 1, 2016 2,400,000
Depreciable life of building 20 years

For 2016, what is the consolidated comprehensive income attributable to controlling interest?
a. 1,569,600
b. 1,575,000
c. 1,875,000
d. 1,597,500
____ 24. Corporation Lizzy acquired 2,000 shares of the voting stock of Corporation Lizette in the open market at P48
per share. Direct costs associated with the acquisition total of P4,000. Balance sheets of both companies on
January 1, 2017, immediately after the acquisition of shares of Lizzy, are as follows:

Corporation Lizzy Corporation Lizette

Cash 50,000 10,000
Temporary investments 80,000 40,000
Receivables (net) 95,000 10,000
Investment in Corporation Lizette 100,000
Machinery and equipment (net) 100,000 45,000
Land 50,000 20,000
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Total assets 475,000 125,000

Accounts payable 75,000 25,000
Common stock (P20 par) 250,000 50,000
Excess over par 90,000 30,000
Retained earnings 60,000 20,000
Total liabilities and SHE 475,000 125,000

The fair values of Lizzy and Lizette assets on January 1m 2017 are presented below. Liabilities of both
companies are properly valued at their respective book value:

Lizzy Lizette
Cash 50,000 10,000
Temporary investment 100,000 50,000
Receivables (net) 95,000 8,000
Investment in Corporation Lizette 100,000 -
Machinery 110,000 40,000
Land 100,000 30,000
555,000 138,000

The total consolidated assets must be

a. 520,000
b. 613,000
c. 522,600
d. 518,600
____ 25. Joel and Jonats formed a joint venture on January 1, 2013 to operate two stores to be managed by each
venturers/participants. They agreed to contribute cash as follows:

Joel 30,000
Jonats 20,000

Profits and losses are to be divided in the capital ratio. All venture transactions are for cash. Cash receipt and
disbursements of the business during the 4-month period handled through the participants venturers bank
accounts are as follows:

Joel Jonats
Receipts 78,920 65,425
Disbursements 62,275 70,695

On April 30, the remaining non-cash venture assets in the hands of the participants/venturers were sold for
P60,000. The venture is terminated and settled is made between Joel and Jonats.

The P60,000 is divided between the participants/venturers as follows:

a. Joel (16,180); Jonats (43,820)
b. Joel (21,905); Jonats (38,095)
c. Joel (26,180); Jonats (33,820)
d. Joel (48,095); Jonats (11,905)
____ 26. Caris Philippines, a private not-for-profit health care entity located in Quezon City, charged a patient of
P8,600 for services. It actually billed this amount to the patients third-party payor. The third-party payor
submitted a check for P7,900 with a note stating that the reasonable amount is paid in full per contract.
Which of the following statements is true?
a. The patient is responsible for paying the remaining P700.
b. The health-care facility will rebill the third-party payor for the remaining P700.
c. The health-care facility recorded the P700 as a contractual adjustment that it will not
collect.
d. The third-party payor retained the P700 and will convey it to the health-care facility at the
start of the next fiscal period.
____ 27. Which of the following is correct?

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a. Where the joint operators have designed the joint arrangement so that its activities
primarily aim to provide the parties with an output it will be classified as a joint control.
b. All joint arrangements are not structured through a separate vehicle are classified as joint
ventures.
c. For a joint venture, the rights pertain to the rights and obligations associated with
individual assets are liabilities, where with a joint operation, the rights and obligations
pertain to the net assets.
d. In considering the legal form of the separate vehicle if the legal form establishes right to
individual assets and obligations, the arrangement is a joint operation. If the legal form
established right to net assets of the arrangement, then the arrangement is a joint venture.
____ 28. Rommel, Inc acquired a 60% interest in Mikee Company several years ago. During 2014, Mikee sold
inventory costing P75,000 to Rommel for P100,000. A total of 16% of this inventory was not sold to outsider
until 2015. During 2015, Mikee sold inventory costing P96,000 to Rommel for P120,000. A total of 35% of
this inventory was not sold to outsiders until 2016. In 2015, Rommel reported cost of sales of P380,000 while
Mikee reported P210,000. What is the consolidated cost of sales?
a. 594,400
b. 473,440
c. 474,400
d. 522,400

