BALIUAG UNIVERSITY

CPA Review Program

Advanced Financial Accounting and Reporting
Final Preboard Examination

Instructions: Select the best answer for each of the following questions. Mark only one answer for each item on the
answer sheets provided. Strictly NO ERASURES ALLOWED.

1. Comparative trial balance of the home office of ACE Corporation and its two branches at December 31, 2016 were as
follows:

Home Office CHI Branch MIN Branch

Cash P 5,000 P15,000 P22,000
Accounts receivable 80,000 30,000 40,000
Inventories 150,000 60,000 48,000
CHI Branch 170,000
MIN Branch 165,000
Plant assets 730,000 250,000 200,000
Purchases 900,000
Shipments from home office 300,000 240,000
Expenses 300,000 75,000 50,000
Total P2,500,000 P730,000 P600,000

Accounts payable P100,000 P45,000 P30,000

Other liabilities 80,000 15,000 5,000
Loading in branch inventories 108,000
Share capital, P10 par 500,000
Retained earnings 262,000
Home office 170,000 165,000
Sales 1,000,000 500,000 400,000
Shipment branches 450,000
Totals P2,500,000 P730,000 P600,000

Additional information:
Home office and branch inventories at December 31, 2016 were:
Home office P120,000
CHI Branch (at billed prices) P 72,000
MIN Branch (at billed prices) 96,000
How much net income will ACE Corporation report for year-ended 2016?
A. P260,000
B. P122,000
C. P220,000
D. P595,000

2. Which of the following is not considered a legitimate expense of a partnership?

A. Interest paid to partners based on the amount of invested capital.
B. Depreciation on assets contributed to the partnership by partners.
C. Salaries for management hired to run the partnership.
D. Supplies used in the partners’ offices.

3. The estimated unit costs for Lodge Inc., when it is operating at a production and sales level of 12,000 units, are as
follows:

Estimated
Cost Item Unit Cost
Direct materials P 32
Direct labor 10
Variable factory overhead 15
Fixed factory overhead 6
Variable marketing 3
Fixed marketing 5
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Compute the total cost that would be incurred during a month with a production level of 11,500 units and a sales
level of 9,500 units.

A. P800,500 B. P813,000 C. P816,000 D. P852,000

4. If the partnership does not specify how income is to be allocated, profit and losses should be allocated
A. Equally.
B. In accordance with partners’ capital contribution.
C. In proportion to the weighted average of capital invested during the period.
D. Equitably so that partners are compensated for the time and effort expended on behalf of the partnership.

5. Riverdale Company incurred P80,000 direct labor cost in 2014 and had the following selected account balances at
the beginning and end of 2017: Finished goods January 1, P56,000; Work in process January 1, P24,000; Materials
January 1, P34,000; Finished goods December 31, P90,000; Work I process December 31, P28,000; Materials
December 31,0P48,000. The total cost of goods sold and actual factory overhead during the year are P280,000 and
P70,000 respectively.

Determine the total material purchases during the year.

A. P182,000 B. P162,000 C. P148,000 D. P144,000

6. When the retiring partner’s interest is greater than the settlement price, using bonus method, the difference is
A. Debited to the remaining partners’ capital accounts
B. Credited to the retiring partner’s capital account
C. Credited to the remaining partner’s capital accounts
D. Recognized in the profit or loss for the period.

7. The following data summarizes in part the results of operations for 2017 of Veronica Company.
Of the total cost of goods manufactured for 2017, 38% was for materials used, 30% for direct labor, and 32% for
manufacturing overhead.
During 2017, the company paid for 90% of the materials purchased, leaving P293,000 of unpaid invoices for
materials at year end. The company commenced 2017 operations with a materials inventory of P421,000. All
materials were purchased f.o.b. company’s plant.
The company disbursed P2,101,500 for direct labor during 2011. As of Dec. 31, 2017, the accrued liability for
direct amounted to P144,000, which was twice as much as last year’s accrual.
The inventory of finished goods on December 31, 2017, was 10% of the cost of the units fifnished during the
year, and goods in process on that date were one-half the finished goods inventory. This year’s finished goods
inventory was 150% of last year’s. there are no goods in process last year.
The manufacturing overhead, except for depreciation of factory buildings and equipment, is detailed below:
Indirect labor P 672,000
Heat, light, and power 226,200
Maintenance and repairs 488,300
Insurance – factory 18,100
Property taxes 64,400
Factory payroll taxes 97,000
Miscellaneous factory costs 276,400
P 1,842,400
How much is the cost of sales during 2017?
A. P 7,245,000 B. P 6,900,000 C. P 6,670,000 D. P5,757,500

