ADVANCED FINANCIAL ACCOUNTING AND REPORTING

Problem1: CG and CV, both sole proprietors, decided to combine their business and form a partnership.
CG CV
Cash P 307, 120 347, 540
Accounts Receivable 1,857,528 3,748,074
Property, Plant & Equipment, net 4,704,084 2,778,336
Other Assets 746,528 695,622
Goodwill - 844,810
Total Assets P 7,615, 260 8,414,382

Accounts Payable P 1,417,205 3,768,090

Bank Loan 1,800,000 -
CG, Capital 4,398,055 -
CV, Capital - 4,646,292
Total Liabilities and Equity P 7,615,260 8,414,382

The agreed value of the partners’ property, plant and equipment is only half of their respective carrying values. In addition,
the accounts receivable of 205,000 in CG’s book and 798,600 in CV’s book are uncollectible. All liabilities in the books of
the CG and CV will all be assumed by the partnership. Other assets, including goodwill, are fairly valued. CG is willing to
invest/withdraw cash to/from the partnership to bring his capital balance in accordance with the 50 – 50 profit and loss
ratio.

How much will CG invest (withdraw) to (from) the partnership?

a. 617,511
b. (227, 299)
c. (617,511)
d. 227, 299

Problem 2: The partnership of Master, Idol, and Star has the following account balances:
Cash P 36,000
Noncash assets 100,000
Liabilities
P17,000
Master, Capital 69,000
Idol, Capital (8,000)
Star, Capital 58,000
This partnership is in the process of being liquidated. Master and Idol are each entitled to 40% of all profits and losses
with the remaining 20% to Star.

What is the maximum amount that Idol has to contribute to this partnership because of the deficit capital balance?
a. 48,000
b. 19,000
c. 84,000
d. 29,000

Problem 3: Movements in the capital accounts of the partners for the year 2012 were as follows:
Paris, Capital France, Capital
8/25 P 13,500 1/1 P 60,000 3/5 P 8,400 1/1 P 40,000
4/3 8,000 7/6 9,000
10/31 9,000 10/8 7,500
Net income (before any deductions for salary and interest) for the year amounts to P 60,000. The net income is to be
divided by:
a. Salaries to Paris and France for the amount of 16,000 and 10,500 respectively
b. Each partner is to be credited 12% interest based on their average capital.
c. Any remainder income or loss is to be allocated based on their beginning capital.

How much of the net income will be credited to Paris and France?
a. Paris: 36,261 ; France: 23,739
b. Paris: 23,711 ; France: 36,289
c. Paris: 36,289 ; France: 23,711
d. Paris: 23,739 ; France: 36,261

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Problem 4: Louis, Vuitton, and Hermes, with capital balances of P133,600; P83,250; and P65,900 respectively, decided
to dissolve the partnership 6 months prior to year-end. Their profit and loss ratio is 45:25:30. Net income for the period is
P72,000. Balance sheet shows cash at P126,700 and liabilities at P174,960. If Hermes received P98,750 after payment of
P139,710 to outside creditors, how much was received from sale of non-cash assets?

a. P365,510
b. P440,510
c. P405,260
d. P330,260

Problem 5: Eric, Lydia and Ann established a partnership which is in operation for two years. Presented below are
excerpt from their statement of financial position for two years.
2012 2011
Accounts receivable P 312,000 P 254,000
Inventory 278,000 239,000
Prepaid expenses 35,000 21,000
Property, plant, and equipment 536,000 409,000
Accumulated depreciation (76,000) (53,000)

Accounts payable 212,000 198,000

Accrued expenses 98,000 76,000

Eric, Capital (40) ? 277,600

Lydia, Capital (30) ? 208,200
Ann, Capital (30) - 208,200

Cash received from customers – P3,503,000; cash paid to suppliers – P2,814,000; payment for expenses – P490,000.
After receiving her share from partnership income, Ann decided to retire from the partnership. Ann is to be paid an amount
equal to 90 percent of her adjusted equity as of the date of her retirement. Assuming there are no
investments/withdrawals during the year, compute for (1) net income for 2012 and (2) capital balance of Eric after
retirement of Ann.
a. (1) P251,000; (2) P361,800
b. (1) P274,000; (2) P403,794
c. (1) P247,000; (2) P370,606
d. (1) P251,000; (2) P394,200

