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20TH REGIONAL MID YEAR CONVENTION

ADVANCED FINANCIAL ACCOUNTING AND REPORTING (AFAR) CUP


Quiz Master’s Copy

ELIMINATION ROUND
EASY ROUND

EASY # 1

Which of the following statements is incorrect concerning installment sales?

I. Installment contract receivable is always classified as a current asset.


II. Installment contract receivable qualifies for inclusion under the current assets or non-current assets
depending on the length of time required for its collection.

A. I only
B. II only
C. Both I and II
D. Neither I nor II

EASY # 2

Partners Art and Tony, who share equally in profits and losses, have the following statement of financial position as
of December 31, 2015:

Cash ₱120,000 Accounts payable ₱172,000


Accounts receivable 100,000 Accumulated 8,000
depreciation
Inventories 140,000 Art, capital 140,000
Equipment 80,000 Tony, capital 120,000
Total 440,000 Total 440,000

They agreed to incorporate their partnership, with the new corporation absorbing the net assets after the following
adjustments: provision of allowance for bad debts of ₱10,000; restatement of the inventory at its current fair value
of ₱160,000; and recognition of further depreciation on the equipment of ₱3,000. The corporation’s share capital is
to have a par value of ₱100, and the partners are to be issued corresponding total shares equivalent to their adjusted
capital balances.

The total par value of the share capital that were issued to partners Art and Tony was:

A. ₱260,000
B. ₱267,000
C. ₱273,000
D. ₱280,000

EASY # 3

O and M formed KERN Partnership several years ago. Capital account balances on December 31, 2016,
after closing were as follows:

O ₱500,000
M 280,000

The partnership agreement provides O with an annual salary of ₱10,000 plus a bonus of 5% of partnership
net income for managing the business. M is provided an annual salary of ₱15,000 with no bonus. The
remainder is shared evenly. Partnership net income for 2016 was ₱30,000. O and M each invested
additional ₱5,000 during the year to finance a special purchase. Year-end drawing account balances were
₱15,000 for O, and ₱10,000 for M. The capital balances of O and M on January 1, 2016 were:

20TH REGIONAL MID-YEAR CONVENTION – Academic League


Advanced Financial Accounting and Reporting Cup
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A. ₱503,250 and ₱291,750.
B. ₱496,750 and ₱268,250.
C. ₱505,000 and ₱290,000.
D. ₱480,000 and ₱310,000.

EASY # 4

A partner’s drawing account, is, in substance, a

A. Loan account
B. Capital account
C. Contra-capital account
D. Salary expense account

EASY # 5

Which of the following statements is correct concerning franchise contracts?

I. If collection of initial franchise fee is not assured, the unearned franchise fee would always equal the
balance of the note, regardless if the initial service is with direct franchise cost or not.
II. When the initial franchise fee is not paid in full and the collectability of the note for the balance is
reasonably assured, the method to be used by the franchisor to recognize revenue from the initial
franchise fee is the installment method.

A. I only
B. II only
C. Both I and II
D. Neither I nor II

EASY # 6

Partners R and S share profits 3:1 after annual salary allowances of ₱40,000 and ₱60,000, respectively; however, if
profits are not adequate to meet the salary allowances, the entire profit is to be divided in the salary ratio. Profits of
₱90,000 were reported for the year 2016. In 2017, it is ascertained that in calculating net income for the year-ended
December 31, 2016, depreciation was overstated by ₱36,000 and ending inventory was overstated by ₱8,000.

The adjustment to the capital of R and S amounted to

A. ₱29,500 and ₱14,500


B. ₱36,000 and ₱54,000
C. ₱17,500 and ₱10,500
D. ₱53,500 and ₱64,500

EASY # 7

Which of the following circumstances will not result to the automatic dissolution of a general partnership?

A. By death of any partner.


B. By civil interdiction of any partner.
C. By insolvency of any partner or of the partnership.
D. By assignment of partner’s interest in the partnership to a third person.

20TH REGIONAL MID-YEAR CONVENTION – Academic League


Advanced Financial Accounting and Reporting Cup
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EASY # 8

Trevor owns a 70% interest in a partnership, and has a capital balance of ₱140,000. Drake owns a 30% interest and
has a capital balance of ₱60,000. Toto invests ₱50,000 for a 25 percent interest. Which of the two methods (bonus
or goodwill) will benefit Toto if his P/L ratio is 20%?

A. Bonus method, benefit of ₱833.


B. Goodwill method, benefit of ₱833.
C. Goodwill method, benefit of ₱16,667.
D. Bonus method, benefit of ₱2,500.

EASY # 9

How should the balance in progress billings (PB) and construction-in-progress (CIP) be shown at reporting dates
prior to the completion of a long-term construction contract?