8. An enterprise uses a branch accounting system in which it establishes separate formal accounting systems for its home
office operations and its branch office operations. Which of the following statements about this arrangement is false?
A. The home office account on the books of a branch office represents the equity interest of the home office in the net
assets of the branch.
B. The home office and branch office accounts are reciprocal accounts that must be eliminated in the preparation of the
enterprise’s financial statements that are presented in accordance with GAAP.
C. Unrealized profit from internal transfers between the home office and a branch must be eliminated in the
preparation of the enterprise’s financial statements that are presented in accordance with GAAP.
D. The branch office account on the books of the home office represents the equity interest of the branch office in the
net assets of the home office.

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9. During 2018, Jughead Company purchased materials costing P152,600. Materials requisitioned for jobs cost P98,000,
and indirect materials costing P42,000 were charged to Factory Overhead. Factory payrolls were P212,000 with
payroll taxes deducted of P60,000. Indirect labor of P71,000 included in the payrolls was charged to factory
Overhead. All other labor was direct labor charged to the jobs. Factory overhead was applied to the jobs at the rate
of P8 per machine hour. During the year, the company operated at 45,000 machine hours and incurred factory
overhead costs of P259,000 (in addition to the indirect materials and indirect labor previously stated). Depreciation
of P47,000 was included in the P259,000 of factory overhead costs.

Product costing P465,000 were completed during the year, and the cost of goods sold was P480,000. At the
beginning of the year, Jughead had the following balances:
Materials P27,000; Work in Process P48,000; Finished Goods P34,000
Determine the cost of work in process ending inventory for 2018.
A. P134,000 B. P182,000 C. P167,000 D. P194,000

10. Allocated expenses from the home office will be recorded by the home office as debit to
A. Investment in Branch C. Home Office
B. Expense account D. Cash

Items 11 and 12 are based on the following:

Benny, Jenny, and Kenny are partners in a trading business. They participate in the profits and losses equally. As of
December 31, 2016, the partners’ capital and drawing accounts are as follows:
Benny Jenny Kenny Total
Capital P20,000 P16,000 P600,000 P96,000
Drawing 12,000 8,000 4,000 24,000

The partners decided to liquidate the partnership. The operating profit for the year 2016 amounted to P14,400, which
was all exhausted including partnership assets. As of December 31, 2016, unpaid liabilities still amounted to P16,800.
Benny is personally insolvent, but both Jenny and Kenny have substantial private resources.
11. The total loss on realization was:
A. P72,000 B. P88,800 C. P96,000 D. P103,200
12. The amount received by Kenny in final cash distribution was:
A. P15,600 B. P16,800 C. P21,600 D. P32,400

13. The face amount of a loans payable is greater than the net realizable value of the attached inventory lien. The
inventory shall be classified under
A. Partially secured creditors C. Assets pledged with partially secured creditors
B. Fully secured creditors D. Assets pledged with fully secured creditors
14. It is equals to the total assets under receivership minus total liabilities to be liquidated when the latter is greater
than the assets.
A. Estate equity C. Capital deficiency
B. Estate deficit D. Receivership net loss

15. Partners D, I, L, and G, share profits 40%, 30%, 15%, and 15%, respectively. Their partnership agreement provides
that in the event of the death of a partner, the firm shall continue until the end of the fiscal period. Profits shall be
considered to have been earned proportionately during this period, and the deceased partners’ capital shall be
adjusted by the proper share of the profit or loss until the date of death. From that date until the date of settlement
with the estate there shall be added interest at 6% computed on the adjusted capital.

The remaining partners shall continue to share profits in the old ratio. Payment to the estate shall be made within
one year from the date of the partner’s death. Partner G died on November 16. On December 31, the end of the six-
month period, account balances on the partnership books before the income summary account is closed are as
follows:
Cash P 7,500 Notes payable P15,000
Accounts receivable 70,000 Accounts payable 70,500
Inventories 95,000 D, capital 42,000
Machinery and equipment, net 45,000 I, capital 37,500
Store furniture and fixtures, net 16,500 L, capital 24,000
G, capital 22,500
Income summary
_______ (7/1-12/31) 22,500
P 234,000 P 234,000