____ 29. Omni Company uses a job order cost system and has two production departments, T and P. Budgeted
information for the year is as follows:

Department T Department P
Machine hours 500 25,000
Direct materials P400,000 P600,000
Direct labor 350,000 100,000
Factory overhead 455,000 300,000

Both Department T and Department P apply factory overhead to production orders through the use of
predetermined factory overhead application rates, which are based upon the yearly budget. Department T
applies factory overhead on a direct labor cost basis while Department P does so on a machine hours basis.
Actual information relating to Job 194 during the year was as follows:

Department T Department P Total

Machine hours 150 2,500 2,650
Direct materials P18,000
Direct labor P11,000 P4,500 P15,500
Factory overhead control P14,500 P24,600 P39,100

If Omni Company contracted to sell Job 194 for P100,000, and if estimated selling and administrative
expenses are 5% of the selling price, what is the estimated profit on Job 194?
a. 17,200
b. 22,400
c. 28,600
d. 33,700
____ 30. Which of the following is true?
a. The EUP computed under the weighted average costing may be equal with the EUP
arrived at using FIFO costing.
b. In a process cost system, abnormal lost units if discreet are only extended to the unit
column but not to the EUP column,
c. If loss is continuous and normal, lost units are not included in the quality schedule of the
cost of production report
d. Unit material cost is computed by taking total material costs charged to the department for
the period and dividing by the physical units in the process during the period.
____ 31. The following information was available from Villaflor Hospitals financial records on donor contributions
for various hospital expenses. The donations were received during the year-end December 31, 2017. The
hospital is a private non-profit organization.

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Not under the authority of NPOs Board of Trustees

Expensed 100,000
Not expensed 300,000
Under the authority of NPOs Board of Trustees
Expanded 600,000
Not expanded 75,000

How much total unrestricted revenues were recognized in the statement of activities of Villaflor in 2017?
a. 600,000
b. 775,000
c. 700,000
d. 675,000

____ 32. Which of the following statements is true?

a. Applied overhead consists of estimated activity times predetermined overhead rate.
b. In order to obtain more accurate product costs, many companies now allocate overhead
using just-in-time method
c. If actual overhead is less than applied overhead, upon closing, overhead is underapplied
and cost of goods sold is credited
d. Actual overhead exceeds applied overhead and the amount is immaterial, upon closing,
overhead is underapplied and cost of goods sold will increase.

____ 33. The operator of the BOT arrangement shall recognize and measure revenue in accordance with
a. PAS 11
b. PAS 18
c. PAS 23
d. PAS 11 and PAS 18
____ 34. Magic granted a franchise to Major for the Makati area. The franchisee was to pay a franchisee of P250,000,
payable in five equal annual installments starting with the payment upon signing of the agreement. The
franchise was to pay monthly 3% of gross sales of the preceding month. Should the operations of the outlet
prove to be unprofitable, the franchise may be canceled with whatever obligations owing Magic in connection
with the P250,000 franchise fee waived. The prevailing interest rate is 14%. The first year generated a gross
sales of P1,250,000.

What is the amount of unearned franchise fee after the first year of operations?
a. 287,500
b. 145,700
c. 195,700
d. 250,000
____ 35. DMCI has used the cost-to-cost percentage of completion method of recognizing profits. Tony assumed
leadership of the business after the recent death of his father Ton. In reviewing the records, Tony finds the
following information regarding a recently completed building project for which the total contract price was
P50 million.

Construction in progress account balance 2015 10,000,000

Construction cost incurred during 2017 20,500,000
Gross profit (loss) recognized in 2015 1,000,000
Gross profit (loss) recognized in 2016 3,500,000
Gross profit (loss) recognized in 2017 (500,000)

How much cost was incurred in 2016?

a. 16,500,000
b. 25,500,000
c. 9,000,000
d. 46,000,000

____ 36. Which of the following terms is not descriptive of SMEs?

a. private entities
b. listed companies
c. small and medium-sized entities
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d. non-publicly accountable entities