Problem 6: Originals Corporation which is undergoing liquidation. The trustee of the Originals Co. presents the following
information:
 P70,000 assets are available to unsecured creditors, P10,000 of which represents Inventories. It was ascertained
that inventories were not pledged to any liabilities.
 Unpaid liabilities are as follows: administrative expenses: P3,500; taxes: P6,000 and wages: P2,500
 Accounts payable and notes payable totalled P100,000. No assets were pledged on the said liabilities.
 Payment to fully secured creditors and partially secured creditors amounts to P68,000 and P135,000 respectively.
If the recovery percentage is 35 percent, determine the amount of (1) Assets pledged to fully secured liabilities and (2)
partially secured liabilities.
a. (1) P150,000; (2) P100,000
b. (1) P150,000; (2) P200,000
c. (1) P140,000; (2) P200,000
d. (1) P140,000; (2) P100,000

Problem 7: Elizabeth Arden Co. is insolvent and its statement of affairs shows the following information:
Estimated losses on realization of assets P 2,500,000
Estimated gains on realization of assets 1,450,000
Additional assets 1,300,000
Additional liabilities 520,000
Capital stock 2,220,000
Deficit 1,320,000
The pro-rate payment on the peso to stockholders (estimated amount to be recovered by stockholders) is:
a. P 0.70
b. P 0.17
c. P 0.87
d. P 0.60

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Problem 8: Tumblr, Twitter, and Googleplus formed a joint venture. The contractual arrangement provides that
Googleplus is to manage the venture and is to receive a salary of 13% of the profit after deduction of the salary as an
expense. The net profit after the salary is to be divided as follows: Tumblr,40%; Twitter,25% and Googleplus,35%. No
separate books are used for the Joint Venture.

Joint venture is terminated after six months of operation. The trial balance prepared by Googleplus shows the following
balances.
Debit Credit
Joint Venture Cash P 315,000
Joint Venture P 209,500
Tumblr, Capital 180,000
Twitter, Capital 85,000

The venture has still some unsold merchandise worth P10,850 which is to be taken by Googleplus. How much is the total
interest of Googleplus?
a. P 294,100
b. P 283,250
c. P 200,500
d. P 93,600

Problem 9: Nicole, Jennifer, and Beyonce formed a joint venture on October 1, 2012. Nicole acts as manager of the
venture and is allowed a bonus of 25% of the profit after the bonus. Jennifer and Beyonce are to be allowed 6% interest
on their original investments. The balance of the profit after bonus is to be divided equally.

Jennifer and Beyonce contributed P99,000 and P135,000 respectively. The venture sales on account amounted to
P360,000. Sales discount of P1,875 were taken. Sales return amounted to P4,200 and P9,675 were written off. Venture
expenses of P87,840 were paid. They decided to terminate the joint venture on December 31 and to charge unsold
merchandise of P22,500 and P17,100 to Jennifer and Beyonce respectively. How much cash was received by Jennifer
and Beyonce upon settlement?
a. P108,499 ; P138,249
b. P94,296 ; P137,856
c. P110,202 ; P152,682
d. P93,351 ; P135,291

Problem 10: On February 29, 2012 the SME G and SME O each acquired 25 percent of the equity of entity D for
P270,000. The two SMEs are to have joint control over entity D. At year-end, D declared P85,000 of dividends and
reported a profit of P150,000 (P25,000 of which was earned during the first two months). Also, it was determined that the
recoverable amount of each venturer’s investment is P287,000.

