F-ACAD - 22B

ACC09 –ACCOUNTING FOR SPECIAL TRANSACTIONS

FINAL EXAMINATION
FIRST SEMESTER A.Y. 2022-2023

NAME: Date:
Professor: Section: Score:

General Instructions: Read and analyze the given questions. Follow the instructions. Friction pens are
not allowed. No erasures. Anyone caught cheating will automatically be given a zero score in this
examination.

Write your answers in the answer sheet provided.

Corporate Liquidation

AB Corp. is experiencing financial difficulty and about to liquidate. The following data were available:

Book value of assets:

Cash 150,000
Inventories 200,000
Land 800,000

Stockholders’ equity:

Ordinary shares 500,000

Retained earnings (deficit) (325,000)

Book value of the liabilities of AB Corp. consists of accounts payable, salaries payable, loan payable,
and mortgage payable. The loan payable in the amount of P300,000 is secured by the inventories. The
mortgage payable in the amount of P450,000 is secured by the land with an estimated market value of
P400,000. Total liabilities with priority was P200,000 (including P50,000 estimated liquidation
expenses and salaries to employees). The holder of the mortgage payable received P440,000 at the end
of liquidation.

1. What is the estimated deficiency?

2. What is the amount received by the holder of the accounts payable?

3. What is the estimated market value of the inventories?

4. Which of the following claims during corporate liquidation shall be settled last?

a. Book value per share of ordinary shareholders

b. Liquidation value per share of preferred stockholders
c. Redemption value of redeemable preferred shareholders
d. Claims of unsecured creditors without priority

Long-term Construction

On January 1, 2018, MDC Inc. entered into a long-term construction contract for the construction of a
building at a contract price of P175M. Because of changes in the design of the project, the price
increased by P35M on January 1, 2020. The project was completed on December 31, 2021. The
following additional data are provided:

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 Dependable estimates are available.

 Mobilization fee equivalent to 3% of original contract price must be made by the client
deductible on the first billing. Billings on the project were made 12%, 20%, 30% of the contract
price, respectively, for the first three years of the project.

 MDC made cash collection from the customer amounting to P17.5M and P52.5M on year 2019
and 2020.

 The cost incurred on year 2018 was P17.5M while the estimated cost to complete at the end of
2018 was P70M.

 The cumulative cost incurred in 2019 was P122.5M with a 50% degree of work completed as of
the end of 2019.

 The cost incurred on year 2020 was 35M with percentage of completion of 90% as of the end of
2020.

5. What is the excess of construction in progress over progress billings (excess of progress
billings over construction in progress) on December 31, 2018?

6. What is the realized gross profit (loss) for the year ended December 31, 2019?

7. What is the amount of construction cost presented in the Statement of Comprehensive Income in
2019?

8. What is the amount of account receivable to be reported by MDC on December 31, 2020?

PFRS 15 – Revenue Contracts

On August 1, 2020, Tea-Account Inc. granted a franchise right to a franchisee for the operation of tea
shop using Tea-Account’s trade name for a period of 10 years starting August 1, 2020. The franchisee is
required to pay non-refundable initial franchise fee of P1,960,000 and continuing franchise fee of 4% of
franchisee’s annual sales. As part of its initial service, it is the obligation of the franchiser to train nine
staff and crew of the tea shop. In addition to that, Tea-Account has the obligation to deliver 1,200 units
of raw materials to the franchisee. The stand alone selling price of the right to use Tea-Account’s trade
name is P1,800,000. The stand alone selling price of the training of nine staff and crew is P225,000
while the stand alone selling price of the 1,200 units of raw materials is P90,000.

On December 2, 2020, the franchisee started to operate. 800 units of raw materials were already
delivered and seven staff and crew were already trained as of December 31, 2020. The franchisee
reported sales revenue amounting to P280,000 on its first month of operation.

9. Under IFRS 15, what is the amount of Sales Revenue to be credited by Tea-Account Inc. on
December 31, 2020?

10. Under IFRS 15, what is the amount of Service Revenue to be credited by Tea-Account Inc. on
December 31, 2020?

Consignment Sales

QRS Manufacturing Company ships merchandise costing P360,000 on consignment to XYZ Stores
under a perpetual inventory system with P37,500 of freight prepaid. XYZ pays P22,500 for local
advertising costs that are reimbursable from QRS. By the end of the period, XYZ has sold 2/5 of the

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consigned merchandise for P210,000 cash. XYZ notifies QRS of the sales, retains 15% commission,
and remits the cash due to QRS.

