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Question #1
Which of the following statements concerning the different types of hedging transactions is incorrect?
In hedging transaction which is undesignated, unrealized holding gain or loss on hedging instrument will be
recognized in profit or loss. In hedging transaction designated as fair value hedge, unrealized holding gain or
loss on hedged item will be recognized in profit or loss. In hedging transaction designated as cash flow
hedge, unrealized holding gain or loss on hedged item will be recognized in other comprehensive income with
reclassification adjustment to profit or loss if realized. In hedging transaction designated as hedge of net
investment in foreign operation, unrealized holding gain or loss on hedging instrument which is considered
effective portion will be recognized in other comprehensive income with reclassification adjustment to profit or
loss if realized.
Advanced Accounting - Foreign Currency Transactions and Translations (Average)
Question #2
It is the allotment release by Local Government Units (LGU) or Department of Budget and Management to
barangays.
Internal Revenue Allotment (IRA)
Subsidy - LGU
Income fro grants and donations
Barangay Social Fund
Advanced Accounting - Government Accounting (Easy)
Question #3
Question #4
If the foreign operation reports in the currency of a hyperinflationary economy, assets, liabilities income and
expenses shall be translated at
Closing rate
Forward rate
Average rate
Exchange rate on the date of transaction
Advanced Accounting - Foreign Currency Transactions and Translations (Easy)
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Question #5
According to PAS 21, The effects of changes in foreign exchange rates, at which rate should an entity's
noncurrent assets be translated when its functional currency figures are being translated into a different
presentation currency?
The average rate
The historical exchange rate
The closing rate
The spot exchange rate
Advanced Accounting - Foreign Currency Transactions and Translations (Average)
Question #6
On January 1, 2016, Bartell Company sold its idle plant facility to Cooper, Inc. for P1,050,000. On this date the
plant had a net book value of P735,000. Cooper paid P150,000 cash on January 1, 2016, and signed a P900,000
note bearing interest at 10%. The note was payable in three annual installments of P390,000 beginning January
1, 2017. This included interest of P90,000. Bartell appropriately accounted for the sale under the installment
method.
Cooper made a timely payment of the first installment on January 1, 2017. At December 31, 2017, Bartell has
deferred gross profit of
225,000 153,000 180,000 270,000
Solution:
The total gross profit (GP) on the sale is P315,000 (selling price of P1,050,000 less depreciated cost of
P735,000), and the GP rate is 30% (P315,000/P1,050,000). GP recognized in 2016 is P45,000 (30% x P150,000
down payment), and GP recognized in 2017 is P90,000 (30% x (P390,000 - P90,000)). This leaves a balance of
P180,000 in deferred GP.
Deferred gross profit
Question #7
Anas Inc. granted a franchise to Mocca for the Makati area. The franchisee was to pay a franchisee of P500,000,
payable in five equal annual installments starting with the payment upon signing of the agreement. The franchise
was to pay monthly 3% of gross sales of the preceding month. Should the operations of the outlet prove to be
unprofitable, the franchise may be canceled with whatever obligations owing Anas, Inc. in connection with the
P500,000 franchise fee waived. The prevailing interest rate is 14%. The first year generated a gross sales of
P2,500,000.
What is the amount of unearned franchisee fee after the first year of operations?
291,400 575,000 391,400 500,000
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Solution:
Unearned franchise fee: p100,000 x 2.914 = P291,400 Since the franchise maybe canceled with any outstanding
balance to be waived, then that amount still to be collected is considered unearned.
Advanced Accounting - Franchise Accounting (Difficult)
Question #8
On July 1, the Joshua Company, organized a sales outlet in Cebu City. Following are the home office-branch
transactions for the month of July:
2 Merchandise costing the home P30 per unit was shipped to the branch
at an invoice price of P40 per unit. Ten thousand units were shipped on
July 2; a second order was to be filled by local suppliers.
10 Branch sales for the period July 3-10; on account, 8,000 units at P50.
25 Branch sales for the period July 11-24; on account, 5,000 units at P50
Solution:
Sales
Cost of sales:
Total 420,000
Advertising 4,000
Miscellaneous 1,000
Depreciation 15,000
Question #9
When disclosing information about investments in associate, PAS 28 Investment in Associates and Joint
Ventures, requires separate disclosure of which of the following?
II Share profit or loss associates in the statement of profit or loss and other
comprehensive income
Question #10
What is the principle for recognition of a financial asset or a financial liability in PAS 39?