Q10-1 Under the equity method, how much is to be recognized as profit (loss) by each venture?
a. P58,750
b. P52,500
c. P31,250
d. P37,500

Q10-2 In relation to the previous question, by how much will your answer change if fair value method was used and there
were:
 Transaction cost: 1 percent of purchase price
1
 Cost to sell: 4 percent of fair value
3
a. P48,550
b. P35,550
c. P17,300
d. P11,050

Problem 11: X Trading purchases goods from Y, a company based on France for 1,200,000 Euros (€). The exchange
rate at this time is P1 = €12.5. X pays 22 days later when the prevailing exchange rate is P1 = €16. How much is the
foreign currency gain/loss on the books of X and Y respectively?
a. 21,000 gain; 21,000 loss
b. 21,000 gain; 0
c. 4,200,000 loss; 0
d. 4,200,000 loss; 4,200,000 gain

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Problem 12: Celica Motors sold a car for 180,000 pounds (£) to a customer in London on March 16, 2012 when the spot
rate was P68.45 = £ 1. On April 20,2012, Celica received thirty percent of the selling price as partial payment. The spot
rate at that time was P67.48 = £ 1. The balance was paid on May 5 when the spot rate was P68.63= £ 1. How much was
the foreign currency gain/loss on this transaction?
a. P29,700 loss
b. P29,700 gain
c. P142,200 loss
d. P142,200 gain

Problem 13: Lebron intends to sell ¥400,400 under a forward contract dated December 1. At what amount must Forward
Contract Receivable and Forward Contract Payable be presented on December 31?
Dates Forward Rates Spot Rates
December 1 P 0.55 P 0.53
December 31 P 0.50 P 0.49
March 22 P 0.48 P 0.46

FC receivable FC Payable
a. 220,220 200,200
b. 200,200 220,220
c. 212,212 196,196
d. 200,200 200,200

Problem 14: On January 1, 2012 Lucky Inc. paid P9,800 to acquire a put option. This is in relation to the sale of
merchandise worth $65,000. (Strike price = P4.965)

1/1/2012 3/31/2012 6/20/2012

Spot rate P 4.934 P 4.908 P4.75
Fair value of option 9,800 11,400 13,935

How much is the foreign currency gain/loss on the intrinsic portion on March 31,2012?
a. P1,690
b. (P1,690)
c. P1,600
d. (P90)

Problem 15: On January 1, 2012 Lucky Inc. paid P9,800 to acquire a put option. This is in relation to the sale of
merchandise worth $65,000. (Strike price = P4.925)

1/1/2012 3/31/2012 6/20/2012

Spot rate P 4.934 P 4.908 P4.75
Fair value of option 9,800 11,400 13,935

How much is the foreign currency gain/loss on the intrinsic portion on March 31,2012?
a. P495
b. (P90)
c. P1,690
d. P1,105

Problem 16: On November 1, 2012, Word Inc. paid P45,000 to acquire call foreign exchange option for HK$90,000. The
option is acquired to hedge the 2012 anticipated purchase of merchandise for HK$90,000. The option expires on March
30,2013.

11/1/2012 12/31/2012 3/31/2013

Spot rate P 3.46 P 3.40 P3.39
Fair value of option 45,000 50,500 72,000
Strike price 3.47 3.47 3.47
At what amount must the merchandise be presented as of December 31, 2012?
a. P3,114,000
b. P3,123,000
c. P3,060,000
d. P 0

Problem 17: Kdrama Inc. uses cost recovery method to account for its instalment sales. The following data were obtained
from its first three years of operation.
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 2010 2011 2012
Instalment sales P 1,750,000 P 2,275,000 P 2,565,000
Gross profit rates (based on cost) 40 30 35
Installment Accounts receivable balances:
December 31:
2010 950,000 360,000 145,000
2011 1,706,250 287,500
2012 1,150,000

How much is the realized gross profit on instalment sales on 2012?

a. P215,000
b. P610,000
c. P452,500
d. P237,500

Problem 18: If after repossession the repossessed merchandise was sold for P150,000, yielding a 34 percent gross profit
rate, a rate similar to the usual gross profit rate on instalment sales, what was the entry to record the previous
repossession? Provided that prior to the said sale, P9,000 was spent to recondition the merchandise and that loss on
repossession amounted to P5,700.