A. PB as income while CIP as inventory.


B. PB as deferred income while CIP as deferred expense.
C. Net, as current asset (debit balance) or as current liability (credit balance).
D. Net, as loss from construction (debit balance) or gain from construction (credit balance).

EASY # 10

The “home office” ledger account in the accounting records of a branch is best described as a/an

A. Equity account
B. Revenue account
C. Liability account
D. Deferred income account

AVERAGE ROUND

AVERAGE # 1

Video and Company has several branches located in the cities in the south namely, Dipolog, Dumaguete, Cebu,
Bacolod and Cagayan de Oro. It authorizes transfers cash and inventories among branches. The head office ships
goods ₱100,000 cost to Dipolog branch paying freight charges for ₱6,000. The home office authorizes the transfer
of goods from Dipolog Branch to Cebu branch where the latter is charged for the cost of the goods, ₱100,000 and
freight charges of ₱2,000 for the transfer. If the shipment had been made by the head office to the Cebu Branch,
the freight charges would have been ₱9,000. The transfers resulted to difference in freight charge which should be
disposed of as follows:

A. ₱1,000 charge to Cebu branch by Dipolog branch.


B. ₱1,000 charge to Cebu branch by head office.
C. ₱1,000 to be equally charged among head office, Dipolog branch and Cebu branch.
D. ₱1,000 savings.

20TH REGIONAL MID-YEAR CONVENTION – Academic League


Advanced Financial Accounting and Reporting Cup
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AVERAGE # 2

On July 1, 2015, GB Construction Corp. contracted to build an office building for RX, Inc. for a total contract price
of ₱1,825,000.

2015 2016 2017


Contract cost incurred 350,000 930,000 670,000
Estimated costs to complete the contract 1,050,000 685,000 –
Billings to RX, Inc. 192,500 1,420,000 212,500

Which of the following statements is true?


A. The inventory account, net at December 31, 2016, assuming no dependable estimates are available amount
to ₱386,250 due to customer.
B. The inventory account balance at December 31, 2016, using cost to cost method is ₱1,140,000.
C. The recognized loss in 2016 using zero-profit method is ₱246,250.
D. The realized gross profit in 2017 using percentage of completion method is ₱15,000 and the recognized loss
in 2017 using zero-profit method is ₱125,000.

AVERAGE # 3

What is the preferred method of resolving a partner’s deficit balance?

A. The partnership must sell assets in order to cover the deficit balance.
B. The other partners must contribute personal assets to cover the deficit balance.
C. The partner with a deficit balance must contribute personal assets to cover the deficit, regardless of
personal condition.
D. The partners with a deficit balance must contribute personal assets to cover the deficit only if the
partner’s personal assets exceed personal liabilities.

AVERAGE # 4

The Department of Health received an allotment from the Department of Budget and Management for Capita
Outlay ₱2,300,000. Maintenance and Other Operating Expenses ₱740,000; and Personal Services ₱1,100,000. What
will be the entry of the DOH in its regular agency books upon receipt of allotment?

A. Dr. Cash – national Treasury, MDS 4,140,000


Cr. Subsidy Income from National Government 4,140,000
B. Dr. National Clearing Account 4,140,000
Cr. Notice of Cash Allocation 4,140,000
C. Dr. Cash Collecting Officer 4,140,000
Cr. Cash in Bank – LCCA 4,140,000
D. Memo Entry

AVERAGE # 5

Which of the following is incorrect when the outcome of construction contract cannot be measured reliably?

A. Contract costs shall be recognized as an expense in the period in which they are incurred.
B. Revenue shall be recognized only to the extent of contract costs incurred that it is probable will be
recoverable.
C. The entity shall use either the percentage of completion method or cost recovery method in
accounting for its construction contracts.
D. An expected loss on the construction contract shall be recognized as expense immediately when it is
probable that total contract costs will exceed total contract revenue.

20TH REGIONAL MID-YEAR CONVENTION – Academic League


Advanced Financial Accounting and Reporting Cup
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AVERAGE # 6

QPS Hospital had the following cash receipts and disbursements for the year ended December 31, 2016:

Collections from patients 2,500,000


Contribution for an establishment of term endowment 500,000
Tuition from nursing school 1,000,000
Interest receives from investment in permanent endowments 175,000
Dividends received from investment in term endowments 200,000
Payment of supporting expenses 750,000
Payment of program expenses 1,075,000

The interest received from permanent endowment is restricted by the donor for acquisition of medical equipment.

How much is the net cash provided by operating activities?

