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B-ACCR421 BSA41 INTEGRATED REVIEW 2nd Sem ( 2022-2023 )

PA - AFAR

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Question 1
Culas Corp. acquired an 80% interest in Paeng Corp. on January 1, 2019 for Php700,000. On this date capital stock and retained
earnings of Culas Corp. were Php1,800,000 and Php800,000 respectively; and Paeng’s Php500,000 and Php100,000 respectively. The
assets and liabilities of Paeng Corp. were stated at their fair value when Culas acquired its 80% interest. Culas uses the cost method to
account for its investment in Paeng. The non-controlling interest is computed based on the estimated fair values.

The net income and dividends for 2019 for the affiliated companies were as follows: Culas net income – Php300,000; Dividends Declared
– Php180,000; Dividend payable December 31, 2019 – Php90,000. Paeng’s net income – Php90,000; Dividend declared – Php50,000
and dividend payable December 31, 2019 – Php25,000.

End of the year evaluation indicates Php5,500 impairment in goodwill. The non-controlling interest at December 31, 2019 is:

Response: Php128,000

Question 2
An entity holds an investment of 30% in the common shares of an associate that has net assets of Php2,000,000 and net profit for the
year of Php245,000. The associate has issued 5,000 noncumulative preference shares with a nominal value of Php100 which entitle its
holders to a 9% dividend. The noncumulative preference shares are classified by the associate as equity in accordance with the
requirements of PAS 32 – Financial Instruments: Presentation. The associate has declared Php160,000 dividends on the preference
shares during the current year

What would be the investors share in the associate's net profit?

Response: Php73,500

Question 3
On December 1, 2019, Noypi Inc., which is operating in the Philippines, sold goods on account to USA company at a price of
1, 000collectibleonM arch2, 2020.I nordertohedgethisexposedf oreigncurrencydenominatedaccountsreceivable, N oypienteredint
1,000 to be delivered on March 2, 2020. The following direct exchange rates are provided by the bank:
What is the amount of sales to be recognized by Noypi Inc. for the year ended December 31, 2019?

Response: Php42,000

Question 4
Partner’s interest in a partnership is generally equal to:

Response: The fair value of net assets at date of contribution.

Question 5
Baguio Museum, received a contributions restricted for research totaling Php100,000 in 2019. Assume the Php100,000 was not
expected in 2019. These contributions were used for purchase Php70,000 of research equipment in 2019. As a result of these
transactions, for this year ended December 31, 2019, Baguio Museum will report, on its statement of activities, a

Response: Php70,000 increase in unrestricted net assets

Question 6
On January 1, 2019, Gaga Ulala Inc. granted a franchise right to a franchisee for the operation of coffee shop using Gaga Ulala’s trade name for a
period of 10 years starting January 1, 2019. The franchisee is required to pay nonrefundable initial franchise fee of Php10M and continuing
franchise fee of 10% of franchisee’s annual sales. It is the obligation of Gaga Ulala to construct the coffee shop and to deliver the movables. In
addition to that, Gaga Ulala has the obligation to deliver 100,000 units of raw materials to the franchisee. The stand-alone selling price of the right
to use Gaga Ulala’s trade name is Php4M. The stand-alone selling price of the construction of the coffee shop and delivery of movables is Php3M
while the stand-alone selling price of the 100,000 units of raw materials is Php1M.

On July 1, 2019, Gaga Ulala finished the construction of the coffee shop and delivered all the required movables. 20,000 units of raw materials have been
delivered as of December 31, 2019. The franchisee reported sales revenue amounting to Php2M for year 2019.

What is the amount of total revenue to be reported by Gaga Ulala Inc. for the year ended December 31, 2019?

Response: Php4,700,000

Question 7
Entity A owns a 60 per cent voting interest in Entity B. Entity B owns a 70 per cent voting interest in Entity C.

How should Entity A account for its investment in Entity C in its consolidated financial statements?

Response: Account for its investment in Entity C using the policy it has adopted to account for associates.