a. Repossessed Merchandise 99,000

Loss on Repossession 5,700
Instalment accounts receivable 104,700

b. Repossessed Merchandise 90,000

Loss on Repossession 5,700
Deferred gross profit 49,300
Instalment accounts receivable 145,000

c. Repossessed Merchandise 90,000

Deferred gross profit 55,000
Instalment accounts receivable 145,000

d. Repossessed Merchandise 90,000

Loss on Repossession 5,700
Instalment accounts receivable 95,700

Problem 19: Pressured Builders Co. Has used cost-to-cost percentage-of-completion method of recognizing revenue on
its construction projects. The company just recently completed a project for which the total contract price was P3,800,000.
The following were discovered upon review of their records.

2010 2011 2012

Gross profit (loss) P76,000 ? P(38,000)
Cost incurred per year 684,000 1,254,000 1,558,000

How much was the total estimated gross profit for 2011?
a. P304,000
b. P665,000
c. P570,000
d. P 0

Problem 20: Germany Construction Company began a project by 2010 with a contract price of P6.3 million. The following
data described the progress of the construction.

2010:
Cost incurred to December 31, 2010 including materials
worth P50,000 which are stored to be used in 2012 to P1,425,000
complete the project.
Estimated cost to complete, January 1, 2011 4,075,000

2011:
Cost incurred to date 3,040,000
Cost to complete, December 31, 2011 1,960,000
2012
Cost incurred to date 3,672,000
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 Cost to complete, December 31, 2011 1,977,500

What is the realized gross profit (loss) to be reported for the year 2012 using the percentage of completion?
a. P790,400
b. P367,900
c. P422,500
d. P(354,900)

Problem 21: On November 1, 2011, LG, Inc. authorized Warren Buffet to operate as a franchisee for an initial franchise
fee of P1,500,000. Of this amount, 40% was received upon contract signing and the balance, represented by a note, is
due in three annual instalments starting December 31, 2011. A 65-day period of refund was granted. According to the
agreement, the downpayment represents a fair measure of the services initially performed. The collectibility of the note is
reasonably certain. (PV factor of 2.4)

How much is the unearned franchise fee?

a. P1,320,000
b. P720,000
c. P600,00
d. P0

Problem 22: The following information concerning Mott’s branch in Laguna were gathered after the branch’s first year of
operation. Laguna branch acquires all of its inventories from the home office and twenty-five percent of the shipments
from the home office remained unsold.

per Branch books per Home office books

Branch sales P950,000 -
Branch cost of goods sold 425,700 -
Branch expenses 424,300 -
Branch net income 100,000 332,200

How much was the cost of the merchandised shipped to the Laguna branch?
a. P567,600
b. P258,000
c. P309,600
d. P232,200

Problem 23: Hilton Co. established a sales agency in Mactan, Cebu on July 1, 2012. The company sent merchandise
samples which costs P21,600. These samples were intended to last until April 1, 2013 during which P300 can still be
realized. During 2012, the agency transmitted to the home office sale of goods costing P115,000, but only half of the sales
orders were actually filled-up. The agency paid expenses amounting to P25,000. Unpaid expenses amounts to 10% of
the net sales. Equipment purchased by the home office for the use of the agency costs 100,000 to be depreciated 20%
per annum. Total collections from customers amounted to P194,000, net of 3% sales discount. If the net income of the
agency was P270,400, how much was the gross sales?
a. P425,667
b. P377,100
c. P425,000
d. P419,000

Problem 24: The Steadler Corp. has a branch in Batangas. During 2012, shipmets to the branch costs P100,000, billed at
130% of cost. Purchases from outsiders was P125,000 where sixty-four percent of which remained unsold by year-end.
P405,000 branch sales was reported. Expense allocated to the branch totalled P115,000. On June 20, the home office
purchased an equipment for the use of the branch amounting to P200,000. The home office will maintain the records for
the said fixed asset. Useful life is 5 years. The separate income of the home office is P170,000.

