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4TH ANNUAL REGIONAL CONVENTION NFJPIA CUP-MASTER IN PRACTICAL ACCOUNTING

MASTER IN PRACTICAL ACCOUNTING


EASY QUESTIONS
E1. In the AI partnership, AKO’s capital is P140,000 and IKAW’s capital is P40,000 and they share income
in a 3:1 ratio, respectively. They decide to admit SIYA to the partnership. Each of the following questions
is independent of the others. AKO and IKAW agree that some of the inventory is obsolete. The inventory
account is decreased before SIYA is admitted. SIYA invests P40,000 for a 1/5 interest. What is the amount
of the inventory write down?
Answer: P20,000
TAC (40,000 x 5) 200,000
TCC (140,000+40,000+40,000) (220,000)
Reduction of Inventory (20,000)

E2. On December 1, 2011, YOU Company leased office space for five years at a monthly rental of P600,
000. On the same date, YOU Company paid the lessor the following amounts:
 Bonus to obtain lease 300,000
 First month’s rent 600,000
 Last month’s rent 600,000
 Security deposit (refundable at lease expiration) 800,000
 Installation of new walls and offices 3,600,000
What total amount of the expenses relating to utilization of the office space should be reported for 2011?
Answer: 665,000
Amortization of lease bonus (300,000/5) x (1/12) 5,000
Rent for December 600,000
Depreciation of leasehold improvement (3,600,000/5) x (1/12) 60,000
Total December 2011 expenses P665,000

 The lease bonus is prepaid rent of the lessee to be amortized over the lease term.
 The last month’s rent is also a prepaid rent. The security deposit is a noncurrent asset.

E3. On January 2, 2012, MY Company received a consolidated grant of P 240,000,000. Three-fourths of the
grant is to be utilized to purchase a college building for students from underdeveloped or developing
countries. The balance of the grant is for subsidizing the tuition costs of those students for four years from the
date of the grant. The expected college life of the building is 10 years and the company uses the straight-line
method of depreciation. Applying IAS 20 – Accounting for government grants and disclosure of government
assistance, what amount of the grant is recognized as income for the year ended December 31, 2012?
Answer: P33,000,000

E4. HAUNTED Hospital, a nonprofit affiliated with a religious group, reported the following information
for the year ended December 31, 2011:
 Gross patient service revenue at the hospital’s full established rates 980,000
 Bad debts expense 10,000
 Contractual adjustment with the third-party payors 115,000
 Allowance for discounts to hospital employees 15,000
On the hospital’s statement of operations for the year ended December 31, 2011, what amount should be
reported as net patient service revenue?
Answer: P850,000

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4TH ANNUAL REGIONAL CONVENTION NFJPIA CUP-MASTER IN PRACTICAL ACCOUNTING
Health Care Organizations, provides that for contractual adjustments and discounts is recognized on the
accrual basis and deducted from gross patient service revenue to determine net patient revenue. Bad
debts expense is reported as an operating expense, not as a contra to gross patient service revenue.
Thus:
Gross patient service revenue 980,000
Contractual adjustments (115,000)
Allowance for discounts - employees (15,000)
Net Patient Service Revenue 850,000

E5. THEIR Company declared a 5% dividend on its 100,000 issued and outstanding shares of P20 par
value, which had a fair value of P50 per share before the stock dividend was declared. This stock dividend
was distributed 60 days after the declaration date. What is the increase in current liabilities as a result of
the stock dividend declaration?
Answer: -0- or Zero
Retained earnings (5,000 x 50) 250,000
Stock Dividend Payable (5,000 X 20) 100,000
Share Premium 150,000
 The stock dividend payable is NOT a current liability but shown as an addition to share capital
under shareholders’ equity.

E6. When computing the amount of interest cost to be capitalized, the concept of “avoidable interest”
refers to
a) The total interest cost actually incurred.
b) A cost of capital.
c) That portion of total interest cost which would not have been incurred if expenditure for asset
construction had not been made.
d) That portion of average accumulated expenditures on which no interest cost was incurred.
Answer: C

E7. MOTORSIKLO Motor Sales exchanged a car from its inventory for a computer to be used as a long-
term asset. The following information relates to this exchange:
 Carrying amount of the car 600,000
 List selling price of the car 900,000
 Fair value of the computer 860,000
 Cash difference paid by MOTORSIKLO 100,000
What amount of gain should MOTORSIKLO recognize on the exchange?