A. ₱1,675,000
B. ₱1,875,000
C. ₱2,050,000
D. ₱2,175,000

AVERAGE # 7

In case of admission of a new partner by investment in the partnership, which of the following statements is
correct?

A. If there is bonus but without asset revaluation, the total contributed capital of all partners will be lower
than the new agreed capitalization.
B. If there is positive asset revaluation without bonus, the total contributed capital of all partners will be
higher than the new agreed capitalization.
C. If there is negative asset revaluation (asset impairment) but without bonus, the contributed
capital of the new partner will be equal to his agreed capitalization in the new partnership.
D. If there is positive asset revaluation or asset impairment, the difference between the total contributed
capital of all partners and the new agreed capitalization shall be distributed to all partners including new
partner using the new profit or loss ratio agreement.

AVERAGE # 8

When the home office ships merchandise to the branch above its cost, the cost of goods sold on the branch income
statement is

A. Understated by the overvaluation of the inventory.


B. Overstated by the overvaluation of the branch inventory acquired from outsiders.
C. Overstated by the overvaluation of the branch inventory acquired from home office.
D. Overstated by the difference between the unadjusted and post-closing balance in the allowance
for overvaluation in the branch inventory account on the home office books.

AVERAGE # 9

Watkins, Inc. acquires all of the outstanding shares of Glen Corporation on January 1, 2014. At that date, Glen
owns only three assets and has no liabilities:

Book value Fair value


Inventory ₱40,000 ₱50,000
Equipment (10-year life) 80,000 75,000
Building (20-year life) 200,000 300,000

20TH REGIONAL MID-YEAR CONVENTION – Academic League


Advanced Financial Accounting and Reporting Cup
Page 5 of 18
If Watkins pays ₱450,000 in cash for Glen, what amount would be represented as a the subsidiary’s Building in the
consolidation on December 31, 2016, assuming the book value at that date is still ₱200,000?

A. ₱200,000
B. ₱255,000
C. ₱285,000
D. ₱300,000

AVERAGE # 10

For purposes of reporting in the statement of financial position, cash and receivables denominated in foreign
currency are translated using

A. Forward rate
B. Closing rate
C. Historical rate
D. Average spot rate

DIFFICULT ROUND

DIFFICULT # 1

Which of the following is true under IAS 21, “The Effects of Changes in Foreign Exchange Rates”?

A. Entities covered must present its financial statements only in its functional currency.
B. Entities covered may present its financial statements in any currency (currencies).
C. Entities covered must present its financial statements in the local currency of the country in which the entity
is based.
D. Entities covered must present its financial statements in its functional currency but may present additional
financial statements in any currency or currencies.

DIFFICULT # 2

On July 1, 2015, Great Corp. obtained a contract to construct a building. The building was estimated to be built at a
total cost of ₱5,250,000 and is scheduled for completion on October 2017. The contract contains a penalty clause to
the effect that the other party was to deduct ₱17,500 from the contract price for each week of delay. Completion
was delayed for three weeks. Below are data pertaining to the construction period. In 2016, there was an increase in
the contract price in the amount of ₱200,000 per cost escalation clause. Great Corp. uses percentage of completion
method.

2015 2016 2017


Costs incurred ₱525,000 ₱1,932,000 ₱325,500
Estimated costs to complete 2,100,000 273,000 --
Billings to customer 420,000 4,567,500 1,260,000

How much is the excess construction in progress over progress billings or progress billings over construction in
progress in 2016? (current asset or current liability)

A. ₱682,500 current liability


B. ₱682,500 current asset
C. ₱635,250 current liability
D. ₱635,250 current asset

20TH REGIONAL MID-YEAR CONVENTION – Academic League


Advanced Financial Accounting and Reporting Cup
Page 6 of 18
DIFFICULT # 3

On January 1, 2015, P Corporation purchased 80% of S Company’s outstanding shares for ₱620,000. At that date,
all of S Company’s assets and liabilities had market values approximately equal to their book values and no goodwill
was included in the purchase price. The following information was available for 2015: Income from own
operations of P Corporation, ₱150,000; Operating loss of S Company, ₱20,000. Dividends paid in 2015 by P
Corporation, ₱75,000; by S Company to P Corporation, ₱12,000.

On July 1, 2015, there was a downstream sale of equipment at a gain of ₱25,000. The equipment is expected to
have a remaining useful life of 10 years from the date of sale. Also, on January 1, 2015, there was an upstream sale
of furniture at a loss of ₱7,500. The furniture is expected to have a useful life of five years from the date of sale.
Non-controlling interest is measured at fair market value.

How much is the consolidated net income attributable to parent shareholders’ equity?