24 – 1 How much is the net income per branch books?

a. P95,000
b. P145,000
c. P125,000
d. P155,000

24 – 2 How much is the combined net income to be presented in the financial statements?
a. P265,000
b. P315,000
c. P325,000
d. P295,000

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Problem 25: On January 1, 2012, Standard Co. acquired 80% of Setter Inc.’s outstanding stocks for P1,600,000 cash.
Setter Inc.’s balance sheet shows P3,000,000 identifiable assets and P1,800,000 liabilities. All assets and liabilities of
Setter are fairly valued, except for an undervalued equipment. The stock acquisition resulted to a goodwill of P700,000.
Assume Standard had P5,000,000 total assets prior to the said transaction. NCI is measured at fair value.

How much is the combined total assets after the stock acquisition?
a. P7,000,000
b. P5,400,000
c. P7,100,000
d. P7,200,000

Problem 26: On February 1, 2012 the Primex Co. acquired 100% of T&R Co. when the fair value of the latter’s net assets
was P29M. The consideration transferred comprised of P22M cash paid at the acquisition date plus another P10M cash to
be paid after February 1 provided a specified profit target was met by T&R. At acquisition date, there was only low
probability of the profit target being met, so the fair value of the contingent consideration liability was P1.5M. Before the
year ended, the profit target was met and P10M cash was transferred.

How much will consolidated earnings change?

a. P5.5M income
b. P7M income
c. P3M loss
d. P8.5M loss

Problem 27: Beauty paid P380,000 for the 25% of Geek’s common stock. Five months after, Beauty Inc. purchased
another 45% of Geek’s common stock for P900,000. On this date, Geek reports identifiable assets with carrying value of
P1,800,000 and fair value of P1,850,000 and liabilities with book value of P700,000 and fair value of P800,000. The 30%
non-controlling interest has a fair value of P290,000.

How much is the goodwill if valued on a fair value basis?

a. P640,000
b. P665,000
c. P950,000
d. P520,000

Problem 28: Tyra Company acquires 70% of Heigl Inc. on October 1, 2011 and an additional 10% on March 31, 2012.
Total annual amortization of P19,000 relates to the first acquisition. Heigl Inc. reports the following at December 31, 2012:
Sales P300,000
Cost of goods sold 100,000
Expenses 50,000
Dividends declared 75,000

Tyra Company reports a net income of PP450,000.

Assuming the that the profit is earned evenly throughout the year, how much is the controlling interest in the consolidated
net income for 2012?
a. P491,525
b. P521,000
c. P494,000
d. 551,525

Problem 29. Gion Corporation has identified activity centers to which overhead costs are assigned. The cost pool
amounts for these centers and their selected activity drivers for 2011 follow:
Activity Centers Costs Activity Drivers
Set-ups P620,000 24,800 set-ups
Utilities P950,000 125,000 machine hours
No. of parts P320,000 16,000 parts

Direct costs of producing product GG amounted to P75,000. The said product took 17,000 direct labor hours and 15,000
machine hours to finish. Also, the product needed 7,500 set-ups and 550 parts to complete. 25,000 units of product GG
were produced during 2011. How much was the full cost per unit of product GG using ABC?
a. P12.50
b. P16.07
c. P15.50
d. P19.07

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Problem 30. During April 2011, Faithfully Inc. incurred the following costs for Job 522 (450 drum sets):
Direct materials P42,500
Direct labor P65,250
Factory overhead P78,300
45 units of drum sets were found to be defective and Faithfully Inc. had to incur the following to remedy the said defects:
Direct materials P13,550
Direct Labor P15,250

If the rework cost is normal but specific to Job 522, the cost per finished unit is:
a. P497.75
b. P518.11
c. P484.22
d. P575.68

Problem 31. Superhuman Co. provided the following data:

Direct materials P450,000
Direct labor P520,000
Overhead rate without spoilage P5.50 per unit
Overhead rate with spoilage P7.50 per unit
Units produced 120,000

Superhuman do not typically expect spoilage in its production process. On Job 912, the cost of the spoiled units is
P52,200, but the disposal value of these units were determined to be P24,000 and P17,000 were found to be abnormal
costs of spoilage. How much is the total cost of good units?
a. P1,846,000
b. P1,817,800
c. P1,577,800
d. P1,606,000