____ 37. Which of the following shall be treated as part of PPE according to PAS 36 on intangible assets?
a. operating systems
b. application software
c. digitally stored database
d. outsourced online program
____ 38. A chemical company manufactures joint products Pep and Vim, and a by-product Zest. Costs are assigned to
the joint products by the market value method, which considers further processing costs in subsequent
operations. For allocating joint costs to the by-product, the market value or reversal cost method is used. The
total manufacturing costs for 10,000 units were P172,000 during the quarter. Production and cost date follow:

Pep Vim Zest

Units produced 5,000 4,000 1,000
Sales price per unit P50 P40 P5
Further processing cost per unit 10 5 -
Selling and administrative expense per unit 2
Operating profit per unit 1

The value of Zest to be deducted from the joint cost is

a. 5,000
b. 3,000
c. 2,000
d. 0
____ 39. Which choice correctly describes the following statements?

1 If an entity cannot distinguish the research phase from the development phase, it
should treat an expenditure on a project as if it were incurred in the research
phase only and recognize an expense accordingly.
2 If it is difficult to distinguish between a change in accounting estimate and a
change in accounting policy, then the change is treated as a change in estimate
and must be accounted for currently and prospectively.
3 In rare circumstances, when a retirement benefit plan has attributes of both
defined benefit plan and defined contribution plan, the plan is deemed as a
defined contribution plan.

a. Only Statement I is false

b. Only Statement II is true
c. Only Statement III is true
d. Only Statement III is false.
____ 40. The Ezra Company acquired an 80% interest in the Elaine Company when Elaines equity comprised share
capital of P100,000 and retained earnings of P500,000. Elaines current statement of financial position shows
share capital of P100,000, a revaluation reserve of P400,000 and retained earnings of P1,400,000.

Under PAS 27, Consolidated and Separate Financial Statements, what figure in respect of Elaines retained
earnings should be included in the consolidated statement of financial position?
a. 720,000
b. 1,440,000
c. 1,040,000
d. 1,520,000

41. On December 30, 2016, Harold Museum, a not-for-profit organization, received a P7,000,000 donation of
Genie Co. shares with donor-stipulated requirements as follows:

I. Shares valued at P5,000,000 are to be sold, with the proceeds used to erect a public viewing building.
II. Shares valued at P2,000,000 are to be retained, with the dividends used to support current operations.
III. As a consequence of the receipt of the Day shares, how much should Harold report as temporarily re-
stricted net assets on its 2016 statement of financial position (balance sheet)?

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 ADVANCED FINANCIAL ACCOUNTING AND REPORTING

a. P0
b. P2,000,000
c. P5,000,000
d. P7,000,000

42. Which of the following are the issues not addressed in IFRIC Interpretation 16 Hedges of a Net Investment in
a Foreign Operation?

a. the nature of the hedged risk and the amount of the hedged item for which a hedging relationship may be
designated
b. where in a group the hedging instrument can be held
c. what amounts should be reclassified from equity to profit or loss as reclassification adjustments on dis-
posal of the foreign operation
d. significance of financial instruments for the entity's financial position and performance.

43. HARLEY QUINN Hospital, a nonprofit affiliated with a religious group, reported the following information
for the year ended December 31, 2016:

Gross patient service revenue at the hospitals full established rates 980,000
Bad debts expense 10,000
Contractual adjustment with the third-party payors 115,000
Allowance for discounts to hospital employees 15,000

On the hospitals statement of operations for the year ended December 31, 2016, what amount should be reported
as net patient service revenue?

a. P840,000
b. P865,000
c. P850,000
d. P955,000

44. A subsidiarys fiscal year-end is June 30 and the parents fiscal year-end is December 31. The effect of this
difference is significant to the consolidated financial statements. In preparing consolidated financial state-
ments
a. The subsidiary should be consolidated using more recent interim financial statements.
b. The subsidiary should not be consolidated but its financial results are disclosed in the notes to the consol-
idated financial statements.
c. The subsidiary should be consolidated using its June 30 annual financial statements
d. The subsidiary should not be consolidated but accounted for by the equity method in the consolidated
financial statements.