A. ₱97,250
B. ₱115,050
C. ₱112,250
D. ₱103,050

DIFFICULT # 4

An entity is reporting in a hyperinflationary economy. The monetary assets exceed monetary liabilities. Which of
the following statements is true?

I. There will be a loss on the net monetary position.


II. The loss in the net monetary position is recognized in other comprehensive income.

A. I only
B. II only
C. Both I and II
D. Neither I nor II

DIFFICULT # 5

On January 1, 2015, Brave Construction Corp. began constructing a ₱2,100,000 contract. The following are the
relevant information provided the corporation: Brave uses percentage of completion method. For the year ended
December 31, 2016, Brave billed its client an additional 55% of the contract price.

2015 2016 2017


Construction in progress ₱441,000 ? ?
Estimated costs to complete ? ? --
Costs incurred 425,250 969,000 675,750
Excess of construction in progress over ₱84,000 current ₱330,750 --
billings liability current liability

How much is the balance of construction in progress in 2016?

A. ₱1,680,000
B. ₱2,010,750
C. ₱1,349,250
D. ₱1,365,000

20TH REGIONAL MID-YEAR CONVENTION – Academic League


Advanced Financial Accounting and Reporting Cup
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DIFFICULT # 6

On July 1, 2015, Issue Company purchased 80% of the outstanding shares of Intrigue Company at a cost of
₱1,600,000. On that date, Intrigue had ₱1,000,000 of share capital and ₱1,400,000 of retained earnings. For 2015,
Issue had income of ₱560,000 from its separate operations and paid dividends of ₱300,000. For 2015, Intrigue
reported income of ₱130,000 and paid dividends of ₱60,000. All the assets and liabilities of Intrigue have book
values equal to their respective fair market values. Assume income was earned evenly throughout the year except
for the intercompany transaction on October 1. On October 1, 2015, Issue purchased an equipment from Intrigue
for ₱200,000. The book value of the equipment on that date was ₱240,000. The loss of ₱40,000 is reflected in the
income of Intrigue indicated above. The equipment is expected to have a useful life of 5 years from the date of sale.

In the December 31, 2015 consolidated statement of financial position, how much is the consolidated net income
attributable to the parent company?

A. ₱642,400
B. ₱930,400
C. ₱946,400
D. ₱962,400

DIFFICULT # 7

Which of the following statements is true about installment sales?

I. When the periodic inventory system is used, trade-ins are recorded in a separate nominal account and this
balance is added to purchases at the end of the period.
II. Installment receivable, installment sales and deferred gross profit accounts should be maintained separately
according to the year of sale.

A. I only
B. II only
C. Both I and II
D. Neither I nor II

DIFFICULT # 8

Problem 1: The following selected accounts were taken from the trial balance of Survival Company as of December
31, 2016:

Accounts receivable 750,000


Installment receivable – 2014 150,000
Installment receivable – 2015 450,000
Installment receivable – 2016 2,700,000
Merchandise inventory 525,000
Purchases 3,900,000
Fright-in 30,000
Repossessed merchandise 150,000
Repossession loss 240,000
Cash sales 900,000
Charge sales 1,800,000
Installment sales 4,460,000
Deferred gross profit – 2014 222,000
Deferred gross profit – 2015 393,600
Operating expenses 150,000
Shipment on installment sales 2,787,500

20TH REGIONAL MID-YEAR CONVENTION – Academic League


Advanced Financial Accounting and Reporting Cup
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Additional information:

 Gross profit rates for 2014 and 2015 installment sales were 30% and 32%, respectively.

 The entry for repossessed goods was:


Repossessed merchandise 150,000
Repossession loss 240,000
Installment receivable – 2014 180,000
Installment receivable – 2015 210,000

 Merchandise on hand at the end of 2016 (new and repossessed) was ₱282,000.

What is the realized gross profit in 2016?

A. ₱965,400
B. ₱2,129,900
C. ₱2,011,100
D. ₱2,251,100

DIFFICULT # 9

On October 31, 2016, Pointers Philippines took delivery from a British firm of inventory costing £1,450,000.
Payment is due on January 31, 2017. At the same time Pointers paid ₱16,500 cash to acquire a 90-day call option for
£1,450,000.

October 31, 2016 December 31, 2016 January 21, 2017


Strike price ₱12.60 ₱12.60 ₱12.60
Spot rate 12.61 12.62 12.64
Forward rate 12.72 12.77 12.78
Fair value of ? ₱34,000 ?
call option

Given the information above, compute the following:

Foreign exchange gain or loss on option contract due to change in time value on December 31, 2016; and foreign
exchange gain or loss due to change in intrinsic value on January 31, 2017.