11. Under PFRS 15, when shall an entity recognize its revenue from contract with customers?

a. When an entity enters into a contract with its customers

b. When an entity receives the consideration from its customers
c. When an entity satisfies its performance obligation to its customers
d. When an entity transfers the risk and rewards of ownership of the goods or services to its
customers

12. Which of the following statements regarding the transactions above is TRUE?

a. XYZ will debit an expense account upon remittance to QRS.

b. QRS will debit a liability account upon receipt of the remittance from XYZ.
c. XYZ will prepare a memo entry for the P37,500 freight.
d. QRS will credit an asset account in the amount of P159,000 upon receiving the sales report.

Joint Arrangement and Venture

On January 1, 2021, Entity A and Entity B established a joint venture by investing P5,000,000 each for
equal capital interest in the arrangement. The joint venture reported the following data for the years
ended 2021, 2022 and 2023:

Year Net Income / (net Loss) Dividends Declared

2021 1,000,000 200,000

2022 (12,000,000) -
2023 6,000,000 3,000,000

13. What is the investment loss to be reported by Entity A in relation to the joint venture for the
year ended December 31, 2022?

14. What is the investment income to be reported by Entity B in relation to the joint venture for
the year ended December 31, 2023?

Partnership

Partner A and B have profits and loss agreement with the following provisions: Salaries of P30,000 and
P45,000 for A and B, respectively; a bonus to A of 10% of net income after salaries and bonus; and
interest of 10% on average capital balances of P20,000 and P35,000 for A and B, respectively. One-third
of any remaining profits are allocated to A and the balance to B.

15. If the partnership had net income of P102,500, how much should be allocated to partner A?

16. Which of the following claims shall be preferred in the liquidation of general partnership?
a. Just and equitable share of industrial partner in partnership profit
b. Proportionate share of capitalist partners in partnership profit
c. Advances to partnership by managing partner
d. Capital contribution of controlling partner

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E, R and G operate a local accounting firm as partnership. After working together for several years,
they have decided to liquidate the partnership. The partners have presented the following balance sheet;

Cash P 200,000 Liabilities P400,000

Receivable from E 80,000 Loan Payable to R 100,000
Non-cash assets 1,620,000 E, Capital (10%) 900,000
R, Capital (50%) 300,000
G, Capital (40%) 200,000

The non-cash assets are sold for P800,000 with P210,000 of this amount being used to pay liquidation
expenses. All partners are personally insolvent.

17. How much of the cash must E received?

FAR, MAS and TAX share profits and losses from their partnership in the ratio of 35%, 45% and 20%
respectively. Capital and loan balances related to each partner are as follows:

Loan to Partner from Partnership Loan to Partnership from partner Capital

FAR 100,000 500,000

MAS 70,000 280,000
TAX 200,000 250,000

In addition to loan to partner, assets of the partnership includes cash of P110,000, inventory of
P360,000, receivable of P260,000 and plant and equipment of P710,000. Partnership liabilities to non-
partners amount to P180,000.

18. If FAR receives already P450,000, how much TAX receives at this point?

On May 1, 2020, the capital accounts of S, T and C are P1,260,000; P787,500 and P472,500 ,
respectively.

At this time, I is admitted to the firm, he purchased a 1/6 interest in the firm for P288,750. The old
partners equalized their capital investments. Afterwards, all the partners agree to divide profits and
losses equally. The new partnership closes its books June 30, 2020 reporting profit of P44,100 for two
months. Each partner made the following withdrawals: S and C P2,625 per month while T and I,
P3,500 per month. On June 30, 2020, I invest enough cash to increase his capital to a 1/3 interest in the
partnership.

19. How much cash is to be invested by I?

Max decided to withdraw from his partnership with Fried and Chic. Before his withdrawal, Max’ capital
balance was P58,000, while Fried’s was P64,000 and Chic’s was P77,000. Also, the partnership’s total
assets amounted to P450,000, but the partners agreed that a fixed asset was under depreciated by
P15,000. Max, Fried and Chic share profits and losses in the ration of 2:4:4, respectively.