A financial asset is recognized when, and only when, the entity obtains the risks and rewards of ownership
of the financial assets and has the ability to dispose the financial asset. A financial asset is recognized when,
and only when, the entity obtains control of the instrument and has the ability to dispose of the financial asset
independent of the actions of others. A financial asset is recognized when, and only when, it is probable that
future economic benefits will flow to the entity and the cost or value of the instrument can be measure reliably.
A financial asset is recognized when, and only when, the entity becomes a party to the contractual provision
of the instrument.
Advanced Accounting - Derivatives (Difficult)
Question #11
On October 3, 2020, Mike Inc. entered into a forward contract with BPI Bank for the speculation to buy $100 to
be delivered on January 30, 2021. The following direct exchange rates were provided:
Spot-selling P42 44 44
Forward-buying 90 days 42 44 45
Forward-selling 90 days 45 41 44
Forward-buying 60 days 46 40 42
Forward-selling 60 days 43 42 41
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Forward-buying 30 days 42 41 45
Forward-selling 30 days 41 40 42
What is the net foreign currency gain (loss) to be recognized by Mike for the years ended December 31, 2020
and December 31, 2021, respectively?
(P300) and P400 (P200) and P300 P200 and (P100) P300 and (P200)
Solution:
100
100
Question #12
Jojo, Inc. has several branches. Goods costing P10,000 were transferred by the head office to Camiguin Branch
with the latter paying P600 for freight cost. Subsequently, the head office authorized Camiguin Branch to
transfer the goods to Bohol Branch for which the latter was billed for the P10,000 cost of the goods and freight
charge of P200 for the transfer. If the head office had shipped the goods directly to Bohol Branch, the freight
charge would have been P700. The P100 difference in freight cost would have been disposed of as follows:
Considered as savings
Charged to the Head Office
Charged to Bohol Branch
Charged to Camiguin Branch
Advanced Accounting - Home Office & Branch Accounting (Average)
Question #13
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Question #14
Foreign operations that are an integral part of the operations of the entity would have the same functional
currency as the entity. Where a foreign operation functions independently from the parent, the functional
currency will be
that of the country of incorporation the same as the presentation currency determined using the
guidance for determining an entitys functional currency that of the parent
Advanced Accounting - Foreign Currency Transactions and Translations (Average)
Question #15
Below is the unadjusted trial balance of Elmer Corporation at December 31, 2015
Debit Credit
Cash 2,500
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Inventory 3,750
Solution:
50,000/.40 = 125,000 - 70,000 = 55,000 x 40% = 22,000
Advanced Accounting - Installment Sales (Difficult)
Question #16
Tillary Company, which began business on January 1, 2017, appropriately uses the installment sales method of
accounting. The following data are available for 2017:
Solution:
As this is the first year of operations, all P140,000 is from 2017 sales. In the absence of any defaults and
repossessions during the year, this represents the total gross profit (GP) for 2017. Therefore, the total debits to
installment AR for 2017 sales (1) can be computed by dividing the deferred GP by the GP ratio, or P350,000
(P140,000/40%). Next, cash collections (2) can be calculated as: P350,000 total debits - P200,000 ending
balance = P150,000 cash collections. Finally, GP realized in 2017 (3) would be 40% times cash collections of
P150,000 for P60,000 GP realized.
Installment AR
Deferred GP
0
Beg. bal. 0 150,000 (2) Beg. bal.
140,000
(1) 350,000 (3) 60,000
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Question #17
A manufacturing group has just acquired a controlling interest in a football club that is listed on a stock
exchange. The management of the manufacturing group wishes to exclude the football club from the
consolidated financial statements on the grounds that its activities are dissimilar. How should the football club be
accounted for?
The entity should not be consolidated; details should be disclosed in the financial statements. The entity
should not be consolidated using the purchase method but should be consolidated using equity accounting.
The entity should be consolidated as there is no exemption from consolidation on the grounds of dissimilar
activities. The entity should not be consolidated and should appear as an investment in the group accounts.
