PRACTICAL ACCOUNTING 2

PROBLEM 1 (ACTIVITY-BASED COSTING)

Gion Corporation has identified activity centers to which overhead costs are assigned. The cost
pool amounts for these centers and their selected activity drivers for 2015 follow:

Activity Centers Costs Activity Drivers

Set-ups P620,000 24,800 set-ups
Utilities P950,000 125,000 machine hours
No. of parts P320,000 16,000 parts

Direct costs of producing product GG amounted to P75,000. The said product took 17,000 direct
labor hours and 15,000 machine hours to finish. Also, the product needed 7,500 set-ups and
550 parts to complete. 25,000 units of product GG were produced during 2015.

How much was the full cost per unit of product GG using ABC?

A. P12.50
B. P15.50
C. P16.07
D. P19.07

PROBLEMS 2 3 (JOB ORDER COSTING)

Problem 2. During April 2015, Faithfully Inc. incurred the following costs for Job 522 (450 drum sets):

Direct materials P42,500

Direct labor P65,250
Factory overhead P78,300

45 units of drum sets were found to be defective and Faithfully Inc. had to incur the following to remedy
the said defects:

Direct materials P13,550

Direct Labor P15,250

If the rework cost is normal but specific to Job 522, the cost per finished unit is:

A. P497.75
B. P484.22
C. P518.11
D. P575.68

Problem 3. Superhuman Co. provided the following data:

Direct materials P450,000

Direct labor P520,000
Overhead rate without spoilage P5.50 per unit
Overhead rate with spoilage P7.50 per unit
Units produced 120,000

Superhuman do not typically expect spoilage in its production process. On Job 912, the cost of
the spoiled units is P52,200, but the disposal value of these units were determined to be
P24,000 and P17,000 were found to be abnormal costs of spoilage.

How much is the total cost of good units?

A. P1,846,000
B. P1,577,800

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C. P1,817,800
D. P1,606,000

Problems 4 5 (PROCESS COSTING)

Problem 4. IDOL Inc. adds materials at the beginning of the process in department UST.
Conversion costs were 70% complete as to the 9,500 work-in-process units on September 1 and
40% incomplete as to the 7,000 work-in-process units on September 30. During September,
12,000 units were completed and transferred to the next department. An analysis of the cost relating to
work-in-process on September 1 and to production activity for September is as follows:

Costs
Materials Conversion
Work-in-process, September 1 P10,000 P7,500
Costs incurred during September P42,750 P52,525

The total cost per equivalent unit for September under FIFO and average:

A. P11.84 ; P5.49
B. P10 ; P5.49
C. P10 ; P6.49
D. P11.84 ; P6.49

Problem 5. Silent Sanctuary Corporation manufactures a product through a continuous process

in different departments. As their cost accountant, you are given the production data of
Department A to accumulate costs and prepare the necessary reports:

Units
Work-in-process, May 1, 2015 (30% to complete) 15,000
Units started and completed 60,000
Work-in-process, May 31, 2015 (50% complete) 3,000
Normal lost units discovered at the end of process 2,000

Costs
Materials P78,000
Conversion P85,000
Work-in-process cost, May 1, 2015 P45,000

Materials are added at the start of the production while conversion costs are evenly distributed
during the production process.

Compute the current total unit cost for materials and conversion:

A. P2.45
B. P2.53
C. P3.14
D. P2.23

Compute the cost per unit of completed unitsas of May 1, 2015:

A. P2.56
B. P2.34
C. P2.70
D. P2.64

PROBLEMS 6 7 (JOINT AND BY-PRODUCTS)

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Problem 6. Analog Heart Inc. makes three products from mangoes it harvests:

Units of output Selling price at Incremental Final selling price

split-off processing costs
Mango shake 5,250 P3 P2 P7.50
Dried mangoes 2,000 P1.50 P2.50 P3
Ice candy 750 P2.50 P0.50 P3

Which of the following is false regarding processing the three products beyond split-off point?