20. If Max was paid P53,200 upon his retirement, how much is the remaining partnership net
assets after Max’ withdrawal?

Partners Irish, Ivan and Irvin share profits and losses in the ratio of 4:3:3. at the end of a very
unprofitable year, they decided to liquidate the firm. The balances of their accounts on this date are:

Cash 18,000

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Other assets ?
Liabilities 90,000
Irish, cap 66,000
Ivan, cap 74,700
Irvin, cap 45,000

The liabilities included a loan of P30,000 from Irish. All the partners are personally solvent. The
partners plan to sell the assets on instalment.

21. If Ivan received P33,000 from the first distribution of cash, how much did Irish received at
that time?

Solly and Dante are partners who share profits and losses in the ratio of 7:3, respectively. On February
1, 2020, their respective capital accounts were as follows: Solly P140,000 and Dante P120,000.

On that date they agree to admit Jam as partner with 1/3 interest in the capital and profit and losses, and
upon his investment of P100,000. The new partnership will begin with a total capital of P360,000.

22. Immediately after Jam’s admission, what are the capital balance of Solly?
23. Immediately after Jam’s admission, what are the capital balance of Dante?
24. Immediately after Jam’s admission, what are the capital balance of Jam?

25. What is the proper classification of Joint Arrangement when the parties exercising joint
control over arrangement has rights to the net assets of the said arrangement?
a. Joint operation
b. Jointly controlled asset
c. Joint venture
d. Jointly controlled operation

26. Under IFRS 17, Insurance Contracts the following are the features that the
IASB developed to provide useful information, except
a. combines current measurement of the future cash flows with the recognition of profit over the period
services are provided under the contract.
b. presents insurance service results (excluding presentation of insurance revenue) separately
from insurance finance income or expenses.
c. requires an entity to make an accounting policy choice portfolio-by-portfolio of whether to recognize
all insurance finance income or expense for the reporting period in profit or loss or to recognize some of
that income or expense in other comprehensive income.
d. an insurance contract combines features of both a financial instrument and a service contract.

27. The measurement required by IFRS 17 results in:

a. the liability for a group of insurance contracts relating to performance obligations for remaining
service being measured broadly consistent with IFRS 15 – Revenue from Contracts with Customers.
b. the liability for a group of insurance contracts relating to incurred claims being measured is broadly
consistent with IAS 37 – Provisions, Contingent Liabilities and Contingent Assets, except that the
liability often includes an investment the component that is typically not in contracts within the
scope of IAS 37.
c. Both A and B
d. Neither nor B

28. Under IFRS 17, an entity may apply a simplified measurement approach to
some insurance contracts. This simplified measurement approach allows an entity to
measure the amount relating to the remaining service by allocating the premium over the
coverage period. This method refers to:

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a. Asset-Liability method
b. Net realizable value approach
c. Premium allocation approach
d. Fulfilment cash flow approach

29. Under IFRS 17, what is a contractual service margin?

a. A component of the carrying amount of the asset or liability for a group of insurance contracts
representing the unearned profit the entity will recognize as it provides services under the insurance
contracts in the group.
b. An explicit, unbiased, and probability-weighted estimate of the present value of the future cash
outflows minus the present value of the future cash inflows that will arise as the entity fulfils insurance
contracts, including a risk adjustment for non-financial risk.
c. The amounts that an insurance contract requires the entity to repay to a policyholder
even if an insured event does not occur.
d. The compensation an entity requires for bearing the uncertainty about the amount and timing of the
cash flows that arise from non-financial risk as the entity fulfills insurance contracts

30. An entity should apply IFRS 17 to:

a. insurance contracts, including reinsurance contracts, it issues
b. reinsurance contracts it holds
c. investment contracts with discretionary participation features it issues, provided the entity also issues
insurance contracts.
d. All of the foregoing

31. Why is recognizing profit over the term of the contract important?
a. Because measuring insurance obligations using current estimates, consistent with relevant market
information, reduces accounting mismatches
b. Because it helps to help protect consumers and ensure availability of insurance products
c. Because it is generally more accurate
d. Because it provides investors with additional information for users of financial statements to assist
them with decision-making

32. The Variable free approach (VFA) is determined for.

a. default models
b. contracts at the phase of inception
c. a group of contracts
d. only special industries