Advanced Accounting - Consolidation After Acquisition (Difficult)
Question #18
Mendiola Construction is constructing a skyscraper in the heart of town and has signed a fixed price two-year
contract for P21 million with the local authorities. It has incurred the following cost relating to the contract by
the end of first year:
Question #19
Kenneth Company, Inc. franchisor, entered into a franchise agreement with Orville Trading, franchisee on March
31,2013. The total franchise fee is P500,000, of which P100,000 is payable upon signing and the balance in four
equal annual installments. The downpayment is refundable in the event the franchisor fails to render services and
none thus far had been rendered. When Kenneth Company prepares its financial statements on March 31, 2013,
the franchise fee revenue to be reported is:
0
400,000
500,000
100,000
Advanced Accounting - Franchise Accounting (Average)
Question #20
Exchange differences arising from translation of financial statement of a foreign entity are
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Question #21
PSY Corporation owns 90% of the outstanding common shares of SVG Company. On January 2, 2016, office
equipment that had a carrying value to SVG Company P480,000 and has a remaining life of 10 years was sold to
PSY Corporation for P400,000. On the other hand, last August 31, 2017, PSY Corporation sold a second hand
delivery van to SVG Company at a gain of P30,000 (remaining life of 5 years).
Included in the January 1, 2017 inventory of PSY Company was merchandise inventory worth P65,000 while
SVG Company had P80,000 on its December 31, 2017. These inventories came from inter-company sales and
purchases. PSY Corporation included a mark-up of 25% on cost while SVG Company charged a 30% mark-
upon sales.
Each of the two companies has net incomes in 2016 and 2017 as follows:
2016 2017
Solution:
Net income of controlling interest, 2016
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Question #22
On December 1, 2016, Gary Inc. entered into a 120-day forward contract to purchase 250,000 US dollars for
speculative purposes. Gary, Inc, fiscal year ends on December 31. The exchange rates are as follows:
Solution:
(46.50 - 45.10) x 250,000 = 350,000
Advanced Accounting - Foreign Currency Transactions and Translations (Difficult)
Question #23
BPI US is operating within US territory wherein the functional currency is the US $. However, the presentation
currency of the bank is Philippine peso. The following financial position data for the year 2020 are provided:
1/1/2015 45
12/31/2019 42
12/1/2020 41
12/31/2020 43
Solution:
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The rate used of the ordinary shares and share premium was the rate at the date of declaration which was the
same as the closing rate.
Advanced Accounting - Foreign Currency Transactions and Translations (Average)
Question #24
Financial statements of non profit organization includes all of the following, except
Statement of cash flows
Statement of activities
Statement of financial position
Statement of changes in equity
Advanced Accounting - Not for Profit Organizations (Easy)
Question #25
On December 18, 2010, the statement of affairs of Paz Company, which is in bankruptcy liquidation, included
the following:
Question #26
James Inc. purchased a P1 million life insurance policy on its president, of which James is the beneficiary.
Information regarding the policy for the year ended December 31, 2013 follows:
13,000
21,000
Advanced Accounting - Derivatives (Average)
Question #27
By applying the definition provided in PAS 21, which item will be regarded as a monetary item?
Inventory
Accounts receivable
Property, plant and equipment
Land and buildings
Advanced Accounting - Foreign Currency Transactions and Translations (Easy)
Question #28
The Rissa Company has entered into a contract on June 1, 20X3 that requires it to issue its own ordinary shares
with a value of CU250,000 on 31 May 20X6. In accordance with PAS32, Financial instruments presentation, the
company should classify the contract as
Equity instrument
Financial liability
Embedded derivative
Financial asset
Advanced Accounting - Derivatives (Easy)
Question #29
When the outcome of the construction contract can be estimated reliably, which of the following accounting
treatment is proper?
The construction revenue shall be recognized only to the extent of contract costs incurred that it is probable
will be recoverable. When it is probable that total contract costs will exceed total contract revenue, the
expected loss shall be recognized as an expense immediately without reference to the stage of completion of the
contract activity at the end of the reporting period. The construction costs shall be deferred without reference
to the stage of completion of the contract activity at the end of the reporting period. The balance construction
in progress account will be equal to cumulative construction revenue recognized even if it is probable that total
contract costs will exceed total contract revenue.
Advanced Accounting - Construction Accounting (Average)
Question #30
Tillary Company, which began business on January 1, 2017, appropriately uses the installment sales method of
accounting. The following data are available for 2017:
Solution:
As this is the first year of operations, all P140,000 is from 2017 sales. In the absence of any defaults and
repossessions during the year, this represents the total gross profit (GP) for 2017. Therefore, the total debits to
installment AR for 2017 sales (1) can be computed by dividing the deferred GP by the GP ratio, or P350,000
(P140,000/40%). Next, cash collections (2) can be calculated as: P350,000 total debits - P200,000 ending
balance = P150,000 cash collections. Finally, GP realized in 2017 (3) would be 40% times cash collections of
P150,000 for P60,000 GP realized.