Question 8
Partner Dong first contributed Php50,000 of capital into an existing partnership on March 1, 2019. On June 1, 2019, the partner
contributed another Php20,000. On September 1, 2019, the partner withdrew Php15,000 from the partnership. Withdrawals in excess of
Php10,000 are charged to the partner’s capital account. The weighted average capital balance is:

Response: Php51,667

Question 9
Entity P has a 90% controlling interest in Entity S. On December 31, 2010, the carrying value of Entity S’s net assets in Entity P’s consolidated financial
statements is Php450,000 and the carrying amount attributable to the non-controlling interests in Entity S (including the non-controlling interest’s share of
accumulated other comprehensive income) is Php45,000. On January 1, 2019, Entity P sells 80% of the share in Entity S to a third party for cash proceeds
of Php540,000. As a result of the sale, Entity P loses control of Entity S but retains a 10% non-controlling interest in Entity S. The fair value of the retained
interest on that date is Php54,000. Goodwill presented in the consolidated financial statement amounted to Php45,000.

Determine the gain or loss on disposal (deconsolidation)

Response: Php189,000 gain

Question 10
On April 1, 2018, Añonuevo Corp. acquired 80% of the outstanding stocks of Sy Corp. for Php2,500,000. Sy Corp.’s stockholders’ equity
at the end of 2018 is as follows: Ordinary shares, Php80 par Php2,000,000, Share premium Php500,000, and Retained Earnings
Php750,000. The fair value of the non-controlling interest is Php685,000. All the assets of Sy were fairly valued except for its inventories
which are overvalued by Php90,000, land which is undervalued by Php50,000, and patent which is undervalued by Php125,000. 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 Añonuevo Corp. on December 31, 2018 is composed of: Ordinary shares, Php50 par Php3,500,000, Share
premium Php750,000, and Retained Earnings Php2,460,000. Goodwill, if any, should be decreased by Php22,500 every year-end. No
additional issuance of capital stocks occurred.

For the two years ended, December 31, 2018 and 2019, Añonuevo Corp. and Sy Corp. reported the following:

*from date of acquisition

The non-controlling interest on December 31, 2018 is

Response: Php781,150

Question 11
Guillain-Barré Syndrome Hospital has the following account balances:

What is the hospital’s net patient service revenue?

Response: Php690,000

Question 12
In the separate FS of a parent entity, investments in subsidiaries, associate or joint venture that are classified as held for sale should be accounted for

Response: At cost or fair value method only

Question 13
The cost data and production data for KingKong Company for the month of May are as follows:

All materials are added at the start of the process and lost units are
detected at the inspection point of 75% completion.

Using the average method, what are the cost assigned to units transferred out and units in ending work in process?

Transferred out Ending WIP

Response: Php403,819 Php56,725

Question 14
On December 12, 2019, Converge, Inc. Co. entered into three forward exchange contracts, each to purchase 100,000 euros in ninety
days. The relevant exchange rates are as follows:
 Converge, Inc. entered into the first forward contract to
hedge a purchase of inventory in November 2019, payable in March 2020.

At December 31, 2019, what amount of foreign currency transaction loss should Converge, Inc. include in income from the revaluation of
the Accounts Payable of 100,000 euros incurred as a result of the purchase of inventory at November 30, 2019, payable in March 2020?

Response: Php3,000

Question 15
On January 2, 2019, PP Company purchased 80% of the shares of SS Company for Php3,200,000. On that date, the fair value of identifiable assets of SS is
Php3,700,000. At the acquisition date, the book values equal fair values except for a certain equipment which is undervalued by Php120,000. The fair value
of noncontrolling interest is Php900,000. Goodwill had been impaired and should be reported at Php250,000 on December 31, 2019. The share of PP and
SS in the impairment of goodwill allocated to PP and SS amounted to

PP SS

Response: 120,000 30,000

Question 16
On December 31, 2019, a branch in Singapore submitted the following financial statement stated in the foreign currency:

Assuming the current rate method was used and that the retained earnings on January 1, 2019 of the Singaporean Branch in Philippine Pesos is
Php1,790,000.