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The income summary account is closed on December 31. On this date, L decides to retire. D and I agree to pay the
balance in L’s capital account after distributions of profit, less 20%, and issue a partnership 60-day, 6% note to L in
settlement.
What amount is due to G’s estate on December 31?
A. P22,500 B. P25,875 C. P25,062.50 D. P25,218.99

16. Loss absorption potential of a partner computed during the preparation of cash priority program is equals to
A. {Partner’s capital account plus partner’s loan (receivable)} multiplied by the respective PL ratio.
B. {Partner’s capital account minus partner’s loan (receivable)} divided by the respective PL ratio.
C. {Partner’s capital account plus partner’s loan (payable)} multiplied by the respective PL ratio.
D. {Partner’s capital account minus partner’s loan (payable)} divided by the respective PL ratio.

17. On December 1, 2017, Coach Corp. entered into a 120-day forward contract to purchase 250,000US dollars for
speculative purposes, Coach Corp. fiscal year ends on December 31. The exchange rates are as follows:
Date Spot rate Forward rate (3/31/10)
December 1, 2017 P45.00 P45.50
December 31, 2017 46.00 46.50
January 30, 2018 45.60 45.30
March 31, 2018 45.10
How much is the forex gain or loss to be reported from this forward contract in 2018?
A. P250,000 B. P350,000 C. P300,000 D. P225,000

18. The third step in the revenue recognition model framework under IFRS 15 is
A. Determine the transaction price
B. Recognize revenue when (or as) the entity satisfies a performance obligation
C. Allocate the transaction price to the performance obligations in the contract
D. Identify the performance obligations in the contract

19. MELROSE Corporation issued a promissory note denominated in foreign currency for the purchase made from an
Italian supplier. The following were the related transactions: (in Italy Lire). On December 1, MELROSE Corporation
purchased merchandise from an Italian supplier for 60-day 18% promissory note for 108,000 Italy lire, at a selling
rate 1FC to P74.20. On December 31, the selling spot rate is 1FC to P74.85. On January 30, the selling spot rate is 1FC
to P75.75

On the settlement date, how much is the foreign exchange gain/loss?

A. P98,658 loss B. P172,422 gain C. P100,116 loss D.P172,422 loss

20. SAVEMORE Corp. entered into a forward contract to hedge a sale of inventory in October 26, 2017 to be collected
on January 24, 2017. 72,000 FC (foreign currency) in 90 days. The relevant exchange rate as follows:
Spot rate Forward rate (1/24/18)
October 26, 2017 P52.73 P52.77
December 31, 2017 52.82 52.89
January 24, 2018 52.94
What is the net forex gain (loss) from this transaction and hedge that will be reported on SAVEMORE’s 2017
statement of income?
A. P15,120 B. (P8,640) C. P6, 480 D. (P2,160)

21. The Construction-in-Process account accumulates the following when the percentage-of-completion method is used
A. Construction costs to date. C. Construction costs plus gross profit earned to date.
B. Construction costs to date less billings to date. D. Construction costs to date less payments received

22. SBX Restaurant sold a fast food restaurant franchise to NKE Corporation. The sale agreement signed on January 2,
2016 called for a P70,000 down payment plus two P15,000 annual payments representing the value of initial
franchise services rendered by SBX. The present value factor of two annual payments appropriately discounted at
10% is 1 7355. In addition, the agreement required the franchise 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 SBX. The restaurant opened early in 2016 and its sales for the year amounted to P600,000.
SBX Restaurant’s 2016 total revenue from the franchise will be:
A. P 0 B. P 30,000 C. P56,033 D. P 126,000

23. Under installment sales method,

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

24. On January 1, 2015, Mrs. Fields entered into a franchise agreement with KK to market their products. The
agreement provides for an initial fee of P15,500,000 payable as follows: P6,500,000 to be paid upon signing of the
contract and the balances in five equal annual payments every end of the year starting December 31, 2015. Mrs.
Fields signs a non-interest bearing notes for the balance. His credit rating indicates that he can borrow money at
15% interest for a loan of this type. The present value of an annuity of P1 at 15% for 5 periods is 3.352. The
agreement further provides that the franchise must pay a continuing franchise fee equal to 3% of the monthly gross
sales. On August 31, the franchiser completed the initial services required in the contract at a cost of P7,290,120 and
incurred indirect cost of P475,000. The franchisee commenced business operations on November 30, 2015. The
gross sales reported to the franchisor were P1,800,000 for December, 2015. The first installment payment was made
in due date.
Assume the collectability of the note is not reasonably assured the net income for the year ended, December 31,
2015 is
A. P4,121,288 B.P5,026,268 C. P5,243,480 D. P4,551,268