Answer: P160,000
Fair value of computer 860,000
Less: cash paid by MOTORSIKLO 100,000
Fair value of car – asset given 760,000
Less: carrying amount of car 600,000
Gain on exchange 160,000

E8. Agency VCD had the following account balances for the year 2011:
 Current Assets 10,000,000
 Investments and Fixed Assets 90,000,000
 Other Assets 5,000,000
 Liabilities 18,000,000
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4TH ANNUAL REGIONAL CONVENTION NFJPIA CUP-MASTER IN PRACTICAL ACCOUNTING

 Contingent Liabilities 5,000,000


 Contingent Assets 3,000,000
Determine the Government Equity for the year 2011.

Answer: P87,000,000
Government Equity (10M + 90M + 5M – 18M) P87,000,000
Contingent assets and contingent liabilities under NGAS are not allowed to be recorded.

E9. On January 1, 2008, BROTHERHOOD Corporation acquired 25% of the shares of SISTERHOOD, Inc. for
P1,010,001. At that date, the equity of Twins was P4,000,000, with all the identifiable assets and
liabilities being measured at amounts equal to fair value. The table below shows the profits and losses
made by Twins during 2008 to 2012:
Year Profit (Loss)
2008 P 200,000
2009 (2,000,000)
2010 (2,500,000)
2011 160,000
2012 300,000

Applying IAS – 28 – Investments in Associates, the income from investment in SISTERHOOD, Inc. for year
ended December 31, 2012 is
Answer: P50,001

E10. MIKAELA Company’s shareholders’ equity on December 31, 2011 is:


 6% noncumulative preference share capital, P100 par,
liquidation value of P105 per share 1,000,000
 Ordinary share capital, P100 par 3,000,000
 Retained Earnings 950,000
Preference dividends have been paid up to December 31, 2011. On December 31, 2011, what is the
book value per ordinary share?
Answer: P130
Total SHE 4,950,000
Preference SHE:
Preference share capital 1,000,000
Liquidation premium (10,000 x 5) 50,000 1,050,000
Ordinary SHE 3,900,000
Divided by ordinary shares (3,000,000/100) 30,000
Book value per ordinary share 130

AVERAGE ROUND
A1. Which of the following statement is/are true?
Statement 1: Joint costs are use for setting the selling price of a product
Statement 2: Joint costs are used for determining whether to continue producing an item
Statement 3: Joint costs are used for determining the inventory cost for accounting purposes.

Answer: Statement 3 Only

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Joint costs are useful for inventory costing when a product is divided into two or more identifiable
products through the production process. The joint costs of production must be allocated on some basis,
such as relative sales value.

Answers Statement 1 and 2 are incorrect because items such as additional processing costs, competitive
conditions in sales markets, and the relative contribution margin of all products coming from the original
product must be considered in setting selling prices and deciding whether to continue producing the
common products.

A2. MASANAS Company declared and distributed 10% stock dividend with fair value of P1,500,000 and
par value of P1,000,000, and 25% stock dividend with fair market value of P4,000,000 and par value of
P3,500,000. What aggregate amount should be debited to retained earnings for the stock dividends?

Answer: P5,000,000
10% stock dividend at fair value 1,500,000
25% stock dividend at par value 3,500,000
Total amount debited to retained earnings 5,000,000

A3. In 2011, WE BUILD Construction Co. was contracted to build WE PAY Company’s private road
network for P100,000,000. The project was estimated to be completed in two years, and the contract
provided for:
1. 5% mobilization fee (to be deducted from the last billing) payable within 15 days after the signing
of the contract.
2. 10% retention provision on all billings, and
3. Payment of progress billings within 10 days from acceptance.
WE BUILD, which uses the percentage-of-completion method of accounting, estimated a 25% gross
margin on the project. By the end of 2011, WE BUILD had presented progress billings corresponding to
50% completion. All of the progress billings presented in 2011 were accepted, except the last one for
10% which was accepted on January 5, 2012. With the exception of one bill for 8% which was due on
January 7, 2012, all of the billings accepted in 2011 were settled. Payments made by WE PAY Company in
2011 amounted to ___________.