A. The company can either sell the ice candy at split-off or process it further and sell it at P3
because the incremental profit is zero
B. If the dried mangoes are processed beyond split-off, the company will have an incremental
profit of P1
C. The company should process the mango shake further because an incremental profit of
P2.50 would be realized
D. None of the statements is false

Problem 7. Breakout Co. produces two products which go through a single process. The same
amount of disposal cost is incurred whether the products are sold at split-off or after further
processing. On May 2015, the joint cost of the production process amounted to P105,000

Products Units produced Net realizable value

A 4,000 P5
B 12,000 P2.50
Remnants 4,000 P4

Remnants are considered a by-product of the process and are sold to other factories. If the
company accounts for the by-product using the NRV method, and if it costs the company an
additional P1.50/unit to process product A, how much is the total cost of producing product A?

A. P41,600
B. P59,400
C. P53,400
D. P35,600

PROBLEMS 8 9 (STANDARD COSTING)

Problem 8. Ganaremos Inc.s capacity for a month is 40,000 machine hours. Overhead is 40%
variable and 60% fixed. During June 2015, Ganaremos produced 3,500 units of its product and
incurred 38,000 machine hours. Each unit of a product requires 12 machine hours. Unfavorable
non-controllable variance for the month of June is P28,500.

What is the companys variable overhead rate?

A. P23.75
B. P19.75
C. P14.25
D. P9.50

Problem 9. Emoted Inc. purchased 80,000 ounces of materials needed to produce its perfume
at a cost of P5 per ounce. During April, Emoted used 70,000 ounces to produce 3,500 bottles of
perfume. The standard price of the materials used is P4.75 per ounce and Emoted expects to
use 15 ounces of the material to produce 1 bottle of perfume.

How much is the (1) material price variance and (2) material quantity variance?

A. P20,000 F ; P130,625 U
B. P20,000 U ; P83,125 U
C. P20,000 U ; P130,625 F
D. P17,500 U ; P83,125 U

PROBLEMS 10 11 (INSTALLMENT SALES)

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Problem 10. The following data were taken from the records of Sweet Serendipity Co. before
the accounts are closed for the year ended December 31, 2015 . The company uses the installment
method of recognizing revenue and it sells goods exclusively on installment basis.

For the year ended:

December 31, 2013 December 31, 2014 December 31, 2015
Installment Sales ? P500,000 P600,000
Cost of Goods Sold P300,000 ? ?
Balances as of:
December 31, 2013 December 31, 2014 December 31, 2015
Installment AR, 2013 P350,000 P125,000 P35,000
Installment AR, 2014 P307,500 P140,000
Installment AR, 2015 P490,000
DGP, 2013 P122,500 P43,750 P43,750
DGP, 2014 P123,000 P120,000
DGP, 2015 P210,000

On January 2015, a customer defaulted and Sweet Serendipity repossessed the merchandise.
The merchandise was assessed to have a cost of P4,200 after costs of reconditioning amounting
to P800. The repossessed merchandise was purchased by the customer in 2014 and the said
customer still owed the company a certain amount at the date of repossession.

How much was the realized gross profit and loss on repossession in 2015?

A. P134,000 ; P300
B. P134,000 ; P1,100
C. P137,000 ; P3,300
D. P137,000 ; P4, 100

Problem 11. Muro Co. is a dealer of refrigerators. The company gives trade discounts of 25%.
On May 1, 2015, Ami purchased a refrigerator with an invoice price of P97,500. The refrigerator
costs P65,000. Muro granted an allowance of P15,000 to Amis old refrigerator as trade-in, the
current market value of which is P17,500. The balance is payable as follows: 30% at the time of
purchase, while the rest is payable in five installments at the end of each month commencing at
the end of the month of sale. Ami defaulted on her payments starting August 31, 2015 and the
refrigerator sold to her was repossessed. The fair value of the repossessed refrigerator is
P15,000 before reconditioning costs of P2,500.

What is the resulting net income from the foregoing transactions?

A. P26,915
B. P24,875
C. P26,900
D. P24,400

PROBLEMS 12 13 (LONG TERM CONSTRUCTION CONTRACTS)

Problem 12. BREAKEVEN Corp. was contracted to construct a warehouse for a price of
P34,000,000. Information below were provided by BREAKEVEN:

2013 2014 2015

Costs incurred to date P14,625,000 P25,687,500 P33,750,000
Estimated cost at completion P32,500,000 P34,250,000 -

How much is the realized gross profit/lossduring 2014?