25. According to IFRS 15, where a contract has multiple performance obligations, an entity will allocate the transaction
price to the performance obligations in the contract by reference to their relative
A. Net realizable values C. Fair market values
B. Stand-alone selling prices D. Fair value less cost of disposal

Love Corporation has been using the cash method to account for income since its first year of operations in 2016. All
sales are made on credit with notes receivable given by the customers. The income statements for 2016 and 2017
included the following amounts:
2016 2017
Revenues – collection on principal P96,000 P150,000
Revenues – interest 10,800 16,500
Cost of goods purchased* 151,800 156,060
*Includes increase in inventory of goods on hand of P6,000 in 2016 and P24,000 in 2017
The balance due on the notes at the end of each year were as follows:

2016 2017
Notes receivable – 2016 P186,000 P108,000
Notes receivable – 2017 180,000
Unearned interest revenue – 2016 21,501 16,737
Unearned interest revenue – 2017 24,129

26. Under the installment method, how much is the realized gross profit in 2016?
A. P48,240 B. P96,000 C. P53,667 D. P10,10632
27. Under the installment method, how much is the realized gross profit in 2017?
A. P36,801 B. P33,186 C. P69,987 D. P64,845

28. An entity may use residual approach per IFRS 15 when allocating transaction price under which circumstance(s)?
i. The entity sells the same good or service to different customers (at or near the same time) for a broad range of
amounts
ii. The entity has not yet established a price for that good or service and the good or service has previously been sold
on a stand-alone basis.
A. Both i and ii C. ii only
B. Neither i nor ii D. i only

29. With regard to the definition of revenue given by IFRS15, which of the following statements is true?
A. Revenue includes cash received from share issues
B. Revenue arises from ordinary activities only
C. Revenue includes cash received from borrowings
D. Revenue may arise from either ordinary activities or extraordinary activities

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Items 30 and 31 are based on the following:

Belgium Corporation owns 80 percent of the stock of Hillinger Company. At the end of 2017, Belgium Corp. and
Hillinger Company reported the following partial operating results and inventory balances:
Total sales Belgium Corp. Hillinger Co.
Sales to Hillinger Company P 660,000 P 510,000
Sales to Belgium Corporation 140,000
Net income 20,000
Operating income (excluding income from
Hillinger Company) 70,000
Inventory on hand, December 31, 2017
purchased from Hillinger Company 48,000
purchased from Belgium Corporation 42,000

Belgium Corporation regularly prices its products at cost plus a 40 percent markup for profit. Hillinger Company prices its
sales at cost plus a 20 percent markup. The total sales reported by Belgium and Hillinger include both intercompany
sales and sales to nonaffiliates.

30. The consolidated cost of sales for 2017 must be:

A. P596,428 B. P616,428 C. P576,428 D. P536,428

31. The controlling interest net income for 2017 must be:
A. P67,600 B. P70,000 C. P90,000 D. P86,000

32. Defined by IFRS 11 as a joint arrangement whereby the parties that have joint control of the arrangement have rights to the
assets, and obligations for the liabilities, relating to the arrangement.
A. Joint operation C. Jointly controlled asset
B. Jointly controlled entity D. Joint venture
33. According to IFRS 11, a party that participates in, but does not have joint control of, a joint venture shall account for
the investment (assume nominal interest) using
A. IFRS 11 C. IFRS 9
B. IAS 28 D. IAS 7

34. Clydes Bakery owns 60 percent of the stock of Good Shepherd Products acquired several years ago at book values.
On January 1, 2017, inventory reported by Clydes Bakery included 20,000 bags of flour purchased from Good
Shepherd Products at P90 per bag. By December 31, 2017, all these beginning inventory purchased from Good
Shepherd Products had been baked into products and sold to customers by Clydes Bakery. There were no
transactions between Clydes Bakery and Good Shepherd Products during 2017.