45. On October 31, 2015, Pyramid Philippines took delivery from a British firm of inventory costing 725,000.
Payment is due on January 31, 2016. At the same time, Pyramid paid P8,250 cash to acquire a 90-day call
option for 725,000.

October 31, 2015 December 31, 2015 January 31, 2016

Strike Price P 3.60 P 3.60 P 3.60
Spot Rate 3.61 3.62 3.64
Forward Rate 3.72 3.77 3.78
FV of Call Option P 8,250 P 17,000 ?

Given the information above, compute for the following:

Foreign exchange gain or loss on option contract due to change in time value on December 31, 2015 if chang-
es in the time value will be excluded from the assessment of hedge effectiveness, and foreign exchange gain
or loss due to change in intrinsic value on January 31, 2016 if changes in the time value will be excluded from
the assessment of hedge effectiveness.

a. P1,500 gain ; P7,250 gain

b. P1,500 gain ; P14,500 gain
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 ADVANCED FINANCIAL ACCOUNTING AND REPORTING

c. P5,250 loss ; P7,250 gain

d. P5,250 loss ; P14,500 gain

46. John Company's profit before tax for the six months ended June 30, 2014 was P5,000,000. However, the
business is seasonal and profit before tax for the six months ended December 31, 2014 is almost certain to be
P9,000,000. Profit before tax equals taxable profit for this entity. John operates in a country where income tax
is at a rate of 30% if annual profit is below P11,000,000 and a rate of 35% where annual profit exceeds P 1
1,000,000. These tax rates apply to the entire profit for the year. What should be the income tax expense in
John's interim financial statements for the half year ended June 30, 2014?

a. 2,100,000
b. 1,750,000
c. 1,500,000
d. 2,450,000

47. The doctrine of marshalling of assets

a. Is applicable only if the partnership is insolvent.

b. Allows partners to first contribute personal assets to unsatisfied partnership creditors.
c. Is applicable if either the partnership is insolvent or individual partners are insolvent.
d. Amount owed to personal creditors and to the partnership for debit capital balances are shared propor-
tionately from the personal assets of the partners.

48. Given the following information (For 1):

SPOT RATES
Bid Offer
Transaction Date =43
P =45
P
Balance Sheet Date 48 49
Settlement Date 49 55

FORWARD RATES
120-day 90-day 60-day 30-day
Transaction Date =43
P =45
P =44
P =46
P
Balance Sheet Date 42 46 47 49
Settlement Date 45 48 49 52

On October 1, 2016, Tim McGraw Co. sold merchandise worth 2,750 to a Japanese company, payable on
January 31, 2017. To hedge this foreign currency exposure, Tim McGraw contracted to sell 2,750 on Octo-
ber 1, 2016 to be delivered on January 31, 2017. On December 31, 2016, the balance sheet date, how much is
the net forex gain/loss from this hedging activity?

a. P
=2,750 loss
b. P
=2,750 gain
c. P
=30,250 loss
d. P
=30,250 gain

49. Which of the following is incorrect in recognizing emission rights and associated liabilities acquired in a
business combination?

a. In a business combination, the emission rights of the acquiree, regardless of how the acquiree received
these rights, are rights purchased by the acquirer.
b. They are treated in the same manner as emission rights purchased directly by the entity.
c. Since net liability approach is permitted for purchased emission rights and therefore can be applied to
emission rights of the acquiree in a business combination
d. The acquirer recognizes the emission rights held by the acquiree as an asset at fair value and recognizes
a provision for the actual emissions made up to that date at fair value.

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 ADVANCED FINANCIAL ACCOUNTING AND REPORTING

50. Which is not a basic financial report that non-profit organization must prepare?

a. Statement of Financial Position

b. Statement of Comprehensive Income
c. Statement of Activity
d. Statement of Cash Flow

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 ADVANCED FINANCIAL ACCOUNTING AND REPORTING

ADVANCED FINANCIAL ACCOUNTING AND REPORTING

Answer Key

MULTIPLE CHOICE

1. ANS: D TOP: Corporate liquidation

2. ANS: C TOP: Corporate liquidation
3. ANS: A TOP: Corporate liquidation
4. ANS: B TOP: Corporate liquidation
5. ANS: D
SOL:
Free assets P220,000 - priority claims P100,000 = P120,000
P120,000/P300,000 unsecured = payment of 40% on unsecured dollars.
40% x P240,000 A/P = P96,000