A. P(925,000)
B. P250,000
C. P(250,000)
D. P925,000

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Problem 13. Mabi Corp. was contracted by Mr. Tristan P. to construct 35 condominium units.
The estimated total cost of construction was P28,000,000. Mabi bills its clients at 120% of total
costs estimated to complete a project. Details regarding the contract are given below:

Units finished Costs incurred to date Estimated cost at completion

2013 10 P8,412,500 P33,650,000
2014 18 P20,735,000 P31,900,000
2015 7 P31,500,000 ?

What is the RGP during 2014 using the output measures?

A. P1,700,000
B. P1,360,000
C. P1,410,000
D. P1,105,000

PROBLEMS 14 15 (FRANCHISE)

Problem 14. On August 28, 2015, Mabeth Inc. entered into a franchise agreement with HP Inc.,
franchisee. The initial franchise fee agreed upon is P1,750,000, of which, P850,000 is payable
upon signing the contract and the balance to be covered by a 12% interest bearing note payable
in five equal annual installments starting December 31, 2015.Initial services by Mabeth
amounted to P912,100 direct costs and P50,000 indirect costs. The collectability of the note is
not reasonably assured. A 5% continuing franchise fee is to be paid monthly by HP based on its
monthly gross sales. The franchisees operations commenced on September 28, 2015 and gross
sales for the first months amounted to P575,000.

How much is the net income for the year ended December 1, 2015?

A. P498,914
B. P412,730
C. P507,914
D. P462,730

Problem 15. On December 31, 2015, Dewyze Inc. authorized Cook to operate as a franchise for
an initial franchise fee of P3,400,000. P900,000 was received upon signing the contract, and the
balance is to be paid by a non-interest bearing note, due in five equal annual installments
beginning December 31, 2016. Prevailing market rate is 12%. PV factor is 3.60478. The down
payment is nonrefundable and it represents a fair measure of the services already performed by
Dewyze, however, with regards to the balance, substantial future services are still required.

How much is the deferred revenue to be recognized as of December 31, 2015?

A. P1,802,390
B. P1,518,677
C. P2,500,000
D. P2,702,390

PROBLEM 16 (SALES AGENCY)

On June 1, 2015, Infatuation Co. established an agency in Manila, sending samples costing
P80,000 which are useful until May 31, 2016 and have a salvage value of 10% of cost. A working
fund of P65,000 is to be maintained using the imprest basis. During 2015, the agency submitted
to the home office sales order amounting to P675,000. Sales per invoice were P525,000 which
were duly approved by the home office. Collections during the year amounted to P280,330, net
of 3% sales discount. The cost of merchandise sold during the year is equal to 75% of the selling
gross selling price. Vouchers for expenses amounted to P35,000.

How much net income would be reported by the Manila agency on December 31, 2015?

A. P51,580
B. P(13,420)
C. P83,080

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D. P45,580

Problem 17 (HOME OFFICE INTERBRANCH)

On September 1, 2015, BETTER IN TIME Co. established two branches: Manila and Quezon City
branches. The home office transferred P80,000 worth of cash and P350,000 worth of inventory
to its Manila branch and instructed Manila to transfer of the goods and cash received to
Quezon City. In addition, on November 1, 2015, shipments from home office were received by
Manila amounting to P125,000 and the branch paid freight costs amounting to P6,500. 3/5 of
the said shipments were sold to outsiders. On December 1, 2015, Manila transferred half of the
remaining November shipments from the home office to Quezon City, with Quezon City branch
paying freight costs of P2,500. Had the merchandise been shipped from the home office to
Quezon City branch, only P1,900 worth of freight would have been incurred.

How much is the balance of the Quezon City branch account in the home office books?

A. P206,200
B. P348,800
C. P346,900
D. P349,400

Problem 18 (HOME OFFICE RECON)

Artemus Co. operates a branch in Manila City. On December 31, 2015, the Manila branch in the
home office books showed a debit balance of P522,110. The interoffice accounts were in
agreement at the beginning of the year. For purposes of reconciling the interoffice accounts, the
following facts were given:

Shipments from home office to Manila branch costing P72,500 were in transit as of year-
end. Manila recorded the said transfer twice at cost: one on December 31, 2015 and the
other on January 1, 2016.

The home office allocated to the Manila branch of the rent expenses it paid for the year
ended 2015. The rent expense was P24,000. The home office sent a debit memo to Manila
for the allocated amount, but the branch recorded the said debit memo by debiting the
home office current account and crediting rent payable.