Answer: P33,800,000

Mobilization Fee: 100,000,000 x 5% 5,000,000


Collection on Progress Billings:
Contract Price 100,000,000
Multiplied by: Progress Billings (net of late biilings of 10% and 8%) 32%
Billings, net 32,000,000
Multiplied by: Collection % (net of 10% contract retention) 90% 28,800,000
Collections/Payments 33,800,000

A4. On the first day of each month, UTANG Mortgage Company receives from KALIMUTAN Company an
escrow deposit of P250,000 for real estate taxes. Bell records the P250,000 in an escrow account.
KALIMUTAN’s 2011 real estate tax is P2,800,000, payable in equal installments on the first day of each
calendar quarter. On January 1, 2011, the balance in the escrow account was P300,000. On September 30,
2011, what amount should be reported as escrow liability?
Answer: P450,000

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4TH ANNUAL REGIONAL CONVENTION NFJPIA CUP-MASTER IN PRACTICAL ACCOUNTING
Escrow liabliity - January 1, 2011 300,000
Escrow deposit received from 1/01 to 9/30, 2011 (250,000x x 9) 2,250,000
Unearned revenue - December 31, 2011 2,550,000
Payment for real estate tax from 1/01 to 9/30 (2,800,000 x 9/12) (2,100,000)
Escrow Liability - September 30, 2011 450,000

A5. KAIN TAYO Restaurant Inc., sold a fast food restaurant franchise to Jose Gutom. The sale agreement,
signed on January 2, 2011, called for a P30,000 down payment plus two P10,000 annual payments,
representing the value of initial franchise services rendered by KAIN TAYO Restaurant. In addition, the
agreement required the franchisee to pay 5% of its gross revenues to the franchisor; this was deemed
sufficient to cover the cost and provide a reasonable profit margin on continuing franchise services to be
performed by KAIN TAYO Restaurant. The restaurant opened early in 2011, and its sales for the year
amounted to P500,000. Assuming a 10% interest rate is appropriate, KAIN TAYO Restaurant’s 2011 total
revenue will be ___________. (The present value of an annuity of 1 at 10% for 2 periods in 1.7355)

Answer: P74,090
Initial Franchise Fee:
Initial franchise fee:
Downpayment 30,000
PV of installment (10,000 x 1.7355) 17,355 47,355
Continuing Franchise Fee (500,000 x 5%) 25,000
Total Franchise Revenue 72,355
Add: Interest Income (10% x 17,355) 1,735
Total Revenue 74,090

A6. The following information is available for IYO Company during the current year.
Increase in cash 200,000
Increase in Accounts Receivable 300,000
Decrease in Inventory 150,000
Increase in FVPTL 100,000
Decrease in FVOCI 50,000
Increase in Property, Plant and
Equipment 90,000
Increase in Accounts Payable 50,000
Decrease in Note payable 40,000
Increase in Bonds Payable 50,000
Increase in Share Capital 20,000
Increase in Share Premium 80,000

During the year the company paid dividends of 30,000


The net income for the year is?
Answer: P360,000The net increase in Assets is 490,000 (200,000+300,000-150,000+100,000-
50,000+90,000) while the net increase in Liability is 60,000 (50,000-40,000+50,000) therefore the net
increase in Equity is 430,000 (490,000-60,000) but then 100,000 is an increase in net assets due to

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4TH ANNUAL REGIONAL CONVENTION NFJPIA CUP-MASTER IN PRACTICAL ACCOUNTING
equity participants. It shall be excluded and thus, the net increase in Retained earnings is 330,000
(430,000-20,000-80,000 plus the dividends of 30,000 is equal to 360,000.)