A. ₱3,000 gain; ₱29,000 gain


B. ₱10,500 loss; ₱14,500 gain
C. ₱10,500 loss; ₱29,000 gain
D. ₱3,000 gain; ₱14,500 gain

DIFFICULT # 10

Which of the following is true under IAS 21, “The Effects of Changes in Foreign Exchange Rates”?

A. Entities covered must present its financial statements only in its functional currency.
B. Entities covered may present its financial statements in any currency (currencies).
C. Entities covered must present its financial statements in the local currency of the country in which the entity
is based.
D. Entities covered must present its financial statements in its functional currency but may present additional
financial statements in any currency or currencies.

20TH REGIONAL MID-YEAR CONVENTION – Academic League


Advanced Financial Accounting and Reporting Cup
Page 9 of 18
FINAL ROUND

FINAL # 1 (AVERAGE T)

What is one of the more popular input measures used to determine the progress toward completion in the
percentage of completion method?

A. Cost to cost basis


B. Cost percentage basis
C. Revenue percentage basis
D. Progress completion basis

FINAL # 2 (EASY P)

Mango Inc. acquired on January 1, 2016 all the issued and outstanding common shares of Celine Inc. for ₱310,000
and Celine Inc. is dissolved. On this day, the assets and liabilities of Celine Inc. show:

Cash ₱30,000
Merchandise inventory 90,000
Plant and equipment 160,000
Goodwill 50,000
Liabilities (60,000)

Per appraisal, plant and equipment and merchandise inventory were valued at ₱190,000 and ₱75,000, respectively.
What is the amount of goodwill resulting from this transaction?

A. ₱125,000
B. ₱40,000
C. ₱75,000
D. ₱90,000

FINAL # 3 (AVERAGE T)

Under the installment method of accounting for installment sales,

A. Gross profit is not recognized until the amount of cash received exceeds the cost of the item sold
B. Revenue, costs and gross profit are recognized proportionate to the cash that is received from the sale
of the product
C. Gross profit is deferred proportionate to cash uncollected from sale of the product, but total
revenues and costs are recognized at the point of sale
D. Revenues and costs are recognized proportionate to the cash received from the sale of the product, but
gross profit is deferred until all cash is received.

FINAL # 4 (DIFFICULT T)

Should the following costs be included in the consideration transferred in a business combination, according to
IFRS 3?

I. Costs of maintaining an ‘acquisitions’ department


II. Fees paid to accountants to effect the combination

A. I only
B. II only
C. Both I and II
D. Neither I nor II

20TH REGIONAL MID-YEAR CONVENTION – Academic League


Advanced Financial Accounting and Reporting Cup
Page 10 of 18
FINAL # 5 (DIFFICULT P)

On July 1, 2016, Peru Company purchased 1,750 shares of Lima Corp. common stock at cost of ₱75 per share and
classified it as available-for-sale security. On October 1, Peru Company purchased an at-the-money put option on
Lima Corp. at a premium of ₱24,500 with strike price of ₱115 per share and an expiration date of April 2017. Peru
Company specifies that only the intrinsic value of the option is to be used to measure effectiveness. The following
shows that fair value of the hedged item and the hedging instrument.

10/1/16 12/31/16 3/3/17 4/17/17


Lima’s share ₱115 ₱103 ₱95 ₱95
price
Intrinsic value 0 21,000 35,000 35,000
Time value 24,500 15,050 3,170 0
Fair value ₱24,500 ₱36,050 ₱38,710 ₱35,000

What is the cumulative effect on Retained Earnings of the hedge and sale?

A. ₱10,500
B. ₱70,000
C. ₱45,500
D. ₱80,500

FINAL # 6 (AVERAGE P)

Celica Motors sold a car for ₱180,000 pounds (£) to a customer in London on March 16, 2016 when the spot rate
was ₱68.45 = £1. On April 20, 2016, Celica received thirty percent of the selling price as partial payment. The spot
rate at the time was ₱67.48 = £1. The balance was paid in May 5 when the spot rate was ₱68.63 = £1.

How much was the foreign currency gain/loss on this transaction?

A. ₱29,700 loss
B. ₱29,700 gain
C. ₱142,200 loss
D. ₱142,200 gain

FINAL # 7 (EASY T)

A large not-for-profit organization’s statement of activities should report the net change for net assets that are

Unrestricted Permanently restricted


A. Yes Yes
B. Yes No
C. No No
D. No Yes

FINAL # 8 (EASY T)

Franchise fees received upon contract signing shall be recognized as income by the franchisor when the following
conditions are met, except

A. Substantial performance required under the contract is done.


B. Period of refund for any amount received under the contract has expired.
C. Franchise operations have earned considerable income to defray franchising expenses.
D. Collectability of any promissory note arising from the franchise agreement is reasonably assured.