The branch wrote-off uncollectible accounts amounting to P10,120. The allowance for
doubtful accounts is maintained in the books of the home office. The home office recorded
the write-off as a write-off of its own accounts receivable.

The branch collected accounts receivable from home offices customers amounting to
P52,920, net of 2% cash discount. The branch treated the said transaction as if it was a
collection from its own customers. The home office was not yet notified of the said
collection.

It is the policy of the home office to bill its branches at 20% above cost. What is the unadjusted
balance of the home office-current account in the books of Manila branch on December 31,
2015?

A. P463,650
B. P461,490
C. P459,070
D. P475,990

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PROBLEMS 19 20 (HOME OFFICE BILLED PRICE)

Problem 19. PROF Co. operates a branch in Manila. The following are selected accounts taken
from December 31, 2015 financial statements of PROF and its branch:

HOME OFFICE BRANCH

Sales P7,500,000 P3,750,000
Shipments to branch P1,250,000
Shipments from home office P1,562,500
Inventory, Jan. 1, 2015 P750,000 P375,000
Inventory, Dec. 31, 2015 P630,000 P270,000
Purchases P6,200,000 P950,000
Allowance for overvaluation before adjustment P337,500
Operating expenses P300,000 P270,000

The ending inventory of the branch includes P120,000 purchased from outside suppliers.

What is the combined cost of ending inventory?

A. P942,500
B. P900,000
C. P868,110
D. P870,000

The combined net income is:

A. P3,300,000
B. P2,962,500
C. P2,992,500
D. P3,305,000

Problem 20. The home office bills AMV branch at a mark-up above cost. During the year 2015,
goods costing P225,000 were shipped from the home office. The unrealized mark-up account
has a balance of P78,750 before any adjustments. The net income of the branch is understated
by P35,000.

How much is the ending inventory of the branch to be reported in its separate books? AMV gets
its inventories exclusively from its home office.

A. P135,000
B. P168,750
C. P125,000
D. P138,750

PROBLEM 21 (PARTNERSHIP FORMATION)

On January 1, 2015, 4A1 and Quadribatch agreed to form a partnership. The following are their assets
and liabilities:

Accounts 4A1 Quadribatch

Cash P34,000 P19,000
Accounts Receivable P22,000 P12,000
Inventories P76,000 P91,000
Machinery P120,000 P110,000
Accounts Payable P54,000 P36,000
Notes Payable P35,000 P15,000

4A1 decided to pay-off his notes payable from his personal assets. It was also agreed that
Quadribatchs inventories were overstated by P6,000 and 4A1s machinery was over depreciated
by P5000. Quadribatch is to invest/withdraw cash in order to receive a capital credit that is 20%
more than 4A1s total net investment in the partnership.

How much cash will be presented in the partnerships statement of financial position?

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A. P 90,600
B. P112,600
C. P102,600
D. P121,600

PROBLEMS 22 23 (PARTNERSHIP OPERATIONS)

Problem 22. CC Partnership began operations on June 1, 2015. On that date, Caloy and Chris
have capital credits of P35,000 and P48,000, respectively. The partnership has the following
profit-sharing plan:

a. 10% interest on partners capital balances at the end of the year

b. P12,000 and P15,000 annual salaries for Caloy and Chris, respectively
c. Remaining profit will be divided to Caloy and Chris on a 3:2 ratio, respectively

During the year, Caloy invested P30,000 worth of merchandise and withdrew P8,000 cash, while
Chris invested P24,000 cash. The partnership earned a profit of P53,275 during the year.

How much is Caloys capital balance at the end of 2015?

A. P84,475
B. P88,965
C. P85,325
D. P82,725

Problem 23. Aubrey and Ann are partners who have the agreement to share profit and loss in the
following manner:

Aubrey Ann
Annual Salaries P 52,200 P 51,800
Interest on ave. balances 5% 10%
Bonus (based on net income after salaries and 10%
interest)
Remainder 50% 50%

During the year ended December 31, 2015, the partnership generated a profit of P115,000
before any deductions. Aubreys and Anns average capital balances for the year are P120,000
and P60,000, respectively. Income is distributed to the partners only as far as it is available.

How much is the total share of Ann in the net income for the year ended 2015?