A7. On January 1, 2011, AKIN Corp. purchased 70% of IYO Corp.’s P10 par common stock for P900,000.
On this date, the carrying amount of IYO’s net assets was P1,000,000. The fair values of IYO’s identifiable
assets and liabilities were the same as their carrying amounts except for plant assets (net), which were
P200,000 in excess of the carrying amount. For the year ended December 31, 2011, IYO had net income of
P150,000 and paid cash dividends totaling P90,000. Excess attributable to plant assets is amortized over
10 years. In the December 31, 2011, consolidated balance sheet, non-controlling interest on a full fair
values basis should be reported at?
Answer: P397,714
Full-Goodwill
(100%) fair value of consideration transferred (900,000/70%) 1,285,714
Book value of Net Assets (1,000,000)
Book value of SHE of Subsidiary, 12/31/11 285,714
Over/Undervaluation of Assets and Liabilities (200,000)
Goodwill (Full/Gross-up) 85,714

Book value of SHE of Subsidiary, 1/1/11 1,000,000


Net Income for 2011 150,000
Dividends paid, 2011 (90,000)
Book value of SHE of Subsidiary, 12/31/11 1,060,000
Adjustments to reflect fair value - plant assets 200,000
Amortization of allocated excess - 2011 (200,000/10) (20,000)
Fair value of SHE of Subsidiary, 12/31/11 1,240,000
NCI Percentage 30%
NCI (Partial Goodwill) 372,000
Add: NCI in Full Goodwill (85,714 x 30%)* 25,714
NCI (Full) 397,714

*This computation should only be use when the fair value of the NCI of acquire (subsidiary) is not given.

A8. On January 1, 2011, THRICE Company sold a machine to another entity for P3,000,000. The fair value
on the date of sale was P3,500,000. The machine had a carrying amount of P4,000,000 and remaining life
of 10 years. The entity immediately leased back the machine at an annual rental of P60,000 for four years.
It was determined that the annual rental is sufficiently lower compared to the market rent of a similar
asset. What is the total amount to be recognized by the entity in profit or loss for 2011?
Answer: P310,000
Sales price 3,000,000
Carrying amount (4,000,000)
Loss on sale (1,000,000)
PAS 17, paragraph 61, provides that if a sale and leaseback classified as an operating lease results in a
loss when the sales price is below that fair value of the asset, and such loss is compensated by below
market rentals, the loss is deferred and amortized over the period for which the asset is expected to be
used.
Rent Expense 60,000
Amortized loss (1,000,000/4) 250,000
Total amount in profit or loss Page 6 of 12 310,000
4TH ANNUAL REGIONAL CONVENTION NFJPIA CUP-MASTER IN PRACTICAL ACCOUNTING

A9. ONG, Inc. established its first branch on May 1, 2011. During the first month of operation, the home
office shipped merchandise to the branch worth P138,000 which included a markup of 15% on cost. Sales
for cash were P80,000 while sales on account were P250,000. At month’s end, the branch reported
operating expenses of P38,000 and a closing inventory of P23,000 at billed price. As far as the home office
is concerned, the true branch net income for May, 2011 is _________.

Answer: P192,000
Sales (80,000 + 250,000) 330,000
Cost of Goods Sold:
Shipment from home office,m at cost (138,000 x 100/115) (120,000)
Less: Ending inventory, at cost (23,000 x 100/115) 20,000 (100,000)
Less: Operating Expenses (38,000)
Total Franchise Revenue 192,000

A10. On January 1, 2009, ACCELERATOR Company purchased a P600,000 machine, with a five-year
useful life and no residual value. The machine was depreciated by an accelerated method for book and tax
purposes. The carrying amount was P240,000 on December 31, 2010. On January 1, 2011, Marilyn
changed to the straight-line method for financial reporting purposes. The income tax rate is 30%. On
January 1, 2011, what amount should be reported as deferred tax liability as a result of the change?

Answer: -0- or Zero


 A change in depreciation method is accounted for as a change in estimate. Since the treatment
is prospective, there is no deferred tax liability.