Installment AR
Deferred GP
0
Beg. bal. 0 150,000 (2) Beg. bal.
140,000
(1) 350,000 (3) 60,000
Question #31
PFRS 4 was introduced principally for what reason?
As a response to recent scandals within the insurance industry. Because of pressure from the financial
services authorities in several countries. To completely overhaul insurance accounting. To make limited
improvements to the accounting for insurance accounting.
Advanced Accounting - Insurance Contracts (Average)
Question #32
With respect to the cost a business acquisition, PFRS 3 requires cost(total consideration) to be allocated
Based on recoverable amounts
Based on original costs
Based on fair values
To the assets based on their carrying values
Advanced Accounting - Business Combination (Easy)
Question #33
This serves as the covering letter in transmitting the agency's financial statements to the COA, DBM and other
oversight agency.
Statement of management responsibility
Preclosing trial balance
Note to the financial statements
Postclosing trial balance
Advanced Accounting - Government Accounting (Average)
Question #34
When there is a three-month time lag in the fiscal periods of the parent and its subsidiary When the
parent is wholly owned subsidiary
Advanced Accounting - Consolidation After Acquisition (Average)
Question #35
When the bankruptcy court grants the order for relief:
The court discharges the debtor except for claims provided for in the reorganization plan. The
bankruptcy court confirms that the reorganization plan is fair an equitable. The reorganization plan has been
accepted by at least two-thirds in amount and over half in number of claims. Creditors may not seek payment
of their claims directly from the debtor corporation.
Advanced Accounting - Corporate Liquidation (Average)
Question #36
It is the currency of the primary economic environment in which the entity operates.
Functional currency
Foreign currency
Local currency
Presentation currency
Advanced Accounting - Foreign Currency Transactions and Translations (Easy)
Question #37
Joshua Corporation is considering an acquisition of Pane Company. Pane has a capital structure of 50 percent
debt and 50 percent equity, with a current book value of P10 million in assets. Panes pre-merger beta is 1.36 and
is not likely to be altered as a result of the proposed merger. Joshuas pre-merger beta is 1.02 and both it and
Pane face a 40 percent tax rate. Joshuas capital structure is 40 percent debt and 60 percent equity, and it has P24
million in total assets. The net cash flows from Pane available to Joshuas stockholders are estimated at P4.0
million for each of the next three years and a terminal value of P19.0 million in Year 4. Additionally, new debt
issued by the combined firm would yield 10 percent before-tax, and the cost of equity is estimated at 12.59
percent. Currently, the risk-free rate is 6.0 percent and the market risk premium is 5.88 percent.
What is the present value (to the nearest thousand) of the Pane cash inflows to Joshua?
31,000,000
14,695,000
22,847,000
25,620,000
20,536,000
Advanced Accounting - Business Combination (Difficult)
Question #38
Jinkee Corp. has been undergoing liquidation since January 1. As of March 31, its condensed statement of
realization and liquidation is presented below:
Assets:
Assets to be realized 1,375,000
Assets acquired 750,000
Assets realized 1,200,000
Assets not realized 1,375,000
Liabilities:
Liabilities liquidated 1,875,000
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Question #39
Dallas Motors Auto, a national autoparts chain, is considering purchasing a smaller chain, Southern Auto. Dallas
Motorss analysts project that the merger will result in incremental net cash flows of P2 million in Year 1, P4
million in Year 2, P5 million in Year 3, and P117 million in Year 4. The Year 4 cash flow includes a terminal
value of P107 million. Assume all cash flows occur at the end of the year. The acquisition would be made
immediately, if it is undertaken. Southerns post-merger beta is estimated to be 2.0, and its post-merger tax rate
would be 34 percent. The risk-free rate is 8 percent, and the market risk premium is 4 percent. What is the value
of Southern Auto to Dallas Motors Auto?
67,000,000
88,230,000
72,520,000
60,350,000
81,930,000
Advanced Accounting - Business Combination (Difficult)
Question #40
Jim Builders reports under PAS 11, and constructed a new subdivision during 2013 and 2014 under contract with
Cactus Development Co. Relevant data are summarized below:
2014 600,000
2014 400,000
2014 1,500,000
The Company uses the cost recovery method under PAS 11 to recognize revenue.