Problem 32. IDOL Inc. adds materials at the beginning of the process in department USB. Conversion costs were 70%
complete as to the 9,500 work-in-process units on September 1 and 40% incomplete as to the 7,000 work-in-process
units on September 30. During September, 12,000 units were completed and transferred to the next department. An
analysis of the cost relating to work-in-process on September 1 and to production activity for September is as follows:
Costs
Materials Conversion
Work-in-process, September 1 P10,000 P7,500
Costs incurred during September P42,750 P52,525

The total cost per equivalent unit for September under FIFO and average:
a. P11.84 ; P5.49
b. P10 ; P5.49
c. P10 ; P6.49
d. P11.84 ; P6.49

Problem 33 and 34. Silent Sanctuary Corporation manufactures a product through a continuous process in different
departments. As their cost accountant, you are given the production data of Department A to accumulate costs and
prepare the necessary reports:

Units
Work-in-process, May 1, 2011 (30% to complete) 15,000
Units started and completed 60,000
Work-in-process, May 31, 2011 (50% complete) 3,000
Normal lost units discovered at the end of process 2,000

Costs
Materials P78,000
Conversion P85,000
Work-in-process cost, May 1, 2011 P45,000

Materials are added at the start of the production while conversion costs are evenly distributed during the production
process.

33. Compute the current total unit cost for materials and conversion:
a. P2.53
b. P3.14
c. P2.45
d. P2.23
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34. Compute the cost per unit of completed units as of May 1, 2011:
a. P2.34
b. P2.70
c. P2.64
d. P2.56

Problem 35. Analog Heart Inc. makes three products from mangoes it harvests:

Units of output Selling price at Incremental Final selling price

split-off processing costs
Mango shake 5,250 P3 P2 P7.50
Dried mangoes 2,000 P1.50 P2.50 P3
Ice candy 750 P2.50 P0.50 P3

Which of the following is false regarding processing the three products beyond split-off point?
a. The company can either sell the ice candy at split-off or process it further and sell it at P3
because the incremental profit is zero
b. If the dried mangoes are processed beyond split-off, the company will have an incremental profit
of P1
c. The company should process the mango shake further because an incremental profit of P2.50
would be realized
d. None of the statements is false

Problem 36. Breakout Co. produces two products which go through a single process. The same amount of disposal cost
is incurred whether the products are sold at split-off or after further processing. On May 2011, the joint cost of the
production process amounted to P105,000
Products Units produced Net realizable value
A 4,000 P5
B 12,000 P2.50
Remnants 4,000 P4

Remnants are considered a by-product of the process and are sold to other factories. If the company accounts for the by-
product using the NRV method, and if it costs the company an additional P1.50/unit to process product A, how much is
the total cost of producing product A?
a. P35,600
b. P59,400
c. P53,400
d. P41,600

Problem 37. GBX Inc.’s capacity for a month is 40,000 machine hours. Overhead is 40% variable and 60% fixed. During
June 2011, GBX produced 3,500 units of its product and incurred 38,000 machine hours. Each unit of a product requires
12 machine hours. Unfavorable non-controllable variance for the month of June is P28,500. What is the company’s
variable overhead rate?
a. P19.75
b. P9.50
c. P14.25
d. P23.75

Problem 38. Emoted Inc. purchased 80,000 ounces of materials needed to produce its perfume at a cost of P5 per
ounce. During April, Emoted used 70,000 ounces to produce 3,500 bottles of perfume. The standard price of the materials
used is P4.75 per ounce and Emoted expects to use 15 ounces of the material to produce 1 bottle of perfume. How much
is the (1) material price variance and (2) material quantity variance?
a. P20,000 F ; P130,625 U
b. P20,000 U ; P130,625 F
c. P20,000 U ; P83,125 U
d. P17,500 U ; P83,125 U

Problem 39. 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 P (1,000,000)
Subsidy income from National Government P (1,000,000)
b. Subsidy income from National Government P 1,500,000
Cash – National Treasury, MDS P 1,500,000