Both Clydes Bakery and Good Shepherd Products price their sales at cost plus 50% mark-up for profit. Clydes Bakey
reported income from its baking operations of P3,000,000 and Good Shepherd Products reported net income of
P2,500,000 for 2017.
Compute the consolidated net income attributable to controlling interest.
A. P3,420,000 B. P4,860,000 C. P4,500,000 D. P5,580,000

35. Under IFRS for SMEs, transaction cost during the initial measurement of an investment in a jointly controlled entity
shall be added when using
A. Cost model only C. Equity model and fair value model
B. Fair value model only D. Cost model and equity model

36. Viewsonic Manufacturing purchased 80 percent of the stock of Ronnie Mines, Inc., in 2015. In preparing the
consolidated financial statements at the end of 2017, the controller of Viewsonic discovered that Viewsonic
manufacturing had purchased P750,000 of raw materials from Ronnie Mines during the year and that the parent
company had not paid for the last purchase of P120,000. All the inventory purchased was still on hand at year-end.
Ronnie Mine has spent P500,000 in producing the items sold to Viewsonic Manufacturing.
What effect, if any, will failure to eliminate or adjust for these items have on total current assets reported in the
consolidated balance sheet on December 31, 2017?
A. overstated by P250,000 C. overstated P370,000
B. overstated by P870,000 D. overstated P750,000

37. Asset acquisition as business combination will most likely result in

A. Acquirer recording assets and liabilities of acquiree at fair value
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B. Acquiree continuing its existence.
C. Acquirer recording the acquisition in an investment account
D. Acquirer purchasing shares of stocks of investee

Motul Co., a manufacturing company used process costing under the FIFO method for its products. The products
underwent two departments namely Assembly then Finishing. The following data were extracted from the system in the
Finishing department: Beginning inventory units 10,000 which were 70% incomplete. Ending inventory units 5,000 which
were 35% converted, transferred-out units from the Assembly department 80,000 and spoiled units of 2,800 of which
2,500 were considered normal. In the Finishing department, materials were added at the end of the process.

The following were the costs in the Finishing department: Beginning inventory costs of Transferred-In, Direct Materials,
Conversion respectively were P150,000, P80,000, P76,000. Current costs of Direct Materials and Conversion were
P742,500 and P650,000 respectively. Transferred-out cost from the Assembly department amounted to P1,162,500.

38. What are the equivalent units of production as to direct materials?

A. 85,000 B. 82,200 C. 80,300 D. 82,500
39. What is the cost of completed goods?
A. 2,630,400 B. 2,762,400 C. 2,672,400 D. 2,720,000

40. Under IFRS 3, which of the following falls under the third step in the acquisition method of business combination?
A. Determination of the acquisition date
B. Recognition and measurement of non-controlling interest
C. Recognition and measurement of goodwill or a gain from a bargain purchase.
D. Identification of the acquirer
41. For contingent consideration under IFRS 3, changes in fair value are recognized in profit or loss for contingent consideration
classified as
A. Equity and asset/liability C. Asset/liability only
B. Equity only D. None, changes in fair value is recognized in OCI

42. Miles Company established a branch in Ayala by sending merchandise costing P924,500 and effecting a fund transfer
of P400,000 cash on January 1, 2016. The branch purchased computer equipment costing P420,000 on April 1. As
per agreement, the home office will maintain all the property, plant and equipment records.

Ayala branch collected P56,000 worth of Ortigas branch’s receivable on August 4. Cash remittance to the home was
P250,000 on September 28.

On November 21, Ayala branch returned defective merchandise worth P125,000 to the home office.

At the end of the year, the company’s controller found out that the branch accountant had failed to record all the
transactions initiated by the home office from the second half of the year. Because of this, there is a significant
discrepancy between the balances of the reciprocal accounts.

For the purpose of reconciling the reciprocal accounts, the controller instructed the accounting staff of the home
office to send a copy of the Investment in Ayala general ledger to the branch.

Investment in Ayala
1/1 Merchandise to branch P924,500 4/2 Equipment acquisition P240,000
1/1 Fund transfer 400,000 9/30 Remittance 225,000
7/2 Merchandise to branch 135,000 11/22 Return of goods from branch 12,500
8/31 Fund transfer 95,000

What is the unadjusted balance of the Home Office Account?

A. 598,500 B. 585,500 C. 723,500 D. 335,500

43. What is the adjusted balance of the reciprocal accounts?

A. 844,500 B. 574,500 C. 901,000 D. 596,500

44. Which of the following terms best describes the financial statements of a parent in which the investments are
accounted for on the basis of the direct equity interest under IAS 27?
A. Combined financial statements C. Consolidated financial statements
B. Single financial statements D. Separate financial statements

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45. Under IFRS 10, when there is a changes in a parent's ownership interest in a subsidiary that do not result in the
parent losing control, any difference between the amount by which the non-controlling interests are adjusted is
recognized
A. Within equity C. in profit or loss
B. As a component of OCI D. Not recognized