What would be the journal entry SDH would use to record revenue in 2014?
(DR) Construction-in-progress 400,000
(DR) Costs of construction 600,000
(CR) Revenue for long-term contracts 1,000,000
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Question #41
Which of the following transactions will increase the normal balance of home office account in the separate
statement of financial position of the branch?
Debit memo received from the home office Payment by the branch of home offices loans payable
Collection by the home office of branchs receivable Credit memo issued by the home office
Advanced Accounting - Home Office & Branch Accounting (Average)
Question #42
SLEX enters into an arrangement under which it will build and operate a toll bridge. Company B is entitled to
charge users for driving over the toll bridge for the period from the completion of construction until 1 million
cars have driven across the bridge, at which point the concession arrangement will end. SLEX incurred a total
cost of P1 billion for the construction of the toll bridge. How shall SLEX account for its infrastructure asset?
It shall be classified and treated as intangible asset to be amortized on the basis of usage or unit method of 1
million cars. It shall be classified and treated as intangible asset to be amortized using straight line method of
presumed life of 10 years. It shall be classified and treated as financial asset It shall be bifurcated into
intangible asset and financial asset
Advanced Accounting - Joint Venture (Average)
Question #43
Congressional authorization in the form of a law to make payments out of the public treasury for specific
purposes after compliance with certain conditions:
Allotment
Budgeting
Appropriations
Obligation
Advanced Accounting - Government Accounting (Average)
Question #44
On January 1, 2012, Mark Company received a two-year P500,000 loan. The loan calls for payment to be made
at the end of each year based on the prevailing market rate at January 1 of each year. The interest rate on January
1, 2012, was 10%. Anthony company also has a two-year P500,000 loan, but Anthony's loan carries a fixed
interest rate of 10%. Mark Company does not want to bear the risk that interest rates may increase in year two of
the loan. Anthony Company believes that rates may decrease and they would prefer to have variable debt. So the
two companies enter into an interest rate swap agreement whereby Anthony agrees to make Mark's interest
payment in 2013 and Mark likewise agrees to make Anthony's interest payment in 2013. The two companies
agree to make settlement payments, for the difference only, on December 31, 2013. The interest rate on January
1, 2013 is 12%. How much should be recognized as derivative asset at December 31, 2012?
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10,000
8,929
0
9,091
Advanced Accounting - Derivatives (Difficult)
Question #45
Abby Inc. charges an initial franchise fee of P115,000, with P25,000 paid when the agreement was signed and
the balance in five annual payments. The present value of the future payments, discounted at 10% is P68,234.
The franchisee has the option to purchase P15,000 of equipment for P12,000. Abby has substantially provided
all initial services required and collectability of the payments is reasonably assured. The amount of the revenue
from franchise fees is:
93,234
115,000
90,234
25,000
Advanced Accounting - Franchise Accounting (Average)
Question #46
Aliza Trading established a branch in Quezon City to distribute part of the goods purchased by it from other
suppliers. Aliza ships merchandise to the branch at 20% above cost. The following account balances are taken
from ledger balances of the home office and the branch:
Purchase 320,000
Solution:
Branch net income
Sales 134,400
Purchases 320,000
Shipments (83,200)
Question #47
Question #48
A construction contractor has a fixed price contract for P100,000 to construct a building (the project).The
contractor's initial estimate of total contract costs is P60,000. It will take two years to construct the building.At
the end of the first year of the project (31 December 2013) the contractor has incurred costs of P20,000 on the
contract, including P2,000 on cement that is held offsite. The entity's estimate of total contract costs has stayed
the same.The contractor determines the stage of completion of the construction contract by reference to the
proportion that costs incurred for work performed to date bear to the estimated total costs.
Determine the expenses for the year 2013:
18,000
20,000
33,333
13,333
Advanced Accounting - Construction Accounting (Average)
Question #49
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The following transactions were incurred for the year by the Company:
1. Transfer of P13,000 merchandise to an agency to establish a working fund.
2. Receipt of sales orders from the agency, P130,000.
3. Collection of agency accounts by the home office, P91,000.
4. Home office disbursements representing agency expenses, P11,700.
5. Replenishment of the agency working fund upon receipt of expense vouchers for P5,850.
6. Cost of goods sold identified with the agency sales, P93,600.
How much is the net income traceable to the agency?