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 c. Subsidy income from National Government P 3,500,000
Cash – National Treasury, MDS P 3,500,000
d. Memorandum entry

Problem 40. LTO collected motor vehicles registration fees amounting to P250. These were remitted to the Bureau of
Treasury. To record the remittance by LTO in the National Government books, the entry would be:
a. Cash – National Treasury, MDS P 250
Registration fees P 250
b. Registration fees P 250
Cash – National Treasury, MDS P 250
c. Registration fees P 250
Cash – Collecting Officer P 250
d. Cash – Disbursing Officer P 250
Cash – Collecting Officer P 250

Problem 41. Bleeding Love Hospital has the following account balances:
Interest income P25,000
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. P204,000
b. P219,000
c. P294,000
d. P271,000

Problem 42. Broken Heart University, a nonprofit university, received the following cash contributions from donors during
the year 2011:
Unrestricted contributions P250,000
Contributions restricted by donors for scholarship programs 100,000
Contributions from a donor who stipulated that the money be spent in accordance to the 75,000
wishes of the hospital’s board of trustees
Contributions restricted by donors for equipment acquisitions 125,000

Assuming the university spent P75,000 of the donors’ contributions for scholarship programs on financing this year’s
scholars, how much should be included in its current funds revenue for the year ended December 31, 2011?
a. P350,000
b. P325,000
c. P400,000
d. P250,000

Problem 43. Agency X have an obligation for equipment per purchase order amounting to P800,000. Subsequently, the
agency liquidates the equipment acquired in full. The entry to record this transaction would be (ignore tax implication)

A. Memorandum entry in RAOCO

B. Accounts Payable 800,000
Cash – National Treasury, MDS 800,000
C. Subsidy Income from National Government 800,000
Cash – National Treasury, MDS 800,000
D. Obligation Liquidated 800,000
Cash – National Treasury, MDS 800,000

Problem 44. On 1 January 2011, an entity reporting under PFRS for SME, purchased a tract of vacant land that is
situated overseas for Baht90,000. The entity classified the land as an investment property. The fair value of the land at 31
December 2011 is Baht100,000. The entity’s functional currency is the Php (Peso):

Spot currency exchange rates:

 1 January 2011: 1 Baht = P2.00
 31 December 2011: 1 Baht = P2.10

Weighted average exchange rate in 2011: 1 Baht = P2.04

What is the carrying amount of the investment property at 31 December 2011 and what amount/s would be presented in
profit or loss for the year ended 31 December 2011?
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 a. Carrying amount of investment property = P210,000. Profit for the year includes P30,000 increase in the fair value
of investment property.

b. Carrying amount of investment property = P210,000. Profit for the year includes P20,400 increase in the fair value
of investment property and P9,600 foreign exchange gain.

c. Carrying amount of investment property = P180,000. Profit for the year includes no amount in respect of the
investment property.

d. Carrying amount of investment property = P189,000. Profit for the year includes P9,000 foreign exchange gain.

Problem 45. On December 12, 2011, Winning Co. entered into a forward exchange contract to purchase 100,000 euros
in 90 days. The relevant exchange rates are as follows:
Spot rate Forward rate (for March 12, 2012)
November 30, 2011 $0.87 $0.89
December 12, 2011 0.88 0.90
December 31, 2011 0.92 0.93

The purpose of this forward contract is to hedge a purchase of inventory in November 2011, payable in March 2012. At
December 31, 2011, what amount of foreign currency transaction from this forward contract should Winning include in
profit or loss?

a. $4,000 loss
b. $3,000 loss
c. $3,000 gain
d. $4,000 gain

Problem 46. An entity purchases plant from a foreign supplier for 3 million euros on January 31, 2011, when the
exchange rate was 2 euros = 1 US dollar. At the entity’s year-end of March 31, 2011, the amount has not been paid. The
closing exchange rate was 1.5 euros = 1 US dollar. The entity’s functional currency is the US dollar. Which of the
followings statements is correct?