46. SMDC Construction Corporation contracted with the province of Pampanga to construct a bridge at a contract price
of P16,000,000. SMDC Corporation expects to earn P1,520,000 on the contract. The percentage of completion
method is to be used and the completion stage is to be determined by estimates made by the engineer. The
following schedule summarizes the activities of the contract for years 2014-2016.
Estimate Engineer’s
Cost to Estimate of Billings Collection
Year Incurred Complete Completion on Contract on Billings
2014 P4,600,000 P9,640,000 31% P5,000,000 P4,500,000*
2015 4,500,000 5,000,000 58% 6,000,000 5,400,000*
2016 5,250,000 -0- 100% 5,000,000 6,100,000
*A 10% retainer accounts for the difference between billings and collections.

Under the percentage of completion method, using the engineer’s estimate as the measure of completion to be applied
to revenues and costs, how much is the gross profit earned each year?
2014 2015 2016 2014 2015 2016
A. P545,600; P498,400; P606,000 C. P1,760,000; P6,400,000; P1,650,000
B. P545,600; P1,044,000;P1,044,000 D. P1,760,000; P1,800,000; P1,650,000

47. In which of the following case is consolidation of financial statements in accordance with IFRS 10 required?
A. An investment entity with more than one subsidiaries.
B. The ultimate parent of investment entities, which is an investment entity itself.
C. Investment entity where its subsidiary provides services that relate to the investment entity’s investment activities.
D. None of the foregoing

48. THE DPWH received capital outlay allotment and Notice of Cash Allocation, net of tax remittance advice, form the
DBM in the amount of P10,000,000 and P8,000,000. Respectively, Upon approval of the project proposal for the
improvement of the administration building, purchase order for materials was issued in the amount of P4,000,000.
At the date of delivery, construction materials were inspected and paid in full. Materials of P3,500,000 were issued
and used in the construction. Payroll for labor cost in the amount of P1,500,000 less 10% with holding tax was
submitted to the administration, and cash advance was granted to special disbursing office for the eventual
payment of payroll. Withholding tax payable was remitted to the Bureau of Internal Revenue and upon approval of
the accomplishment report by the DPWH, the capital expenditures were taken in the books of DPWH.
Which of the following journal entries in the Regular Agency Books of DPWH is correct?
A. To record receipt of the allotment for capital outlay
Allotment receivable from DBM 10,000,000
Subsidiary income from national government 10,000,000

B. To record obligation of materials purchased

Construction in materials inventory 4,000,000
Accounts payable 4,000,000

C. To record the receipt of notice of cash allocation, net tax remittance advice
Cash – MDS, Regular 8,000,000
Subsidy income from national government 8,000,000

D. To record payment of construction materials, net of 10% withholding tax

Accounts payable 4,000,000
Due to BIR 400,000
Cash – Collecting officer 3,600,000

49. In accordance with IFRS 10, the parent and subsidiaries are required to have the same reporting dates, or
consolidation based on additional financial information prepared by subsidiary, unless impracticable. The difference
between the date of the subsidiary's financial statements and that of the consolidated financial statements when
permissible shall be no more than
A. Twelve months C. Six months
B. Three months D. Nine months
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50. The STONERICH Construction Company was the lowest bidder on an office building construction contract. The
contract bid was P70 million, with an estimated cost to complete the project of P60 million. The contract period was
34 months starting January 2013. The company uses the cost-to-cost method of estimating earnings. Because of
changes requested by the customer, the contract price was adjusted downward to P65 million on January 1, 2014.

A record of construction activities for the years 2013-2016 follows: (in millions)
2013 2014 2015 2016
Actual cost-current year P 25 P 33 P 4.1 -
Progress billings 21 31 13 -
Cash receipts 18 30 10 P7
Estimated costs to complete 35 4 - -

Compute the gross profit (loss) realized in 2014.

A. P (1.360) million B. P 2.806 million C. 3.317 million D.4.167 million

51. When the functional currency is the Philippine pesos, translation gain or loss computed under IAS 21 shall be
included in
A. Profit or loss C. Within equity (Retained earnings)
B. OCI D. Share premium

52. The partnership of Anton, Joseph and William has elected to cease all operations and liquidate business property. A
balance sheet drawn up at this time shows the following account balances:

Cash P48,000; Non-Cash assets P177,000; Liabilities P35,000; Anton, Capital (60%) P101,000; Joseph, Capital (20%)
28,000; William, Capital P61,000

The following transactions occur in liquidating this business:

 Safe capital balances are immediately distributed to the partners. Liquidation expenses of P9,000 are
estimated as a basis for this computation.
 Noncash assets with a book value of P80,000 are sold for P48,000.
 All liabilities are paid.
 Safe capital balances are again distributed.
 Remaining noncash assets are sold for P44,000.
 Liquidation expenses of P7,000 are paid.
 Remaining cash is distributed to the partners and the financial records of the business permanently closed.