TOP: Corporate liquidation

6. ANS: B TOP: Corporate liquidation
7. ANS: E TOP: Corporate liquidation
8. ANS: D TOP: Corporate liquidation
9. ANS: A TOP: Corporate liquidation
10. ANS: E TOP: Corporate liquidation
11. ANS: B TOP: Government accounting
12. ANS: C
SOL:
Amounts discharged to patients 384,000
Contractual adjustments (90,000)
Net patient service revenue 294,000

TOP: Not for profit organizations

13. ANS: C
SOL:
Unrestricted contributions 250,000
Contributions from a donor who stipulated that the money be spent in
accordance to he wishes to the hospitals board of trustees 75,000
Contributions used for scholarship 75,000
Current fund revenue 400,000

TOP: Not for profit organizations

14. ANS: B
SOL:
Exchange Peso
rate
Net assets, 1/1/10 115,000 45 5,175,000
Net income, 2013 90,000 43.75 3,937,500
Div. declared, 9/1/10 (15,000) 40 (600,000)
Net income, 2014 45 1,012,500
9,525,000
Net assets translated using the rate at the end of
the year 212,500 47.50 10,093,750
Exchange difference (Translation adjustment) 568,750

TOP: Foreign currency transactions and translations

15. ANS: A
SOL:
October 31, 2014 December 31, 2014 January 31, 2014
Intrinsic value 7,250 14,500 29,000
Time value 1,000 2,500 -
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 ADVANCED FINANCIAL ACCOUNTING AND REPORTING

12/31/11 Time value= 1,500 gain

1/31/11 intrinsic value= 14,500 gain

TOP: Derivatives
16. ANS: D
SOL:
May 1 May 31 June 30
Intrinsic value 0 12,500 37,500
Time value 14,000 5,000 1,500

Equity =P37,500 gain

Earnings= P3,500 loss (5,000 - 1,500)

TOP: Foreign currency transactions and translations

17. ANS: C TOP: Business combination
18. ANS: D TOP: Joint Venture
19. ANS: B TOP: Home Office & Branch Accounting
20. ANS: B
SOL:
Shipments from home office 29,000
Freight in 1,000
Total available for sale 30,000
60%
Ending inventory of branch 18,000

Shipments from home office 29,000

Over allowance (4,000)
Shipments from home office at cost 25,000
Freight 1,000
Total available for sale at cost 26,000
60%
Ending inventory of branch at cost 15,600

TOP: Home Office & Branch Accounting

21. ANS: C TOP: Construction Accounting
22. ANS: B
SOL:
Unearned franchise fee: p100,000 x 2.914 = P291,400
Since the franchise maybe canceled with any outstanding balance to be waived, then that amount still to be
collected is considered unearned.

TOP: Franchise Accounting

23. ANS: A
SOL:
Internally generated net income, 2016 - parent 1,560,000
Gain on sale of real estate, 1/1/2016 (60,000)
Realized gain, 12/31/2016 ((80% x P600,000)/20) 24,000
Adjusted internally generated net income 984,000
Internally generated net income, 2016
Subsidiary 750,000
Unrealized profit in ending inventory (40% x P45,000) (18,000) 732,000
Consolidated net income 1,716,000
NCI net income (20% x P732,000) 146,400
Attributable to controlling interest 1,569,600

TOP: Consolidation After Acquisition

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 ADVANCED FINANCIAL ACCOUNTING AND REPORTING

24. ANS: D
SOL:
Total consolidated assets must be the total book value of Lizzy excluding investment in Lizette, and fair
market value of Lizette plus goodwill from business combination, if any.