A. P57,300
B. P57,700
C. P57,500
D. P59,133

PROBLEMS 24 25 (PARTNERSHIP DISSOLUTION)

Problem 24. Thaddeus decided to withdraw from his partnership with Simon and Mari. Before
his withdrawal, Thaddeus capital balance was P58,000, while Simons was P64,000 and Maris
was P77,000. Also, the partnerships total assets amounted to P450,000, but the partners
agreed that a fixed asset was under depreciated by P15,000. Thaddeus, Simon and Mari share
profits and losses in the ration of 2:4:4, respectively.

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

A. P182,800
B. P160,800
C. P197,800
D. P130,800

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Problem 25. James and Patrick, having capital balances of P140,000 and P75,000 respectively,
decided to admit Castle into their partnership. Castle is to invest sufficient amount in order to
have a 25% interest in the partnership. If James and Patrick share profit in a proportion of 3:1,
respectively, and Patricks capital balance after Castles investment is P84,250, how much was
invested by Castle?

A. P121,000
B. P121,250
C. P167,750
D. P84,000

Problem 26 (LUMPSUM LIQUIDATION)

Elaine, Bee, and Chua share profits and losses as follows: Elaine 20%, Bee 30%, and Chua 50%.
The partnerships Statement of Financial Position is presented below:

EBC Company
Statement of Financial Position
As of December 31, 2014

Assets Liabilities and Equity

Cash P 91,200 Liabilities P153,500
Noncash Assets P450,800 Loan from Bee P 15,000
Elaine, Capital P 60,000
Bee, Capital P 88,500
Chua, Capital P225,000
Total Assets P542,000 Total Liabilities and P542,000
Equity

The partners decided to liquidate on January 2, 2015. All partners are personally solvent except
for Elaine.

If Chua received P52,500 for her interest, how much were the noncash assets sold for?

A. P105,800
B. P336,000
C. P345,000
D. P114,800

PROBLEM 27 (INSTALLMENT LIQUIDATION)

The Statement of Financial Position of RRDs partnership as of December 31, 2014 is given
below:

RRD Company
Statement of Financial Position
As of December 31, 2014

Assets Liabilities and Equity

Cash P 30,000 Liabilities P 80,000
Noncash Assets P520,000 Loan from Din P 10,000
Loan to Rae P 10,000 Rom, Capital (50%) P123,400
Rae, Capital (30%) P203,000
Din, Capital (20%) P143,600
Total Assets P560,000 Total Liabilities and P560,000
Equity

On January 1, 2015, the partners decided to liquidate. For the month of January, assets with a
book value of P250,000 were sold and liabilities to outsiders were fully paid.

How much were the noncash assets sold if Din received the amount priority to him?

A. P223,200

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B. P296,800
C. P273,200
D. P269,800

PROBLEMS 28 29 (JOINT VENTURE)

Problem 28. Ruvi, Kris, and Jeremy formed a joint venture during 2015 to sell beauty products.
Ruvi is assigned to manage the venture. The three of them agreed to divide profits and losses
equally. After seven months, the joint venture was terminated and there were unsold beauty
products. Ruvis trial balance contains the following:

Dr(Cr)
Joint Venture cash P 34,000
Joint Venture P 15,000
Kris, Capital P 9,000
Jeremy, Capital P(21,000)

Jeremy received P22,200 as settlement for her interest in the venture while Ruvi agreed to be
charged for the unsold products.

What is the cost of the unsold merchandise at the termination of the venture?

A. P3,600
B. P11,400
C. P18,600
D. P12,000

Problem 29. Alyzza and Bravo formed a merchandising joint venture. The following transactions
occurred during 2015:

Cash investment by the venturers:

Alyzza (55%) P 135,000
Bravo (45%) P 65,000
Sales on account (70% was not yet collected, GP rate = 30%) P 312,000
Purchases of merchandise on account P 250,000
Expenses paid P 31,000

Under the proportionate method, how much is the proportionate share of Alyzza in the joint
ventures assets?