How much did Anton recover from this business liquidation?

A. P45,800 B. P40,400 C. P50,000 D. P41,600

53. In accordance with IAS 21, for translation of financial statements using current rate method, which of the following
would most likely be translated using historical rate?
A. Sales C. Share capital
B. Nonmonetary assets D. Ending retained earnings

54. Which of the following statements is correct?

A. In May 2016, St. Jude purchased medical supplies from South Drugstore at a cost of P40,000. However, South
Drugstore notifies St. Jude that the invoice was being canceled and the medical supplies were being donated to
the hospital. St. Jude should record this donation of medical supplies as patient service revenue.
B. A storm destroyed the receiving area of the building of AB Spiritual Center, a not-for-profit religious
organization. A member of the fellowship renovated the are no change. In AB’s statement of activities the
construction and renovation of the said area should be reported as an increase in both expenses and liabilities.
C. On March 23, 2016, Ms. FG, an alumnus of OP School, a private, not-for-profit high school, contributed
P100,000, with the stipulation that the donation be used for faculty development seminar during 2017. During
2017, OP spent all of the donation in accordance with Ms. FG’s wishes. For the year ended December 31, 2017,
restricted net assets will decrease
D. Family Care a private not-for-profit voluntary health and welfare organization, received the following
contribution in 2016. P60,000 from donors who stipulated that the money not be spent until 2017 and P38,000
from donor who stipulated that the contributions be used for the acquisition of equipment, none of which was
acquired in 2016. Both contributions are classified as permanently restricted net assets for the year ending
December 31, 2016.

55. When an economy experiences hyperinflation, financial statements shall be restated using
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A. IAS 26 C. IAS 29
B. IAS 21 D. IAS 27

56. Rhapsody Corp. manufactures rafts for use in swimming pools. The standard cost for material and labor is P892 per
raft. This includes 8 kilograms of direct material at a standard cost of P50 per kilogram, and 6 hours of direct labor at
P82 per hour. The following data pertain to November,
 Work in process inventory on November 1: none
 Work in process inventory on November 30: 800 units (75 percent complete as to labor: material is
issued at the beginning of processing).
 Units completed: 5,600 units
 Purchase of materials: 50,000 kilograms for P2,492,500
 Total actual labor costs: P3,007,600
 Actual hours of labor: 36,500 hours
 Direct-material quantity variance: P15,000 unfavorable
The entry to record direct labor cost charged to production must be:
A. Work in process inventory 3,007,600
Payroll 3,007,600
B. Work in process inventory 2,755,200
Labor cost variance 252,400
Payroll 3,007,600
C. Work in process inventory 3,050,400
Labor efficiency variance 13,000
Labor rate variance 55,900
Payroll 3,007,600
D. Work in process inventory 3,050,400
Labor rate variance 14,600
Labor efficiency variance 57,400
Payroll 3,007,600

57. What are transferred-in costs in a process costing system?

A. Costs of product of a previous internal process that is subsequently used in a succeeding internal process.
B. Supervisory salaries that are transferred from an overhead cost center to a production cost center.
C. Ending work-in-process inventory of a previous process that will be used in a succeeding process.
D. Labor costs incurred from transferring employees from another department within the same plant instead of
hiring temporary workers from the outside.

58. Rap Company is insolvent and its statement of affairs shows the following information:

Estimated gains on realization of assets – P1,440,000

Estimated losses on realization of assets – P2,000,000
Additional assets – P1,280,000
Additional liabilities – P960,000
Capital stock – P2,000,000
Deficit – P1,200,000

The pro-rate payment on the peso to stockholders (estimated amount to be recovered by stockholders) is:
A. P0.30 B. P0.43 C. P0.57 D. P0.70