20TH REGIONAL MID-YEAR CONVENTION – Academic League


Advanced Financial Accounting and Reporting Cup
Page 11 of 18
FINAL # 9 (DIFFICULT T)

Which of the following statement/s is/are false, according to IFRS 3?

I. The acquirer should recognize the investee’s contingent assets if certain conditions are met.
II. The acquirer should recognize the investee’s contingent liabilities if certain conditions are met.

A. I only
B. II only
C. Both I and II
D. Neither I nor II

FINAL # 10 (DIFFICULT P)

The following data were taken from the statement of realization and liquidation of Intercontinental Corporation for
the quarter ended June 30, 2016

Assets to be realized ₱515,625


Supplementary credits 796,875
Liabilities to be liquidated 843,750
Supplementary charges 731,250
Liabilities liquidated 562,500
Assets acquired 562,500
Assets realized 656,250
Liabilities assumed 281,250
Assets not realized 234,375

The ending capital balances of share capital and retained earnings are ₱648,750 and ₱178,500, respectively. A net
loss of ₱226,500 for the period.

How much is the ending balance of cash?

A. ₱1,125,000
B. ₱1,260,000
C. ₱978,750
D. ₱807,000

FINAL # 11 (AVERAGE T)

Given a hyperinflationary economy under IAS 29, which of the following elements of the statement of financial
position is not restated using the general price index?

A. Monetary assets and liabilities


B. Nonmonetary assets and liabilities
C. Monetary and nonmonetary assets
D. Monetary and nonmonetary liabilities

FINAL # 12 (EASY T)

Which of the following classifications is required for reporting of expenses by all not-for-profit organizations?

A. Natural classification in the statement of activities or notes to the financial statements.


B. Functional classification in the statement of activities or notes to the financial statements.
C. Functional classification in the statement of activities and natural classification in a matrix format in a
separate statement.
D. Functional classification in the statement of activities and natural classification in the notes to the
financial statements.

20TH REGIONAL MID-YEAR CONVENTION – Academic League


Advanced Financial Accounting and Reporting Cup
Page 12 of 18
FINAL # 13 (AVERAGE P)

100% of the equity share of Richway Company was acquired by Sunlife Company on June 30, 2016. Sunlife issued
500,000 new ₱1 ordinary shares which had a fair value of ₱8 each at the acquisition date. In addition, the
acquisition resulted in Sunlife incurring fees payable to external advisers of ₱200,000 and share issue costs of
₱180,000. In accordance with IFRS 3, how much is the total acquisition cost of business combination?

A. ₱4.00 million
B. ₱4.18 million
C. ₱4.20 million
D. ₱4.38 million

FINAL # 14 (EASY P)

On January 1, 2015, Brendan Inc. reports net assets of ₱760,000 although (equipment with a four-year life) having a
book value of ₱440,000 is worth ₱500,000 and unrecorded patent is valued at ₱45,000. Brandon Corporation pays
₱692,000 on that date for an 80% ownership in Brendan. If the patent is to be written-off over a 10-year period, at
what amount should it be reported on the consolidated statements at December 31, 2016?

A. ₱28,000
B. ₱32,400
C. ₱36,000
D. ₱40,500

FINAL # 15 (DIFFICULT P)

Achievement Company which began operations on January 1, 2016 appropriately uses the installment method of
accounting. The following data pertain to Achievement’s operations for the year 2016:

Installment sales (before over/under-allowance) 3,150,000


Operating expenses 367,500
Regular sales 1,312,500
Total collections for the year (excluding interest of ₱84,000) 2,088,000
Cost of regular sales 752,500
Cost of installment sales 2,205,000
Accounts receivable – 12/31/2016 512,500
Installment receivable written-off (no provision was made) 154,000
Estimated resale value of repossessed merchandise 290,000
Profit usual on sale of repossessed merchandise 15%
Repossessed accounts 350,000
Actual value of trade-in merchandise 280,000
Trade-in allowance 490,000
Reconditioning cost of repossessed merchandise 57,500

How much is the deferred gross profit at December 31, 2016? What is the net income for the year ended December
31, 2016?