a. Cost of plant $2 million, exchange loss $0.5 million, trade payable $2 million
b. Cost of plant $1.5 million, exchange loss $0.5 million, trade payable $2 million
c. Cost of plant $1.5 million, exchange loss $0.6 million, trade payable $2 million
d. Cost of plant $2 million, exchange loss $0.5 million, trade payable $1.5 million

Problem 47. A Philippine entity acquired 60% of the share capital of a foreign entity on June 30, 2011. The fair value of
the net assets of the foreign entity at that date was $4.5 million. This value was $1.2 million higher than the carrying
amount of the net assets of the foreign entity. The excess was due to the increase in value of non-depreciable land. The
functional currency of the entity is the Php (Peso). The financial year-end of the entity is December 31, 2011. The
exchange rates at June 30, 2011, and December 31, 2011 were $1 = 40 Php and $1 = 45 Php, respectively. What figure
for the fair value adjustment should be included in the consolidated financial statements for the year ended December 31,
2011?

a. Php 202.5 million

b. Php 54.0 million
c. Php 121.5 million
d. Php 32.4 million

Problem 48. On 1 January 2011 a parent entity, applying PFRS for SME, (whose functional currency is CU) made a
FCU20,000 loan to a foreign subsidiary (whose functional currency is FCU). The parent has informed the subsidiary that it
will not demand repayment and the subsidiary do not expect to repay the loan. The amortized cost of the loan at each
reporting date is FCU20,000.

The exchange rates are as follows:

 1 January 2011: CU1 = FCU 2
 31 December 2011: CU1 = FCU 2.1

In preparing the consolidated financial statements, what is the entry for the consolidation adjustment related to the
exchange difference?

a. No entry

b. Dr. Profit or loss – exchange difference CU 476

Cr. Long term receivable CU 476
c. Dr. Long term payable CU 2,000
Cr. Other comprehensive income CU 2,000

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 d. Dr. Other comprehensive income CU 476
Cr. Profit or loss – exchange difference CU 476

Problem 49. On January 1, 2011, the fair values of J.Lo Company’s net assets were as follows:
Current assets P100,000
Equipment 150,000
Land 50,000
Buildings 300,000
Liabilities 80,000

On January 1, 2011, Steven Company purchased the net assets of J.Lo Company by issuing 100,000 shares of its P1 par
value stock when the fair value of the stock was P6.20. It was further agreed that Steven would pay an additional cash
amount on January 1, 2013, if the average income during the 2 year period of 2011-2012 exceeded P250,000 per year.
The expected value of this consideration was calculated as P184,000. On July 30, 2011, the fair value estimate of the
contingent consideration was revised to P170,000 due to updates on the likelihood of various outcomes based on
weighted probabilities. Assuming that on January 1, 2013, the date of settlement of the contingent consideration (CC)
clause agreement for P195,000, the entry should be:

A. Estimated liability for CC 170,000

Loss on estimated CC 25,000
Cash 195,000
B. Estimated liability for CC 195,000
Cash 195,000

C. Estimated liability for CC 184,000

Loss on estimated CC 11,000
Cash 195,000

D. No entry required

Problem 50. Atlas Corporation acquired an 80% interest in Rogets Company on January 1, 2010 for P1,225,000. On this
date the capital stock and retained earnings of the two companies were as follows:
Atlas Rogets
Capital stock P3,150,000 P875,000
Retained earnings 1,400,000 175,000

The assets and liabilities of Rogets were stated at their fair values when Atlas acquired its 80% interest and the
proportionate share in net identifiable assets was used to initially measure the non-controlling interest. Atlas uses the cost
method to account for its investment in Rogets

Net income and dividends for 2010 for the affiliated companies were:

Atlas Rogets
Net income P525,000 P157,500
Dividends declared 315,000 87,500
Dividends payable December 31, 2010 157,500 43,750

End of year evaluation indicates P12,000 impairment in goodwill.

The consolidated retained earnings at December 31, 2010:

A. P2,041,400
B. P1,969,000
C. P1,656,400
D. P1,654,000

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