Translation gain or (loss) on December 31, 2019

Response: Php(5,630,000)

Question 17
The following assets appear on the statement of financial position of Flicker Company:

In preparing financial statement in a hyperinflationary economy, how much should the company classify as monetary assets?

Response: Php6,200,000

Question 18
The following “equity” relates to an entity operating in a hyperinflationary economy (in millions):

What would be the balances on the revaluation reserve and retained

earnings after the restatement for PAS 29?

Response: Revaluation reserve Php0, retained earnings Php100.

Question 19
A successful JIT system is based upon which of the following concepts?

Response: A small number of suppliers make frequent deliveries of specific quantities thus avoiding the buildup of large inventories of materials
on hand.
Question 20
The Iloilo Company operates a branch. The data are as follows:

How much is the combined results of operations?

Response: Php33,800

Question 21
Cash flow hedge may include

Response: Both a and b

Question 22
On November 1, 2018, Near AFAR Inc., which is operating in the Philippines, purchased investment property in USA at a price of
10, 000payableonJ anuary31, 2019.I nordertohedgethisexposedf oreigncurrencydenominatedaccountspayable, N earAF ARenteredinto
10,000 to be collected on January 31, 2019. Near AFAR Inc. accounts for its investment property using the fair value model. On December 31, 2018, the fair
market value of the investment property is $12,000. The following direct exchange rates are provided by the bank:

What is the amount of premium or discount on forward contract?

Response: Zero

Question 23
The following information is available for Anya Ngay Nga Road Company for April:

All materials are added at the start of production and the

inspection point is at the end of the process.

What is cost per equivalent unit for material using weighted average?

Response: Php1.49

Question 24
Traditional overhead allocations result in which of the following situations?

Response: Overhead costs are assigned as period costs to manufacturing operations.

Question 25
A and B (the parties) are two companies whose businesses are the provision of many types of public and private construction services.
They set up a contractual arrangement to work together for the purpose of fulfilling a contract with the government for the design and
construction of a zip line from Baguio to Manila. The contractual arrangement determines the participation shares of A and B and
establishes joint control of the arrangement, the subject matter of which is the delivery of the zip line.

The parties set up a separate vehicle (entity Z) through which to conduct the arrangement. Entity Z, on behalf of A and B, enters into
the contract with the government. In addition, the assets and liabilities relating to the arrangement are held in entity Z. The main
feature of entity Z's legal form is that the parties, not entity Z, have rights to the assets, and obligations for the liabilities, of the entity.

The contractual arrangement between A and B additionally establishes that:

· the rights to all the assets needed to undertake the activities of the arrangement are shared by the parties on the basis of their
participation shares in the arrangement;
· the parties have several and joint responsibility for all operating and financial obligations relating to the activities of the arrangement
on the basis of their participation shares in the arrangement; and
· the profit or loss resulting from the activities of the arrangement is shared by A and B on the basis of their participation shares in the
arrangement.

For the purposes of coordinating and overseeing the activities, A and B appoint an operator, who will be an employee of one of the
parties. After a specified time, the role of the operator will rotate to an employee of the other party. A and B agree that the activities will
be executed by the operator's employees on a 'no gain or loss' basis.

In accordance with the terms specified in the contract with the government, entity Z invoices the construction services to the
government on behalf of the parties.

Based on the preceding information, the joint arrangement is classified as:

Response: Joint operation to be accounted under PAS 28

Question 26
On December 1, 2019, Noypi Inc., which is operating in the Philippines, sold goods on account to USA company at a price of
1, 000collectibleonM arch2, 2020.I nordertohedgethisexposedf oreigncurrencydenominatedaccountsreceivable, N oypienteredint

1,000 to be delivered on March 2, 2020. The following direct exchange rates are provided by the bank:

What is the foreign currency gain or (loss) to be recognized by Noypi on hedging instrument for the year ended December 31, 2020?

Response: Php20,000 gain

Question 27
In accordance with PFRS7 Financial instruments: disclosures, which of the following best describes credit risk?