33. Which is NOT a portfolio group for insurance contracts? A group of contracts.
a. that are onerous at initial recognition
b. that have the same data management principles
c. that at recognition have no significant possibility of becoming onerous
d. remaining contracts in the portfolio

34. Which of these contracts can NOT be considered as an insurance contract?

a. insurance against theft or damage
b. insurance against product liability
c. product warranties
d. credit-related guarantees

35. What is not a measurement approach for the IFRS 17?

a. The General Model (GM)
b. Premium Allocation (PAA)
c. Variable Fee Approach (VFA)

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d. Special Movement Approach (SMA)

36. S1 - Income and expenses from insurance contracts issued are presented together with income or
expenses from reinsurance contracts held.
S2 - Income and expenses from reinsurance contracts held are presented separately from income
or expenses from insurance contracts issued.

a. Only statement 1 is true.

b. Only statement 2 is true.
c. Both statements are true.
d. Both statements are false.

37. Insurance risk includes which of the following?

a. lapse or persistency risk
b. financial risk
c. Expense risk
d. Pure risk
Liberty Corporation provided the following balances in July 1, 2020:

Cash 5,500 Accounts Payable 59,500

Accounts 35,000 Wages Payable 25,000
Receivable
Inventories 60,000 Tax Payable 35,000
Notes 78,000 Note Payable 65,000
Receivable
Equipment 256,000 Mortgage 175,000
Payable
Share Capital 120,000
Deficit (45,000)
TOTAL 434,500 TOTAL 434,500

In the statement of realization and liquidation the following data are ascertained for the month of
July:

 The note payable and mortgage payable together with their respective interests
are paid.
 Only 7/8 is collected from the existing accounts receivable at the beginning of the
month.
 Half of the inventories were sold for P45,000.
 Only P68,500 of the notes receivable is collected.
 Equipment is sold for P225,000.
 Administrative expenses of P13,800 are paid.
 Additional credit sales amounting to P10,500 are made for the remaining
inventories. Interests not accrued for the month are note receivable P1,500, note
payable P5,500 and mortgage payable P10,500.
 All existing noncash assets at the beginning of the month are sold or collected
during the month.
38-39. How much is the profit or loss in the statement of realization and liquidation?
40-41. How much is the estate equity at July 31, 2020?

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59. If the operator identifies two performance obligations in the contract, what would be these two
obligations?
Performance obligation 1 Performance obligation 2
a. Maintenance Operation
b. Construction Maintenance
c. Construction Maintenance and operation
d. Operation Resurfacing

60. According to IFRIC 12, the nature of the operator’s obligation in the BOT contract is
a. constructor
b. manufacturer
c. service provider
d. operator

61. How should the operator recognize revenue from the BOT contract?
Performance obligation 1 Performance obligation 2
a. upon completion in the 5th year as services are provided
b. as collections are received as collections are received
c. based on progress billings based on measure of progress
d. based on measure of progress as services are provided

TRUE OR FALSE: WRITE T if TRUE, if false write F

62. “Build-operate-transfer” is not common in the Philippines.

63. Another term for “Build-operate-transfer” is Service concession arrangement.
64. Under a BOT contract that is within the scope of IFRIC 12, the grantor is the
government.
65. According to IFRIC 12, the property subject to a BOT contract shall be recognized as
property, plant and equipment by the grantee before it is relinquished to the grantor.
66. The grantor under a BOT contract that is within the scope of IFRIC 12 acts as a service
provider rather than a manufacturer.
67. IFRIC 12 applies only to construction or upgrade services but not to operation services.
68. The consideration given by the grantor to the operator under a BOT contract may be a
financial asset, an intangible asset, or partly a financial asset and partly an intangible
asset. The consideration is in the form of an intangible asset if the operator is granted an
unconditional contractual right to receive cash from the grantor.
69. If the consideration in a BOT contract is partly a financial asset and partly an intangible
asset, the operator shall account for these two components separately.
70. The operator under a BOT contract receives a backhoe from the grantor. Control over
the backhoe is transferred to the operator. The operator shall treat the backhoe as part of
the transaction price that will be recognized as revenue.

END OF EXAM

Revision No. 0 Issue Date: July 11, 2011 Revision Date: N/A
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Prepared by: Reviewed by:

MARIA RIZZA M. GUIZZAGAN

Instructor Program Head, Accountancy

Approved by:

DR. NIÑA B. MACARANDANG

Dean, CBA

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