(72,150) 18,850 5,850 36,400
Solution:
Question #50
On January 2, 2017, Magnolia Ice Cream signed an agreement authorizing Trisha to operate as franchisee for an
initial franchise fee P500,000 received upon signing of the agreement. Trisha commenced operations on August
1, 2017, at which date all of the initial services required of Magnolia Ice Cream had been performed at a cost of
P120,000. The franchise agreement further provides that Trisha must pay a 10% monthly continuing franchising
fee. Sales reported from August 1 to December 31, 2017 amounts to P400,000.
What is the net income related with franchise fee to be reported by Magnolia Ice Cream in 2017?
540,000 380,000 420,000 500,000
Solution:
Question #51
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Net assets restricted by the governing board of a non-government, not-for-profit organization are reported as part
of:
Any of these, depending on the terms
Temporarily restricted net assets
Permanently restricted net assets
Unrestricted net assets
Advanced Accounting - Not for Profit Organizations (Average)
Question #52
Lane Co., which began operations on January 1, 2017, appropriately uses the installment method of accounting.
The following information pertains to Lanes operations for the year 2017:
Solution:
Under the installment method, gross profit is deferred at the time of sale and is recognized by applying the gross
profit rate to subsequent cash collections. At the time of sale, gross profit of P500,000 is deferred (P1,000,000 -
P500,000). The gross profit rate is 50% (P500,000 / P1,000,000). Since 2017 collections on installment sales
were P200,000, gross profit of P100,000 (50% x P200,000) is recognized in 2017. This recognition of gross
profit would decrease the deferred gross profit account to a 12/31/2017 balance of P400,000 (P500,000 -
P100,000). Note that regular sales, cost of regular sales, and general and administrative expenses do not affect
the deferred gross profit account.
Advanced Accounting - Installment Sales (Average)
Question #53
Corporation Lizzy acquired 2,000 shares of the voting stock of Corporation Lizette in the open market at P48 per
share. Direct costs associated with the acquisition total of P4,000. Balance sheets of both companies on January
1, 2017, immediately after the acquisition of shares of Lizzy, are as follows:
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Lizzy Lizette
555,000 138,000
The total consolidated assets must be
613,000 522,600 520,000 518,600
Solution:
Total consolidated assets must be the total book value of Lizzy excluding investment in Lizette, and fair market
value of Lizette plus goodwill from business combination, if any. Percent of control: (2,000/50,000)/20 = 80%
Cost of investment
Goodwill 5,600
Total consolidated assets
375,000
Total 518,600
Advanced Accounting - Consolidation After Acquisition (Difficult)
Question #54
Kenneth Company had a Swiss franc receivable resulting from exports to Switzerland and a Mexican peso
payable resulting from imports from Mexico. Kenneth recorded foreign exchange gains related to both its franc
receivable and peso payable. Did the foreign currencies increase or decrease in Philippine peso value from the
date of the transaction to the settlement date?
Franc (Decrease); Mexican Peso (Increase)
Franc (Decrease); Mexican Peso (Decrease)
Franc (Increase); Mexican Peso (Increase)
Franc (Increase); Mexican Peso (Decrease)
Advanced Accounting - Foreign Currency Transactions and Translations (Average)
Question #55
Abby Inc. charges an initial franchise fee of P115,000, with P25,000 paid when the agreement was signed and
the balance in five annual payments. The present value of the future payments, discounted at 10% is P68,234.
The franchisee has the option to purchase P15,000 of equipment for P12,000. Abby has substantially provided
all initial services required and collectability of the payments is reasonably assured. The amount of the revenue
from franchise fees is:
93,234
25,000
115,000
90,234
Solution:
25,000+68,234=93,234
Advanced Accounting - Franchise Accounting (Average)
Question #56
Solution:
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Total 28,000
Advanced Accounting - Foreign Currency Transactions and Translations (Difficult)
Question #57
The recognition of unrealized gain or loss on the measurement of the financial assets and insurance liabilities as
a component of other comprehensive income is described in insurance parlance as
fair value accounting hedge accounting current value accounting shadow accounting
Advanced Accounting - Insurance Contracts (Average)
Question #58
An entity will primarily generate and expend cash in one primary economic environment. According to PAS 21,
the effects of changes in foreign exchange rates, the correct term for the currency of this primary economic
environment is the
Presentation currency
Functional currency
Reporting currency
Foreign currency
Advanced Accounting - Foreign Currency Transactions and Translations (Average)
Question #59
On December 31, 2017, the home office of Trisha Supply Company recorded a shipment of merchandise to its
Glenda branch as follows:
Solution:
Freight in 1,000
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60%
Freight 1,000
60%
Question #60
On January 2, 2015, Mycors Inc. signed an agreement to operate as franchisee of Mang Inasal for an initial
franchise fee of P2,343,750 for 10 years. Of this amount, P468,750 was paid when the agreement was signed
and the balance payable in three annual payments beginning on December 31, 2015. Mycors signed a non-
interest bearing note for the balance. The implicit interest rate is 18%. Assume that substantial services
amounting to P730,000 had already been rendered by the franshisor and indirect costs of P53,750 have also been
incurred.