Response: The risk that the fair value associated with an instrument will vary due to changes in the counterparty's credit rating

Question 28
Which of the following is correct in accounting for foreign currency denominated transaction?

Response: Two-transaction perspective

Question 29
Which of the following statements is/are true about contingent consideration under PFRS 3?
I. Contingent consideration in a business acquisition that is not classified as equity is subsequently measured at fair value through
profit or loss whether or not it falls within the scope of PFRS 9 Financial Instruments.
II. Contingent consideration cannot be measured at fair value through other comprehensive income.

Response: II only

Question 30
Southwood Industries uses a process costing system and inspects its goods at the end of manufacturing. The inspection as of June 30
revealed the following information for the month of June.

Unit costs were: materials, Php3.50; and conversion costs,

Php6.00. The number of units that Southwood would transfer to its finished goods inventory and the related cost of these units are

Response: 16,000 units transferred at a cost of Php154,850.

Question 31
Dudongski Inc. uses the closing rate method (net investment method or current rate method as required by PAS 21 wherein the
functional currency is not the currency of a hyperinflationary economy) of translation for its 100%-owned foreign subsidiary, Dong
Suzuki (created in 2016). For 2017, Dong Suzuki’s net income was 100,000 LCU (local currency unit, the yens), which translated into
Php33,000. (Earnings occurred evenly throughout the year and were remitted to Dudongski Inc. monthly). An unfavorable translation
reserve/adjustment of Php64,000 resulted for 2017. At December 31, 2016, the cumulative translation reserve account had a credit
balance of Php18,000.

On December 31, 2016, in expectation that the LCU (the yens) would weaken throughout 2017, the management entered into a one-
year forward exchange contracts to sell 600,000 LCU (Dong Suzuki’s net asset position at December 31, 2016) on December 31, 2017 at
the forward rate of Php.40 (no hedging was done in 2016). The following direct exchange rates are assured:

The June 30, 2017 foreign exchange gain or loss on forward contract amounted to:

Response: Php24,000 loss – OCI

Question 32
The following quantity schedules and related information are for Dept. 1 and dept. 2 for the current month August 2019, of ZXC Corp

All beginning units in process for both departments are 100% complete for direct materials. Beginning units in process are 60%
complete as to conversion costs in Dept. 1 and 40% complete as to conversion costs in Dept. 2. All ending units in process are 100%
complete as to direct materials as well as 50% complete as to conversion costs in both departments.

For Dept. 2, what is the equivalent production conversion costs using FIFO?

Response: 463,615 unit’s

Question 33
Konstruk Construction, Inc. uses the Percentage of Completion method in recognizing income. In 2019, Konstruk was engaged by
Session on a fixed price contract to build a 2 storey office building.

On January 1, 2020, a fire damaged the accounting records of Konstruk Construction, Inc. The following data were taken from the
salvage files:

What is the percentage of completion in 2019?

Response: 40%

Question 34
A contract, traded on an exchange, that allows an company to buy a specified quantity of a commodity or a financial security at a specified price on a future
date is referred to as

Response: Futures contract

Question 35
The trustee for Ardolio, Inc. prepares a statement of affairs which shows that unsecured creditors whose claims total Php60,000 may expect to receive
approximately Php36,000 if assets are sold for the benefit of creditors.
· Michael is an employee who is owed Php150.
· Meldcan holds a note for Php1,000 on which interest of Php50 is accrued; nothing has been pledged on the note.
· Compboy holds a note of Php6,000 on which interest of Php300 is accrued; securities with a book value of Php6,500 and a present market value of
Php5,000 are pledged on the note.
· Ropres holds a note for Php2,500 on which interest of Php150 is accrued; properly with a book value of Php2,000 and a present market value of
Php3,000 is pledged on the note.

How much may each of the following creditors hope to receive?

Michael Meldcan Compboy Ropres

Response: 150 630 5,780 2,650

Question 36
Nora and Vilma formed a joint operation to purchase and sell a special type of merchandise. The operators agreed to contribute cash of
Php270,000 each to be used in purchasing the merchandise, and to share profits and losses equally. They also agreed that each shall
record their purchases, sales, and expenses in their own books.