DIFFICULT
D1. SUBSCRIBER Company issued rights to subscribe to its stock, the ownership of 4 shares entitling the
shareholders to subscribe for 1 share at P100. OWNER Company owns 50,000 shares of SUBSCRIBER
Company with total cost of P5,000,000. The share is quoted right-on at 125. The stock rights are
accounted for separately. What is the cost of the new investment if all of the stock rights are exercised
by OWNER Company?
Answer: P1,500,000
Theoretical value of right (125-100)/(4+1) 5

Initial cost of rights (50,000 x 5) 250,000


Cash paid for new shares (50,000/4 = 12,500 x 100) 1,250,000
Cost of new investment 1,500,000

D2. On July 1, 2011, BUMILI Company purchased 25% of BINILHAN Company’s outstanding ordinary
shares and no goodwill resulted from the purchase. BUMILI appropriately carries this investment at
equity and the balance in BUMILI’s investment account was P1,900,000 at December 31, 2011. BINILHAN

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4TH ANNUAL REGIONAL CONVENTION NFJPIA CUP-MASTER IN PRACTICAL ACCOUNTING
reported net income of P1,200,000 for the year ended December 31, 2011, and paid dividend totaling
P480,000 on December 31, 2011.
How much did BUMILI pays for its 25% interest in BINILHAN?
Answer: P1,870,000
Acquisition cost, July 1 (SQUEEZE) 1,870,000
Add: Share in net income from 7/01 to 12/31 (1,200,000x6/12 x 25%) 150,000
Total 2,020,000
Less: Share in cash dividend (25% x 480,000) (120,000)
Investment balance, December 31 1,900,000
 In the absence of any statement to the contrary, the net income is earned evenly during the year.
 However, the investor shares in full in the dividends paid on December 31, 2011.
 Moreover, the investor shares only in the net income of the investee from the date of acquisition,
July 1, 2011 to December 31, 2011.

D3. NEUTRON Electronics uses a weighted average process costing system for its production process in
which all materials are added at the beginning of production. Company management has specified that
the normal loss cannot exceed 7% of the units started in a period. Normal lost happens during the
production while abnormal lost was discovered at the end. March processing information follows:
 Beginning inventory (10% complete – conversion) 7,000 units
 Started during March 60,000 units
 Completed during March 52,000 units
 Ending inventory (60% complete – conversion) 10,000 units
Under FIFO Method, what are the equivalent units of production for materials and conversion costs
respectively?
Answer: 55,800 and 58,100 respectively
Work EUP Work EUP
Quantity Schedule Actual Done Materials Done CC
In process, beginning 7,000
Started in process 60,000
67,000
Accounted for as follows:
In process, beg., F&T 7000 0% 0 90% 6300
Started, F&T (52,000-7,000) 45000 100% 45000 100% 45000
In process, ending 10000 100% 10000 60% 6000
Normal lost (7% x 60,000) 4200 0% 0 0% 0
Abnormal lost (balance) 800 100% 800 100% 800
67000 55,800 58,100

D4. Cheri P. Apostol, a CPA, has prepared a statement of affairs. Assets which there are no claims or liens
are expected to produce P70,000, which must be allocated to unsecured claims of all classes totaling
P105,000. The following are some of the claims outstanding.
1. Accounting fees for Cheri, P1,500.
2. An unrecorded note for P1,000, on which P60 of interest has accrued, held by Charie.
3. A note for P3,000 secured by P4,000 receivables, estimated to be 60% collectible held by Chorie.

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4. A P1,500 note, on which P30 of interest has accrued, held by Churie. Property with a book value of
P1,000 and a market value of P1,800 is pledged to guarantee payment of principal and interest.
5. Unpaid income taxes of P3,500.
Compute the estimated payment to partially secured creditors:
Answer: P2,790
Total free assets 70,000
Less: Unsecured Creditors with Priority:
Administrative expenses - accounting fees 1,500
Unpaid income taxes 3,500 5,000
Net free assets 65,000

Total unsecured creditors without priority:


Total unsecured claims of all classes 105,000
Less: Unsecured creditors with priority 5,000
Total Unsecured creditors without priority 110,000