If collection of the note is not reasonably assured, calculate the net income. For the year ended December 31,
2015. Use PV factor 2.17.
753,900 700,150 509,776 456,026
Solution:
Downpayment 468,750
IFF 1,825,000
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Expenses (53,750)
Question #61
Bucca Warehousing Corporation bought a building at auction on June 30, 2017, for P1,000,000. On July 2, 2017,
before occupying the building, Bucca sold it to a triple-A rated company for P1,200,000. Bucca received a cash
down payment of P300,000 and a first mortgage note at the market rate of interest, for the balance. No additional
payments were required until 2018. On September 1, 2017, an independent appraiser valued the property at
P1,500,000. On its 2017 income tax return, Bucca reported the sale on the installment basis. How much gain
should Bucca recognize in its income statement for the year ended December 31, 2017?
300,000 200,000 0 50,000
Solution:
The installment method of recognizing revenue is not acceptable for financial reporting purposes unless the
circumstances are such that the collection of the sales price is not reasonably assured. Since the property was
sold to a triple-A rated company and the value of the property is appreciating, collection can be assumed to be
reasonably assured. Therefore, the entire gain should be recognized for financial reporting purposes at the date
of sale:
Sales price Cost of building = Gain recognized
P1,200,000 P1,000,000 = P200,000
Advanced Accounting - Installment Sales (Average)
Question #62
Dorian and Donnie are partners who share profits and losses in a 2:3 ratio. The partnership will be liquidated in
installments. Some noncash assets have been sold, but other assets with a book value of P126,000 remain.
Liabilities are now P16,000, and liquidation expenses are expected to be P7,200. The capital balances are
P92,000 for Dorian and P68,000 for Donnie.
Assuming the available cash is distributed, how much is the share of Dorian?
8,000 42,800 26,800 32,000
Solution:
Total 176,000
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Question #63
When a secured claim is not fully settled by the selling of the underlying collateral
The unsettled portion of the claim cannot be collected by the creditor The unsettled portion is classified
as an unsecured priority claim The unsettled portion remains as an unsecured priority claim. The
unsettled portion remains as a secured claim
Advanced Accounting - Corporate Liquidation (Average)
Question #64
On January 2, 2017, Diversified Enterprises signed a franchise agreement with DTSI Company for an initial
franchise fee of P92,500. Of this amount DTSI paid P17,500 upon the signing of the franchise contract and the
balance is payable in four annual payments of P18,750 starting December 31, 2017. DTSI issued 12% interest-
bearing notes for the balance. Collection of the notes are not reasonably assured.
The down-payment is not refundable; it represents the actual cost of initial services provided by Diversified
before formal signing. However, additional substantial services have yet to be performed by Diversified. During
2017 additional direct franchise cost of P45,750 and indirect cost of P15,000 were incurred by Diversified.
It is also agreed that DTSI will pay continuing franchise fee at 3% of its gross sales revenue. The franchise outlet
commenced business operations on October 1, 2017 and its gross sales totaled P600,000 by year-end.
The net income recognized by Diversified from the DTSI franchise in 2017 is
36,812.50 19,312.50 37,150 16,590
Solution:
Journal entry upon signing of franchise contract
Cash 17,500
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Question #65
A contractor enters into a construction contract on January 1, 2011. The contractor agrees to a fixed price of
P9,000 to build a bridge. The contractor's initial estimate of contract costs is P8,000. The contract expects that it
will take three years to build the bridge.
The contractor has a December 31 year-end.
By the end of the first year of the contract (December 31, 2011), the contractor's estimate of total costs has
increased to P8,050 (costs incurred in 2011 amounted to P2,093).