59. An error was made in the computation of the percentage of completion of the current year’s ending work-in-process
(EWIP) inventory. The error resulted in assigning a lower percentage of completion to each component of the
inventory than actually was the case. Consequently, the following were misstated:
1) The computation of costs per equivalent unit.
2) Cost assigned to cost of goods completed for the period.
3) The computation of total equivalent units.
What were the effects of the error?
____1____ ____2____ ____3____
A. Understate Overstate Overstate
B. Understate Understate Overstate
C. Overstate Understate Understate
D. Overstate Overstate Understate

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60. Three joint operators are involved in a joint operation that manufactures ships chandlery. At the beginning of the
year the joint operation held P50,000 in cash. During the year the joint operation incurred the following expenses:
Wages paid P20,000, Overheads accrued P10,000. Additionally, creditors amounting to P40,000 were paid and the
joint operators contributed P15,000 cash each to the joint operation. The balance of cash held by the joint operation
at the end of the year is:
A. P5,000 B. P25,000 C. P35,000 D. P75,000

61. Unit cost of the good units will be affected by the spoilage when
A. The spoilage is considered normal C. The spoilage is charged to specific job
B. The spoilage is considered abnormal D. The spoilage is charged to all production

62. On December 12, 2018, Beshywap Company entered into three forward exchange contract to purchase 100,000 FC
(foreign currency) in 90 days. The relevant exchange rates are as follows:

Spot Rate Forward Rate (for

March 12, 2019)
November 30, 2018 P0.87 P 0.89
December 12, 2018 0.88 0.90
December 31, 2018 0.92 0.93

The company entered into the first forward contract to hedge a purchase of inventory in November 2018, payable in
March 2019. At December 31, 2018, what amount of foreign currency transaction gain from this forward contract
should be included in net income?
A. P0 B. P3,000 C. P5,000 D. P10,000

63. A job order cost system uses a predetermined factory overhead date based on expected volume and expected fixed
cost. At the end of the year, under-applied overhead might be explained by which of the following situations?
_Actual Fixed Costs __Actual Volume_
a. Greater than expected Greater than expected
b. Less than expected Greater than expected
c. Greater than expected Less than expected
d. Less than expected Less than expected

64. Beshywap entered into as second forward contract to hedge a commitment to purchase equipment being
manufactured to Beshywap’s specifications. The expected delivery date is March 2019 at which time settlement is
due to the manufacturer. The hedge qualifies as a fair value hedge. At December 31, 2018, what amount of foreign
currency transaction gain from this forward contract should Beshywap include in net income?
A. P0 B. P3,000 C. P5,000 D. P10,000

65. As provided in the constitution, no money shall be paid out of the National Treasury, except in pursuance of
A. Appropriation C. Budget
B. Executive order D. General fund

66. Beshywap entered into the third forward contract for speculation. At December 31, 2018, what amount of foreign
currency transaction gain from the forward contract should be included in the net income?
A. P0 B. P3,000 C. P5,000 D. P10,000

67. Which government body is responsible for the adoption and promulgation of public sector accounting standards?
A. Commission on Audit C. Department of Budget and Management
B. Bureau of Treasury D. Department of Finance

68. A subsidiary of Salisbury, Inc. located in a foreign country whose functional currency is the foreign currency (or the
local currency). The subsidiary acquires inventory on credit on November 1, 2019, for P100,000 foreign currencies
(FC) that is sold on January 19, 2020 for 130,000 FC. The subsidiary pays for the inventory on January 31, 2020.
Currency exchange rates for 1 FC are as follows:
November 1, 2019 – P0.16
December 31, 2019 – 0.17
January 17, 2020 – 0.18
January 31, 2020 – 0.19
Average for 2020 – 0.20
What amount does Salisbury’s consolidated balance sheet report for this inventory at December 31, 2019?
A. P16,000 B. P17,000 C. P18,000 D. P19,000
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69. Unconditional promises to give that include promises of payments due in future periods (next year or later) are
reported as
A. deferred revenues until payment is received.
B. a memorandum, until the year of the promised payment.
C. restricted revenues.
D. unrestricted revenues.

70. Napro Charities, a not-for-profit agency, receives free electricity on a continuous basis from a local utility company.
The utility company’s contribution is made subject to cancellation by the donor. Napro Charities should account for
this contribution as a(n)
A. Unrestricted revenue only.
B. Restricted revenue only.
C. Restricted revenue and an expense.
D. Unrestricted revenue and an expense.

“The LORD detests lying lips, but he delights in people who are trustworthy.” Proverbs 12:22

“With integrity, you have nothing to fear, since you have nothing to hide. With integrity, you will do the right
thing, so you will have no guilt.” Zig Ziglar

Good luck and God Bless!

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