% of recovery; P65,000/100,000 = 65%


Estimated payment to partially secured creditors:
Realizable value of A/R (60% x 4,000) 2,400
Add: Unsecured Portion: 65% (3,000-2,400) 390
Total 2,790

D5. The accounts of IMFORTED International, a Philippine corporation, show P81,300 accounts
receivable and P38,900 accounts payable at December 31, 2011, before adjusting entries are made. In
analyzing the balances reveals the following:
Accounts Receivable:
 Accounts receivable in Philippine pesos P 28,500
 Receivable denominated in 20,000 foreign currency 1 11,800
 Receivable denominated in 25,000 foreign currency 2 41,000
Account Payable:
 Accounts payable in Philippine pesos P 6,850
 Payable denominated in 10,000 foreign currency 3 7,600
 Payable denominated in 15,000 foreign currency 2 24,450

Current exchange rates for foreign Currency 1, Foreign Currency 2, and Foreign Currency 3 at December
31, 2011 are P0.66, P1.65 and P0.70, respectively. Determine the net exchange gain or loss that should be
reflected in IMFORTED’s income statement for 2011 from year-end exchange adjustments.
Answer: P1,950
Balance Balance Exchange gain
Per Books Sheet or (Loss)
Account receivable:
Phil. Pesos 28,500 28,500 -
Foreign currency 1 (20,000 x 0.66) 11,800 13,200 1,400
Foreign currency 2 (25,000 x 1.65) 41,000 41,250 250
81,300 82,950 1,650

Accounts payable:
Phil. Pesos 6,850 6,850 -
Foreign currency 3 (10,000 x 0.70) 7,600 7,000 600
Foreign currency 2 (15,000 x 1.65) 24,450 24,750 (300)
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4TH ANNUAL REGIONAL CONVENTION NFJPIA CUP-MASTER IN PRACTICAL ACCOUNTING
D6. On June 30 of the current year, KUYA Company entered into a firm commitment to purchase
specialized equipment from ATE Company for ¥80,000,000 on August 31. The exchange rate on June 30
is ¥100 = $1. To reduce the exchange rate risk that could increase the cost of the equipment in U.S.
dollars, KUYA pays $12,000 for a call option contract. This contract gives KUYA the option to purchase
¥80,000,000 at an exchange rate of ¥100 = $1 on August 31. On August 31, the exchange rate is ¥93 = $1.
What amount in U.S. dollars did KUYA Company save by purchasing the call option?
Answer: 48,215
Dollar equivalent - August 31 (80,000,000/93) 860,215
Dollar equivalent - June 30 (80,000,000/100) (800,000)
Total savings 60,215
Payment for call option (12,000)
Net saving - gain on call option 48,215

D7. Due to adverse economic circumstances and poor management, BULUBUNDUKIN Highlands
Company has negotiated a restructuring of its 9%, P6,000,000 note payable to RUPT Bank due on January
1, 2011. There is no accrued interest on the note.
The bank has reduced the principal obligation from P6,000,000 to P5,000,000 and extend the maturity to
3 years or on December 31, 2013. However, the new interest rate is 13% payable annually every
December 31.
The present value of 1 at 9% for three periods is 0.77 and the present value of an ordinary annuity of 1 at
9% for three periods is 2.53.
What is the gain on extinguishment of debt to be recognized for 2011?

Answer: -0- or Zero


PV of principal (5,000,000 x 0.77) 3,850,000
PV of annual interest payments (5,000,000 x 13% x 2.53) 1,644,500
Total Present value of new liability 5,494,500

Note payable - Old 6,000,000


Total Present value of new liability (5,494,500)
Gain on extinguishement - not recognized 505,500

The gain is less than 10% of the old liability of P6,000,000. Accordingly, the gain is not recognized
because the modification is not considered an extinguishment of the old liability. The old liability is
simply continued as follows:
Note payable – old 6,000,000
Note payable – new 5,000,000
Premium on note payable 1,000,000

D8. MMMM Company insured the life of its president for P2,100,000, the entity being the beneficiary of
an ordinary life insurance policy. The annual premium is P80,000 and the policy is dated January 1, 2008.
The cash surrender value is:
 December 31, 2010 15,000
 December 31, 2011 19,000