In 2012, the customer and contractor agree to a variation resulting in an increase in contract revenue of P200 and
estimated additional contract costs of P150. At the end of 2012, costs incurred of P4,075 include P100 paid for
standard materials stored at the site to be used in 2013 to complete the project.
The contractor determines the stage of completion of the contract by calculating the proportion that contract
costs incurred for work performed to date bear to the latest estimated total contract costs.
Determine the revenue for the year 2013:
2,392
4,468
2,340
2,592
Advanced Accounting - Construction Accounting (Average)
Question #66
A construction entity signed a contract to build a theater over a period of two years, and with this contract also
signed a maintenance contract for five years. Both contracts are negotiated as a single package and are closely
interrelated to each other. The two contracts should be
Treated differently, the building contract under the full cost recovery method and the maintenance contract
under the percentage of completion method.
Combined and treated as a single contract
Recognized under the full cost recovery method
Segmented and considered two separate contracts
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Question #67
Which of these considerations would not be relevant in determining the entity's functional currency?
The currency that influences the costs of the entity
The currency in which receipts from operating activities are retained
The currency in which finance is generated
The currency that is the most internationally acceptable for trading
Advanced Accounting - Foreign Currency Transactions and Translations (Easy)
Question #68
Dickie Corporation contracted to build a building for Dickson Company. The contract price was P500,000 and
Dickie estimated that construction costs would total P420,000. The construction period lasted until September 1,
2015. Costs during the each period, estimated total cost of the product at the end of the year, billings and cash
collected during the year were as follows:
Solution:
Question #69
Electricity companies A and B (involved in electricity sales but not distribution) jointly establish a power
generation entity (Company C) to build and operate a power plant. Companies A and B each have a 50%
ownership interest in Company C, which is structured as a corporation. The incorporation enables the separation
of Company C from Companies A and B and, as a consequence, the assets and liabilities held in Company C are
the assets and liabilities of Company C. The contractual arrangement between the parties does not specify that
the parties have rights to the assets or obligations for the liabilities of Company C.
However, the parties also enter into an off-take agreement requiring the following:
1. Companies A and B agree to purchase all the power generated by Company C in a ratio of 50:50. Company C
cannot sell any of the output to third parties, unless this is approved by companies A and B. Because the purpose
of the arrangement is to provide companies A and B with power they require, such sales to third parties are
expected to be uncommon and not material.
2. The price of the power sold to companies A and B is set forth in the off-take agreement at a level that is
designed to cover the costs of production and administrative expenses incurred by company . The arrangement is
intended to operate at a break-even level.
What is the proper classification of this joint arrangement?
It is classified as joint operation because the off-take agreement reflects the exclusive dependence of
Company C upon Companies A and B for the generation of cash flows and the rights of Company A and B to all
of the economic benefits of the assets of Company C. It is classified as joint operation because PFRS 11
provides that in case of doubt, a joint arrangement shall be classified as joint operation instead f joint venture.
It is classified as joint venture because the incorporation enables the separation of Company C from
Companies A and B and, as a consequence, the assets and liabilities held in Company C on the assets and
liabilities of Company C. It is classified as joint venture because the arrangement is established through a
separate vehicle, an incorporated entity Company C.
Advanced Accounting - Joint Venture (Average)
Question #70
II The operator has access to operate the infrastructure to provide the public
service on behalf of the grantor in accordance with the terms specified in the
contract.
III Under the terms of the contractual arrangement, the operator acts as a service
provider by constructing or upgrading the infrastructure used to provide a
public service, and operates and maintains that infrastructure (operation
services) for a specified period of time.
I and II only I only II only I and III only
Advanced Accounting - Joint Venture (Average)
Question #71
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A construction company is in the middle of a 2 year construction contract when it receives a letter from the
customer extending the contract by a year and requiring the construction company to increase its output in
proportion of the number of years of the new contract to the previous contract period. This is allowed in
recognizing additional revenue according to PAS 11 if
Negotiations have reached an advanced stage and it is probable that the customer will accept the claim. It
is probable that the customer will approve the variation and the amount of revenue arising from the variation,
and the amount of revenue can be reliably measured. It is probable that the customer will approve the
variation and the amount of revenue arising from the variation, whether the amount of revenue can be reliably
measured or not. The contract is sufficiently advanced and it is probable that the specified performance
standards will be exceeded or met.
Advanced Accounting - Construction Accounting (Difficult)
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