Upon termination of the joint operation, the following data are made available:

How much cash is to be invested by Vilma in the final settlement?

Response: Php290,225

Question 37
Nagaget and Nasingpet, entities, conduct their operation through Entity CPA, after contributing their properties. Their contract states that the said entities
have the right to the net assets of Entity CPA. What was the joint arrangement?

Response: Joint Operations.

Question 38
The statement of financial position of NPO shall report separately 3 classes of net assets that exclude

Response: Donated net assets

Question 39
The following information is given based on the contents of the clock cards and time tickets for a week.

Assuncion is the foreman with the others as his workers. Overtime premium is 25%.

The time tickets show that overtime work was done on Job No. 25 and the corresponding hours are included already in the tabulation given
above.

The total amount to be debited to FOH Control if the overtime work is due to the seasonal changes in the demand of the product is?

Response: Php1,680

Question 40
Boo Company purchases 40% of Basket Company on January 1 for Php500,000 that carry voting rights at a general
meeting of shareholders of Basket Company. Boo Company and Blake Company immediately agreed to share control
(wherein unanimous consent is needed to all the parties involved) over Basket Company. Basket reports assets on that
date of Php1,400,000 with liabilities of Php500,000. One building with a seven-year life is undervalued on Basket’s books
by Php140,000. Also, Basket’s book value for its trademark (10-year life) is undervalued by Php210,000. During the year,
Basket reports net income of Php90,000, while paying dividends of Php30,000. What is the Investment in Basket Company
balance (equity method) in Boo’s financial records as of December 31?

Response: Php507,600
Question 41
The following assets appear on the statement of financial position of Flicker Company:

In preparing financial statement in a hyperinflationary economy, how much should the company classify as monetary assets?

Response: Php6,200,000

Question 42
The Philippine Government and St. Lukes Inc. entered into a concession arrangement for the construction and operation of Pro-poor Hospital for a period of
10 years. On December 31, 2018, the concession operator constructed the Hospital at cost of ??49M. The arrangement stipulates that St. Lukes Inc. will be
paid a specified amount that will enable it to recover the investment made provided that it has a pre-determined minimum order of hospital beds operating
and available. St. Lukes has a guaranteed right to receive Php8M every end of the year. The interpolated effective interest rate is 10%. What is the book
value of the infrastructure asset on December 31, 2019?

Response: Php44,100,000

Question 43
The Wiring Dept. is the second stage of Bern Company’s production cycle. On May 1, the beginning work in process contained 25,000 units, which were
60% complete as to conversion costs. During May, 100,000 units were transferred in from the first stage of Fern’s production cycle. On May 31, the ending
work in process contained 20,000 units which were 80% complete as to conversion costs. Material costs are added at the end of the process.

Using the weighted-average method, equivalent units were:

Transferred in costs
Materials Conversion Cost

Response: 125,000 105,000 121,000

Question 44
On December 1, 2017, Batch 75, a Philippine firm estimates or forecasted the purchase of 5,000 units of inventory from Taiwan. The
purchase would probably occur on January of 2018 and require the payment of 500,000 Nt dollars. The transaction is probable, and it is
to be denominated in Nt dollar. It is anticipated that the inventory could be further processed and delivered to customers within six
months.

Batch 75 Company enters into a forward contract to purchase 500,000 Nt dollars on January 31, 2018 for Php1.01.

Spot and forward rates at the January 31, 2018, settlement were as follows (pesos per Nt dollar):

The amount to be debited to inventory on January 31, 2018 assuming any adjustments (if any) regarding exchange differential will be
considered as a basis adjustment:

Response: Php495,000

Question 45
A and B jointly establish a corporation (C) over which they have joint control. The existence of a separate vehicle, which is in the legal form of a corporation,
initially indicates that the assets and liabilities held in C are the assets and liabilities of C, and therefore that C is a joint venture. No contractual terms
indicate that A and B have rights to the assets, or obligations for the liabilities, so the arrangement still appears to be a joint venture.