A. P281,600
B. P264,550
C. P402,050
D. P281,930

PROBLEMS 30 31 (CORPORATE LIQUIDATION)

Problem 30. The ELI Corporation is undergoing liquidation and its Statement of Financial
Position as of January 2, 2015 is as follows:

ELI Corporation
Statement of Financial Position
As of January 2, 2015

Assets Liabilities and Equity

Cash P124,200 Accounts Payable P118,500
Receivables, net P340,800 Salaries Payable P 50,000
Inventory P 70,000 Bank Loan Payable P222,000
Prepaid Expenses P 22,500 Note Payable P 80,000
PPE, net P360,000 Bonds Payable P450,000
Goodwill P 82,000 Ordinary Shares P120,000
Capital Deficit P (41,000)
Total Assets P999,500 Total Liabilities and Equity P999,500

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The inventory has a realizable value of P53,000. Of the accounts payable, P60,000 is secured by
25% of the receivable which is 70% collectible. The balance in the book value of the receivables
which has a realizable value of P235,000 is used to secure the bank loan payable. The bonds
payable is secured by the PPE having a book value of P360,000 and a realizable value of
P375,000.

Unrecognized liabilities as of Jan. 2, 2015 are as follows: accrued interest on bonds payable and
taxes amounting to P4,000 each, and trustees salary amounting to P9,500. (Use two decimal
places for the recovery percentage)

How much will be paid to the partially secured creditors of ELI corporation?

A. P478,349
B. P480,669
C. P477,595
D. P479,102

Problem 31. On November 1, 2015, Goodbye To You (GTY) Inc.s trustee prepares a Statement
of Affairs with the following information:

P340,000 cash will be received by the unsecured creditors whose claims totaled P1,360,000

A received a 12% note of P124000 from GTY on March 1, 2015, secured with machinery with
a market value of P115,000

GTY issued to B a 12%, 1-year note of P136,000 on January 1, 2015. Nothing has been
pledged to this note.

C holds a note of P137,500 on which interest of P7,452 is accrued, secured with equipment
with a book value of P153,000. The fair value of the equipment is determined to be
P173,250

GTY still owes D, its cashier, with her salary worth P12,220

Which of the following statements about the creditors of Goodbye To You is false?

A. The unsecured creditor without priority will receive P37,400

B. The unsecured creditor with priority will receive P3,055
C. The fully secured creditor will be paid an amount of P144,952
D. The partially secured creditor will be paid an amount of P119,730

PROBLEMS 32 - 33 (GOVERNMENT ACCOUNTING)

Problem 32. Agency AAs allotment and Notice of Cash Allocation (NCA) for the year were
P5,000,000 and P3,000,000, respectively. Checks issued amounted to P1,500,000.

What closing entry should be made for the unused NCA as of year-end?

A. Cash National Treasury, MDS P (1,000,000)

Subsidy income from National Government P (1,000,000)
B. Subsidy income from National Government P 1,500,000
Cash National Treasury, MDS P 1,500,000
C. Subsidy income from National Government P 3,500,000
Cash National Treasury, MDS P 3,500,000
D. Memorandum entry

Problem 33. LTO collected motor vehicles registration fees amounting to P250. These were remitted to
the Bureau of Treasury. To record the remittance by LTO in the National Government books, the entry
would be:

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A. Cash National Treasury, MDS P 250
Registration fees P 250
B. Registration fees P 250
Cash National Treasury, MDS P 250
C. Registration fees P 250
Cash Collecting Officer P 250
D. Cash Disbursing Officer P 250
Cash Collecting Officer P 250

PROBLEMS 34 35 (NONPROFIT ORGANIZATIONS)

Problem 34. Bleeding Love Hospital has the following account balances:

Interest income P25,000

Bad debt expense P15,000
Unrestricted gifts P70,000
Charity care P75,000
Amounts charged to patients P384,000
Contractual adjustments P90,000
Revenue from parking spaces P52,000

What is the hospitals net patient service revenue?

A. P271,000
B. P219,000
C. P294,000
D. P204,000

Problem 35. Broken Heart University, a nonprofit university, received the following cash
contributions from donors during the year 2015:

Unrestricted contributions P250,000

Contributions restricted by donors for scholarship programs P100,000
Contributions from a donor who stipulated that the money be spent in P 75,000
accordance to the wishes of the hospitals board of trustees
Contributions restricted by donors for equipment acquisitions P125,000

Assuming the university spent P75,000 of the donors contributions for scholarship programs on
financing this years scholars, how much should be included in its current funds revenue for the
year ended December 31, 2015?