Percent of control: (2,000/50,000)/20 = 80%

Cost of investment
Fair value of stocks issues (2,000 x 48) 96,000
Fair value of investment (138,000 - 25,000) x 80% 90,400
Goodwill 5,600

Total consolidated assets

Book value of the assets of Lizzy excluding investment
(475,000 - 100,000) 375,000
Fair value of the assets of Lizette 138,000
Goodwill from the business combination 5,600
Total 518,600

TOP: Consolidation After Acquisition

25. ANS: C
SOL:
Total receipts 204,345
Disbursement 132,970
Profit 71,375

Joel Jonats
Capital 30,000 20,000
P/S 42,825 28,550
Total 72,825 48,550
Cash held 46,645 14,730
Settlement 26,180 33,820

TOP: Joint Venture

26. ANS: C TOP: Not for Profit Organizations
27. ANS: D TOP: Joint Venture
28. ANS: C
SOL:
Cost of sales of Rommel 380,000
Cost of sales of Mikee 210,000
Less: Intercompany sales 2015 (120,000)
Mark-up on beginning inventory (100,000 - 75,000) x 16% (4,000)
Add: Mark-up on ending inventory (120,000 - 96,000) x 35% 8,400
Consolidated cost of sales 474,400

TOP: Consolidation After Acquisition

29. ANS: A
SOL:
Selling price 100,000
Cost of goods sold:
Direct materials cost 18,000
Direct labor cost (11,000 + 4,500) 15,500
Factory overhead
Dept. T (455,000/350,000 x 11,000) 14,300
Dept. P (300,000/25,000 x 2,500) 30,000 77,800
Selling and administrative expenses (5% x 100,00) 5,000
Net profit 17,200

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 ADVANCED FINANCIAL ACCOUNTING AND REPORTING

TOP: Job Order Costing

30. ANS: A TOP: Process Costing
31. ANS: B TOP: Not for Profit Organizations
32. ANS: D TOP: Activity Based Costing
33. ANS: D TOP: Service Concession
34. ANS: B TOP: Franchise Accounting
35. ANS: A
SOL:
Contract price 5,000,000
Gross profit recognized:
2015 1,000,000
2016 3,000,000
2017 (500,000) 4,000,000
Total cost incurred 46,000,000
Less: Incurred in 2015
Construction in process 10,000,000
Less: Gross profit recognized (1,000,000) (9,000,000)
Incurred in 2017 (20,500,000)
Cost incurred in 2016 16,500,000

TOP: Construction Accounting

36. ANS: B TOP: SME
37. ANS: D TOP: Property, Plant and Equipment
38. ANS: C
SOL:
MV of by-product Zest 5
Less: Selling and administrative expense 2
Operating profit 1
Share in joint cost per unit 2
x Units produced 1,000
Share in joint cost 2,000

TOP: Joint and by-Product Costing

39. ANS: B TOP: Retirement Benefits
40. ANS: A
SOL:
This is the parent companys share of the post acquisition retained earnings of the subsidiary.
This is determined by deducting the parent companys share of the retained earnings of the subsidiary at the
date of acquisition from the parent companys share of the retained earnings of the subsidiary at the end of the
current reporting period.

Elaines retained earnings, date of acquisition 500,000

Less: Elaines retained earnings, end of the current reporting 1,400,000
period
900,000
x Controlling interest % 80%
Elaines retained earnings included in the consolidated
financial position 720,000

TOP: Consolidation After Acquisition

41. Answer: C
FASB ASC 958 requires classification of an organizations net assets and its revenues, expenses, gains, and
losses based on the existence or absence of donor-imposed restrictions.
It requires that the amount for each of three classes of net assetspermanently restricted, temporarily restricted,
and unrestrictedbe displayed in a statement of financial position and that the amounts of change in each of
those classes of net assets be displayed in a statement of activities.
A temporary restriction is a donor-imposed restriction that permits the donee organization to use up or expend the
donated assets as specified; it is satisfied either by the passage of time or by actions of the organizations in-
volved.
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 ADVANCED FINANCIAL ACCOUNTING AND REPORTING

Accordingly, the P5,000,000 contribution of Genie Co. shares represents temporarily restricted net assets until the
shares are sold and the proceeds used to erect a public viewing building.
The P2,000,000 contribution of Genie Co. shares represents permanently restricted net assets because the
shares are to be retained permanently.