However, A and B agree to the following:

• A and B will purchase all the output produced by C in a ratio of 50:50.
• C cannot sell any of the output to third parties, unless A and B approve it. Because the purpose of the arrangement is to provide A and B with output
they require, sales to third parties are expected to be uncommon and not material.
• The price of the output sold to A and B is set by A and B at a level that is designed to cover the costs of production and administrative expenses
incurred by C. The arrangement is intended to operate at a breakeven level.
Based on the preceding information, the joint arrangement is classified as:

Response: Joint venture to be accounted under PFRS 11

Question 46
On December 12, 2019, Converge, Inc. Co. entered into three forward exchange contracts, each to purchase 100,000 euros in ninety
days. The relevant exchange rates are as follows:

Converge, Inc. entered into the first forward contract to

hedge a purchase of inventory in November 2019, payable in March 2020.

Converge, Inc. entered into the second forward contract to hedge a commitment to purchase equipment being manufactured to
Converge, Inc.’s specifications. The expected delivery date is March 2020 at which time settlement is due to the manufacturer. The
hedge qualifies as a fair value hedge.

At December 31, 2019, what amount of foreign currency transaction gain from this forward contract should Converge, Inc. include in net
income?

Response: Php3,000

Question 47
Rex Dr. Love Company has several debt investments as of December 31, 2019:

The following were the comparative exchange rates in 2019:

How much is the forex gain or loss to be presented in profit or loss?

Response: Php80,800

Question 48
An entity is reporting according to PAS29 Financial reporting in hyperinflationary economies. Its monetary assets exceed its monetary liabilities.
Are the following statements true or false?
(1) There will be a loss on the net monetary position.
(2) Any gain or loss in the net monetary position of the company is recognized in the statement of comprehensive income.

Statement (1) Statement (2)

Response: True False

Question 49
The statements of financial position of Entity A and Entity B immediately before the business combination are (in thousands):

On September 30, 2019, Entity A issues 2.5 shares in exchange for each ordinary share of Entity B. All of Entity B’s shareholders exchange their shares in
Entity B. Therefore, Entity A issues 150 ordinary shares in exchange for all 60 ordinary shares of Entity B. The fair value of each ordinary share of Entity B at
September 30, 2019 is Php40. The quoted market price of Entity A’s ordinary shares at that date is Php16. All assets and liabilities book values equal their
fair values except Entity A’s non-current assets with fair value of Php1,500,000 and Entity B non-current assets at Php3,500,000. What is the amount of
goodwill to be reported in the consolidated financial statements?

Response: Php300,000

Question 50
The ABC Manufacturing Company delivered ten DVD players to XYZ Company on consignment. These DVD player cost
Php3,000 each and are to be sold at Php5,000 each. The ABC Manufacturing Co. paid shipment cost of Php2,500.

XYZ Co. submitted an account sale stating that it had returned one unit and was remitting Php21,900. This amount represents the
total amount due to ABC Manufacturing Co. after deducting the following from the selling price of the DVD player sold:

The profit (loss) on consignment realized by ABC Manufacturing Company is:

Response: Php2,300

Question 51
At the end of the period, a significant Material Quantity Variance should be

Response: Allocated among WIP, FG, and COGS

Question 52
An acquirer made the following entry to report an acquisition:

Six months after the acquisition, the customer lists are determined to be worthless. How is this information reported if (1) the new information relates to the
value of the customer lists as of the date of acquisition, and (2) the new information relates to changes in value since acquisition? Customer lists are
written off, and
(1) (2)

Response: A gain on acquisition of Php600 is recorded. Goodwill decreases Php600.

Question 53
What is the fair value of the forward contract on December 31, 2018?

Response: Php779,221

Question 54
How are exchange differences arising from a foreign currency transaction normally treated in the financial statements of a single entity
in respect of monetary items?

Response: Exchange differences are recognized in profit or loss in the period in which they arise, with a few exceptions.