A. ₱353,500 ; ₱455,000
B. ₱353,500 ; ₱640,500
C. ₱287,000 ; ₱441,000
D. ₱287,000 ; ₱525,000

20TH REGIONAL MID-YEAR CONVENTION – Academic League


Advanced Financial Accounting and Reporting Cup
Page 13 of 18
FINAL # 16 (DIFFICULT P)

DM, Inc. works on a ₱10,500,000 contract in 2016 to construct an office building. During 2016, DM, Inc. uses the
cost to cost method. At December 31, 2016, the balances in certain accounts were: Construction in progress –
₱3,780,000; Accounts receivable – ₱360,000; and Billing on construction in progress – ₱1,800,000; Contract
retention – ₱180,000; Mobilization fee – ₱140,000. At December 31, 2016, the total estimated cost at the
completion is ₱7,350,000.

The realized gross profit in 2016


A. ₱1,102,500
B. ₱1,062,500
C. ₱1,242,500
D. ₱1,134,000

FINAL # 17 (DIFFICULT T)

In a business combination, an acquirer’s interest in the fair value of the net assets acquired exceeds the
consideration transferred in the combination. Under IFRS 3, the acquirer should

A. Recognize the excess immediately in profit or loss


B. Recognize the excess immediately in other comprehensive income
C. Reassess the recognition and measurement of the net assets acquired and the consideration
transferred, then recognize any excess immediately in profit or loss
D. Reassess the recognition and measurement of the net assets acquired and the consideration transferred,
then recognize any excess immediately in other comprehensive income

FINAL # 18 (AVERAGE T)

For purposes of adjusting financial statements for changes in the general price level, monetary items consist of

A. Cash and cash equivalents plus all receivables with a fixed maturity date.
B. Cash, other assets expected to be converted into cash and current liabilities.
C. Assets and liabilities which are classified as current in the financial statements.
D. Assets and liabilities whose amounts are fixed by contract or otherwise in terms of pesos
regardless of price level change.

FINAL # 19 (AVERAGE P)

Levin 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 ₱0.55 ₱0.53
December 31 ₱0.50 ₱0.49
March 22 ₱0.48 ₱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

20TH REGIONAL MID-YEAR CONVENTION – Academic League


Advanced Financial Accounting and Reporting Cup
Page 14 of 18
FINAL # 20 (DIFFICULT P)

Confidence Corporation sells goods on the installment basis. For the year just ended, the following were reported:
Cost of installment sales, ₱8,400,000; Loss on repossession, ₱202,500; Wholesale value of repossessed merchandise,
₱1,687,500; Repossessed accounts, ₱2,700,000; deferred gross profit after adjustment, ₱1,620,000.

How much was the collections for the year?


A. ₱5,850,000
B. ₱6,600,000
C. ₱3,900,000
D. ₱3,150,000

FINAL # 21 (DIFFICULT T)

A parent entity is acquiring a majority holding in an entity whose shares are dealt in on a recognized market. Under
IFRS 3, which two of the following measurement bases may be used in measuring the non-controlling interest at
the acquisition date?

I. The nominal value of the shares in the investee not acquired


II. The fair value of the shares in the investee not acquired
III. The non-controlling interest in the investee’s assets and liabilities at book value
IV. The non-controlling interest in the investee’s assets and liabilities at fair value

A. I & II
B. III & IV
C. II & IV
D. II & III

FINAL # 22 (EASY P)

On April 1, 2015, ZZ Corporation paid cash of ₱620,000 for all of the net assets of AA Company appropriately
accounted for as a merger. The recorded assets and liabilities of AA Corporation on April 4, 2015 follow:

Cash ₱60,000
Inventory 180,000
Property, plant and equipment (net of accumulated depreciation
of ₱220,000)
320,000
Goodwill ( net of accumulated amortization of P50,000)
100,000
Liabilities (120,000)
Net assets ₱540,000

On April 1, 2015 AA’s inventory had a fair value of ₱150,000 and property, plant and equipment (net) had a fair
value of ₱380,000. The amount of goodwill recorded in the books of ZZ as a result of the business combination
should be:

A. ₱150,000
B. ₱120,000
C. ₱50,000
D. ₱0

20TH REGIONAL MID-YEAR CONVENTION – Academic League


Advanced Financial Accounting and Reporting Cup
Page 15 of 18
FINAL # 23 (AVERAGE P)

On October 1, 2016, BDO Company acquired 100% of PCI Company when the fair value of PCI’s net assets was
₱116 million and their carrying amount was ₱120 million. The consideration transferred comprised ₱200 million in
cash transferred at the acquisition date, plus another ₱60 million in cash to be transferred 11 months after the
acquisition date if a specified profit target was met by PCI. At the acquisition date there was only a low probability
of the profit target being met, so the fair value of the additional consideration liability was ₱10 million. In the
event, the profit target was met and the ₱60 million cash was transferred. What amount should BDO present for
goodwill in its statement of consolidated financial position at December 31, 2017, according to IFRS 3?