42. Answer: D
Letter D is one of the objectives of IFRS 7 Financial Instruments: Disclosures.

43. Answer: C
Health Care Organizations, provides that for contractual adjustments and discounts is recognized on the accrual
basis and deducted from gross patient service revenue to determine net patient revenue. Bad debts expense is
reported as an operating expense, not as a contra to gross patient service revenue.

Thus:
Gross patient service revenue 980,000
Contractual adjustments (115,000)
Allowance for discounts - employees (15,000)
Net Patient Service Revenue 850,000
44. Answer: A
Appendix B of PFRS 10, paragraph B92-93 states that:
B92 The financial statements of the parent and its subsidiaries used in the preparation of the consolidated
financial statements shall have the same reporting date. When the end of the reporting period of the parent is
different from that of a subsidiary, the subsidiary prepares, for consolidation purposes, additional financial
information as of the same date as the financial statements of the parent to enable the parent to consolidate the
financial information of the subsidiary, unless it is impracticable to do so.
B93 If it is impracticable to do so, the parent shall consolidate the financial information of the subsidiary using the
most recent financial statements of the subsidiary adjusted for the effects of significant transactions or events that
occur between the date of those financial statements and the date of the consolidated financial statements. In any
case, the difference between the date of the subsidiary's financial statements and that of the consolidated
financial statements shall be no more than three months, and the length of the reporting periods and any differ-
ence between the dates of the financial statements shall be the same from period to period.

Accordingly, the financial statements of the subsidiary should be adjusted at least as of September 30.

45. Answer: B
Oct. 31, 2015 Dec. 31, 2015 Jan. 31, 2016
Intrinsic Value 7,250 14,500 29,000
Time Value 1,000 2,500 -

12/31/11 Time value = 1,500 gain

1/31/12 Intrinsic value = 14,500 gain

46. Answer: B
Income tax expense for half year ended 6/30/2014(5,000,000 x 35%) 1,750,000
Profit from January 1 to June 30, 2014 5,000,000
Profit from July 1 to December 31, 2014 9,000,000
Expected profit for the year 14,000,000

47. Answer: C

The doctrine of marshalling of assets applicable if either the partnership is insolvent or individual partners are
insolvent.

48. Answer: A
Solution:
Hedged item: 2,750 * (P48 P43) = P13,750 gain
Hedging instrument: 2,750 * (P43 P49) = P16,500 loss
Net loss: P2,750
49. Answer: C
Paragraph 11 of IFRS 3 states that to qualify for recognition, the identifiable assets acquired and lia-
bility assumed must meet the definitions of assets and liabilities in The Conceptual Framework for Fi-
nancial Reporting at the acquisition date.

Paragraph 18 to IFRS 3 states that the acquirer measures the identifiable assets acquired and the li-
abilities assumed at their acquisition-date fair values.

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 ADVANCED FINANCIAL ACCOUNTING AND REPORTING

Emission rights meet the recognition criteria of an identifiable asset and are therefore recognized at
the acquisition date. They are intangible assets and therefore under paragraphs 39 and 40 of IAS 38
Intangible Assets are valued by reference to an active market as defined in IAS 38. If no active mar-
ket exists, the emission rights are valued on a basis that reflects the amount the acquirer would have
paid for the asset in an arms length transaction between knowledgeable, willing parties, based on the
best information available.

50. Answer: B
The basic financial reports of a nonprofit organization include:
Statement of financial position (also called a balance sheet): This summarizes the assets, liabilities and net
assets of the organization at a specified date. Its a snapshot of the organizations financial position on that date.

Statement of activity (also called an income and expense statement): This reports the organizations financial
activity over a period of time. It shows income minus expenses, which results in either a profit or a loss.

Statement of cash flow: This summarizes the resources that become available to the organization during the
reporting period and the uses made of such resources. Its especially useful in real-time because it reports income
that has been received and expenses that have been paid. A statement of projected cash flow is helpful for the
board and organization to be able to anticipate any shortfalls for planning purposes.

Statement of functional expenses: Reports all expenses as related either to program services or to supporting
services. Expenses under program services are shown divided among the various programs. Expenses under
supporting services are generally divided between (1) management and general expenses and (2) fundraising
expenses.

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ADVANCED FINANCIAL ACCOUNTING AND REPORTING

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