Question 55
On January 1, Silver Construction Company signed a contract to build a custom garage for a customer and received Php100,000 in advance for the job. The
new garage will be built on the customer’s land. To complete this project, Silver must first build a concrete floor, construct wooden pillars and walls, and
finally install a roof. Silver normally charges stand-alone prices of Php30,000, Php40,000, and Php50,000, respectively, for each of these three smaller tasks
if done separately. How many performance obligations exist in this contract?

Response: 1

Question 56
Entity A writes a single policy for Php100,000 premium and expects claims to be made of Php60,000 in 2020. At the time of writing the
policy, there are commission costs of Php20,000. Assume a discount rate of 3% risk-free. The entity says that is a provision for risk and
uncertainty were to be made, it would amount to Php25,000 and that the risk would expire evenly over years 2018, 2019 and 2020.
Under the existing policies, the entity would spread the premiums, the claims expense and the commissioning costs over the first two
years of the policy. Investment returns in years 2017 and 2018 are Php2,000 and Php4,000, respectively. What is the profit in year 2017
and 2018, using the matching and deferral approach in years 2017 and 2018?

Response: Php0; Php26,000

Question 57
Bridgette, Benny and Kenny are partners with existing capital balances of Php500,000, Php1,200,000 and Php1,300,000, respectively.
The partners also share profits and losses 30:35:35, respectively. Bridgette sold her interest to the partnership for Php400,000. As part
of the settlement she shall take an item of equipment with a book value of Php200,000 at its fair value of Php250,000. The capital of
Benny and Kenny, respectively, after Bridgette’s sale of interest is

Response: Php1,160,000; Php1,260,000

Question 58
Frozen Delight, Inc. charges an initial franchise fee of Php75,000 for the right to operate as a franchisee of Frozen Delight. Of this
amount Php25,000 is collected immediately. The remainder is collected in four equal annual instalments of Php12,500 each. These
instalments have a present value of Php41,402. As part of the total franchise fee, Frozen Delight also provides training (with a fair value
of Php2,000) to help franchisees get the store ready to open. The franchise agreement is signed of April 1, 2019, training is completed,
and the store opens on July 1, 2019.

The amount of revenue from training and franchise on April 1, 2019 to:

Response: Php66,402

Question 59
On January 1, 2019, two real estate companies (the parties – Katniss Company and Everdeen Company) set up a separate
vehicle (Hunger Games Company) for the purpose of acquiring and operating a shopping center. The contractual
arrangement between the parties establishes joint control of the activities that are conducted in Hunger Games Company.
The main feature of Hunger Games’ legal form is that the entity, not the parties, has rights to assets, and obligations for
the liabilities, relating to the arrangement. These activities include the rental of the retail units, managing the car park,
maintaining the center and its equipment, such as lifts, and building and reputation and customer base for the center as a
whole.

As a result, Katniss Company paid Php1,600,000 for 50,000 shares of Hunger Games’ voting common stock, which
represents a 40% investment. No allocation to goodwill or other specific account was made. The joint control over Hunger
Games is achieved by this acquisition and so Katniss applies the equity method. Hunger Games distributed a dividend of
Php2 per share during the year and reported net income of Php560,000. What is the balance of the Investment in Hunger
Games account found in Katniss’ financial records as of December 31, 2019?

Response: Php1,724,000

Question 60
Pare Corporation owns an 80% interest in Sare Corporation and Sare owns a 60% interest in Kare Corporation. Both interests were acquired at book value
which is equal to fair value. During 2018, Sare sells land costing Php700,000 to Kare at a profit of Php120,000. Kare still holds the land at December 31,
2018. Also during the year, Pare sells land costing Php800,000 to Gare at a profit of Php150,000. Profits (losses) and land account of the three companies
for 2018 are:

What is the gain to be presented in the consolidated income statement?

Response: Php150,000

Question 61
Which of the following statements pertaining to NPO is true?

Response: In preparing the statement of cash flows for a not-for-profit organization, cash contribution that are restricted for long term
purposes are classified as investing activities.