A. ₱94 million
B. ₱80 million
C. ₱84 million
D. ₱144 million

FINAL # 24 (EASY T)

A statement of financial position, which reports unrestricted temporarily restricted, and temporarily restricted, and
permanently restricted net assets, is required for which one of the following organizations?

I. A public university
II. A private, not-for-profit hospital

A. Both I and II
B. I only
C. Neither I nor II
D. II only

FINAL # 25 (DIFFICULT P)

The following account balances appear on the books of Fulfillment Company as of December 31, 2016:

Cash 150,000
Receivable 800,000
Merchandise inventory 75,000
Accounts payable 30,000
Deferred gross profit – 2014 261,250
Sales 1,250,000
Purchases 640,000
Expenses 425,000

 The receivable account is a controlling account for three subsidiary ledgers which show the following totals:

2015 installment contracts 150,000


2016 installment contracts 600,000
Charge accounts (terms, 30 days, net) 50,000

 The gross profit on sales on installment contract for 2015 was 55% on installment contract for 2016, 50%.

 Collections on installment contracts for 2015 total ₱300,000 for the year just closed; on installment
contracts for 2016, ₱400,000; on charge accounts, ₱200,000.

 Account balances from installment sales made prior to 2015 were also collected.

 Repossession for the year was on installment contract for 2015 on which the uncollected balance at the time
of repossession amounted to ₱50,000

20TH REGIONAL MID-YEAR CONVENTION – Academic League


Advanced Financial Accounting and Reporting Cup
Page 16 of 18
 Merchandise repossessed was erroneously debited as a newly acquired merchandise equal to the amount
defaulted by the customer.

 Appraisal report show that this repossessed merchandise has a true worth of ₱20,000 at the time of
repossession and remain unsold at year end.

 The final inventory of the merchandise (new) valued at cost amounted to ₱45,000.

What is the total realized gross profit in 2016?

A. ₱626,250
B. ₱756,250
C. ₱495,000
D. ₱365,000

CLINCHER QUESTIONS

CLINCHER #1

AIG Company acquired 70% interest in EASTWEST Company for ₱1,960,000 when the fair value of
EASTWEST’s identifiable assets and liabilities was ₱700,000 and elected to measure the non-controlling interest at
its share of the identifiable net assets. Annual impairment reviews of goodwill have not resulted in any impairment
losses being recognized.

EASTWEST’s current statement of financial position shows share capital of ₱100,000, a revaluation reserve of
₱300,000 and retained earnings of ₱1,400,000.

Under IFRS 3, Business Combinations, what figure in respect of goodwill should now be carried in AIG’s
consolidated statement of financial position?

A. ₱1,470,000
B. ₱160,000
C. ₱1,260,000
D. ₱700,000

CLINCHER # 2

Under IAS 11, “Construction Contracts”, any anticipated excess of contract costs over contract revenue shall

A. Be recognized as soon as it is anticipated


B. Be recognized when it is actually incurred
C. Be recognized based on the percentage completed
D. Not be recognized when using the cost recovery method

CLINCHER # 3

Partially secured creditors are

A. Creditors that have no lien on specific assets.


B. Creditors that have a lien on specific assets, whose estimated realizable value is less than the
amount of liability.
C. Creditors that have a lien on specific assets, whose estimated realizable value equals or exceeds the
amount of liability.
D. Creditors that have no lien on specific assets but the claims rank ahead of other unsecured liabilities in
order of payment.

20TH REGIONAL MID-YEAR CONVENTION – Academic League


Advanced Financial Accounting and Reporting Cup
Page 17 of 18
CLINCHER # 4

P Corporation used debentures with a par value of ₱610,000 to acquire 100% of the net assets of S Company on
January 1, 2016 and S Company is dissolved. On that date, the fair value of the bonds issued by P Corp. was
₱564,000, and the following balance sheet data were reported by S Co.:

Balance sheet item Historical cost Fair value


Cash and receivables ₱55,000 ₱50,000
Inventory 105,000 200,000
Land 60,000 100,000
Plant and equipment 400,000 300,000
Accumulated depreciation (150,000)
Goodwill 10,000
Total assets ₱480,000

Accounts payable ₱50,000 ₱50,000


Ordinary share capital 100,000
Share premium - ordinary 60,000
Accumulated profits 270,000
Total liabilities and equity ₱480,000

P Corporation incurred an out-of-pocket expenses of ₱20,000. How much goodwill is to be recognized on


the books of P as a result of the business combination?

A. ₱0
B. ₱10,000
C. ₱20,000
D. ₱30,000

20TH REGIONAL MID-YEAR CONVENTION – Academic League


Advanced Financial Accounting and Reporting Cup
Page 18 of 18