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The entity follows the calendar year as its fiscal period. The president died on October 1, 2011 and the
policy is settled on December 31, 2011.
What amount should MMMM Company report as gain on life insurance settlement in its 2011 income
statement?
Answer: P2,062,000

Cash surrender value - 12/31/2010 15,000


Increase in CSV from January 1 to October 1, 2011 (4,000 x 9/12) 3,000
Cash surrender value - 10/1/2011 18,000

Face of policy 2,100,000


Cash surrender value (18,000)
Unexpired premium (80,000 x 3/12) (20,000)
Gain on life insurance settlement 2,062,000

D9. The following relates to the Temporary differences for IBA Company.
Deferred tax Asset, beg 150,000
Deferred tax Liability, beg 90,000
The following has also occurred during the year:
 Temporary difference of 200,000 relating to Future taxable item has occurred during the year.
 Temporary difference of 480,000 relating to Future deductible item has occurred during the year.
 40,000 of the temporary difference relating to the beginning balance of Deferred Tax Asset have
reversed during the year.
 120,000 of the temporary difference relating to the beginning balance of deferred liability have
reversed during the year.
The income tax payable end is 700,000. The income tax rate is 30%
What is the net deferred tax expense during the year?
Answer: 108,000
Occurrence of DTL and DTA during the year is increase to net deferred tax expense by 60,000
(200,000*30%) and decrease by 144,000 (480,000*30%), respectively. During the year, the reversal of
DTL and DTA will cause net deferred tax expense to decrease by 36,000 and increase by 12,000,
respectively. The net deferred tax expense is then 108,000.

D10. Obama, a partner in an accounting firm, decided to withdraw from the partnership, Obama’s share
of the partnership profits and losses was 20%. Upon withdrawing from the partnership, he was paid
P88,800 in final settlement for his interest. The total of the partners’ capital accounts before recognition
of partnership goodwill prior to Obama’s withdrawal, was P252,000. After his withdrawal the remaining
partners’ capital accounts, excluding their share of goodwill totaled P192,000. The total goodwill of the
firm was _________.
Answer: P144,000
Amount paid 88,800
Less: Book value of interest of Obama (20%)
Total partners' capital before withdrawal 252,000
Less: Total partners' capital after withdrawal (192,000) 60,000
Excess/Partial goodwill 28,800
Divided by (capitalized at) 20%
Total goodwill 144,000

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CLINCHER QUESTIONS

C1. On January 1, 2011, PARISUKAT Company sold 20,000 exchange square meters of farmland for
P600,000 to PARIHABA, taking in exchange a 10% interest bearing note. PARISUKAT Company
purchased the farmland in 2011 at a cost of P500,000. The note will be paid in three installments of
P241,269 including interest each on December 31, 2011, 2012, and 2013. Shortly, after the sale
PARISUKAT Company learns distressing news about PARIHABA’s financial circumstances and because
collection is so uncertain and decides to account for the sale using the cost recovery method. Determine
the Realized gross profit and interest income for the year 2012, and unrecovered cost as of December 31,
2012, respectively.
Answer: P -0- ; P -0-; P17,462
Cost, January 1, 2011 500,000
Collections including interest - 2011 (241,269)
Collection including interest - 2012 (241,269)
Unrecovered Cost, December 31, 2012 17,462

C2. What is the method of depreciation under the NGAS?


a) Straight line with 10% residual value
b) Straight line with 20% residual value
c) Accelerated method with 20% residual value
d) Straight line without residual value
Answer: A – Straight line with 10% residual value

C3. Under the NGAS, a new coding structure and new chart of accounts shall be adopted with a
numbering system of _________________.
Answer: Three digits

C4. Normal spoilage is properly classified as


a) Prime cost
b) Period cost
c) Product cost
d) Deferred charge
Answer: C – Product cost
Normal spoilage is an inherent result of a manufacturing process and it is expected to occur under
efficient operating conditions. Thus, normal spoilage is included in the cost of units produced and
therefore inventoriable.

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