Question 62
On December 12, 2019, Converge, Inc. Co. entered into three forward exchange contracts, each to purchase 100,000 euros in ninety
days. The relevant exchange rates are as follows:

Converge, Inc. entered into the first forward contract to

hedge a purchase of inventory in November 2019, payable in March 2020.
At December 31, 2019, what amount of foreign currency transaction gain from this forward contract should Converge, Inc. include in net
income?

Response: Php3,000

Question 63
An entity has a subsidiary that operates in a hyperinflationary economy. The subsidiary’s financial statements are measured in terms of
the local currency, which is the Malaysian Ringgit. The subsidiary’s financial statements have been restated in accordance with PAS 29.
The parent is located in the Philippines and prepares the consolidated financial statements in Philippine peso. Which of the following
accounting procedures is correct in terms of the consolidation of the subsidiary’s financial statements?

Response: The subsidiary’s financial statements should be prepared using the ringgit, then restated according to PAS 29, and then
retranslated into peso at closing rates.

Question 64
D, E and F agreed to share profit and losses as follows:
a. Salaries of Php500,000, Php400,000 and Php200,000 to D, E and F, respectively
b. First Php1,000,000 of profits after salaries, 20% bonus to D
c. Excess profits after salaries and the bonus to D above Php1,000,000, 10% bonus to E
d. Residual profits or loss to F

The partnership made Php2,500,000 net profit. How much is E’s profit sharing?

Response: Php420,000

Question 65
Using the same information in the previous number, but assuming the economy of US is experiencing hyperinflation, the following items shall be presented in
the consolidated financial statements of BDO Philippines at

Accounts receivable Inventory Sales

Response: Php3M Php4M Php15M

Question 66
On November 1, 2018, Near AFAR Inc., which is operating in the Philippines, purchased investment property in USA at a price of
10, 000payableonJ anuary31, 2019.I nordertohedgethisexposedf oreigncurrencydenominatedaccountspayable, N earAF ARenteredinto
10,000 to be collected on January 31, 2019. Near AFAR Inc. accounts for its investment property using the fair value model. On December 31, 2018, the fair
market value of the investment property is $12,000. The following direct exchange rates are provided by the bank:

What is the gain (loss) on changes in fair market value of investment property exclusive of foreign currency gain for the year ended December 31, 2018?

Response: Php90,000

Question 67
A soft drink producer acquiring a bottle manufacturer is an example of a

Response: Horizontal merger.

Question 68
Examination of the reciprocal accounts between Pangasinan Home Office and Ilocos Branch shows the following:
· Php10,000 advertising expense of another branch was erroneously charged by the Home Office to Ilocos Branch.
· Ilocos recorded shipments of merchandise from Home Office amounting to Php75,000 twice.
· Home Office recorded cash transfer of Php65,700 from Ilocos Branch as coming from Abra Branch.
· Transfer of equipment from Home Office amounting to Php53,000 was not recorded by the branch.
· Ilocos recorded a debit memo from Home Office of Php5,540 as Php5,450.

How much is the net adjustments to Ilocos Branch Current Account and to the Home Office Current Account?
 Ilocos Branch
Current Account Home Office Account

Response: (Php75,700) Php21,910

Question 69
On December 1, 2019, Noypi Inc., which is operating in the Philippines, sold goods on account to USA company at a price of
1, 000collectibleonM arch2, 2020.I nordertohedgethisexposedf oreigncurrencydenominatedaccountsreceivable, N oypienteredint

1,000 to be delivered on March 2, 2020. The following direct exchange rates are provided by the bank:

What is the foreign currency gain or (loss) to be recognized by Noypi on hedged item for the year ended December 31, 2019?

Response: Php30,000 loss

Question 70
Cinco Corp. owns a subsidiary in Japan whose balance sheet in Japanese Yen for the last years follow:

Relevant exchange rates are:

Cinco formed the subsidiary on January 1, 2018. Income of the subsidiary was earned evenly throughout the years and the subsidiary
declared dividends worth ¥15,000 on September 12, 2018 and none were declared during 2019.

How much is the cumulative translation adjustment for 2019?

Response: Php1,006,250