A. P350,000
B. P400,000
C. P325,000
D. P250,000

PROBLEMS 36 41 (FOREX)

Problem 36. Cinco Corp. owns a subsidiary in Japan whose balance sheet in Japanese Yen for
the last years follow:

December 31, 2014 December 31, 2015

Assets
Cash and Cash equivalents 30,000 25,000

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Receivables 122,500 147,500
Inventory 160,000 170,000
Property and Equipment, net 255,000 230,000
Total Assets 567,500 572,500
Liabilities and Equity
Accounts Payable 55,000 75,000
Long-term debt 322,500 285,000
Common stock 115,000 115,000
Retained earnings 75,000 97,500
Total Liabilities and Equity 567,500 572,500

Relevant exchange rates are:

January 1, 2014 1 = P 45
December 31, 2014 1 = P 42.50
December 31, 2015 1 = P 47.50
September 12, 2014 1 = P 40

Cinco formed the subsidiary on January 1, 2014. Income of the subsidiary was earned evenly
throughout the years and the subsidiary declared dividends worth 15,000 on September 12,
2014 and none were declared during 2015.

How much is the cumulative translation adjustment for 2015?

A. P568,750
B. P625,000
C. P1,006,250
D. P875,000

Problem 37. On December 1, 2014, The Script Co. entered into a futures contract to sell 7,850
pieces of door knobs on January 1, 2015. The futures price is P11.50 per piece. The future
contract is managed through an exchange so The Script does not know the party on the other
side of the contract. This derivative contract will be settled by an exchange of cash on January 1,
2015 based on the price of door knobs on that date. If the price of a door knob on January 1,
2015 is P10.75, what is the gain or loss in relation with this futures contract on December 31,
2014?

A. P5,887.50
B. P(7,850)
C. P(5,887.50)
D. No gain/loss

Problem 38. On October 31, 2014, Pyramid Philippines took delivery from a British firm of
inventory costing 725,000. Payment is due on January 31, 2015. At the same time, Pyramid
paid P8,250 cash to acquire a 90-day call option for 725,000.

October 31, 2014 December 31, 2014 January 31, 2015

Strike Price P 3.60 P 3.60 P 3.60
Spot Rate 3.61 3.62 3.64
Forward Rate 3.72 3.77 3.78
Fair Value of Call Option P 8,250 P 17,000 ?

Given the information above, compute for the following:

Foreign exchange gain or loss on option contract due to change in time value on December 31,
2014 if changes in the time value will be excluded from the assessment of hedge effectiveness,
and foreign exchange gain or loss due to change in intrinsic value on January 31, 2015 if changes
in the time value will be excluded from the assessment of hedge effectiveness.

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A. P1,500 gain ; P14,500 gain
B. P5,50 loss ; P7,250 gain
C. P5,250 loss ; P14,500 gain
D. P1,500 gain ; P7,250 gain

Problem 39. On May 1, 2015, PERFECT Co. anticipated the purchase of 85,000 units of
merchandise from a foreign vendor. The purchase would probably occur on October 28, 2015
and require the payment of 1,250,000 foreign currencies (FC). On May 1, 2015, the company
purchased a call option to buy 1,250,000FC at a strike price of 1FC = P0.27. An option premium
of P14,000 was paid. Changes in the value of the option will be excluded from the assessment of
hedge effectiveness. For the year 2015, the following rates are as follows:

May 1 May 31 June 30 October 28

Spot Rate P 0.25 P 0.28 P 0.30 P 0.32
Strike Price 0.27 0.27 0.27 0.27
FV of call option P14,000 P17,500 P39,000 ?

The foreign exchange gain (loss) on option contract to be recognized in (1) equity and (2)
earnings on June 30:

A. P(37,500) ; P21,500
B. P(25,000) ; P3,500
C. P25,000 ; P(21,500)
D. P37,500 ; P(3,500)

Problem 40. UST Company bought merchandise for 125,000 from a French company on
December 1, 2014. Payment in Euros was due on February 28, 2015. On the same date, UST
entered into a 90-day futures contract to buy 125,000 from a bank. Exchange rates for Euros
on different dates are as follows:

December 1, 2014 December 31, 2014 February 28, 2015

Spot Rate P 91.40 P 92.70 P 91.90

30-day futures 92.30 92.50 93.20
60-day futures 91.80 92.20 92.60
90-day futures 90.60 92.60 93.40

How much is the forex gain/loss on the forward contract on February 28, 2015?

A. P100,000 loss
B. P37,500 gain
C. P37,500 loss
D. P100,000 gain

Problem 41. Given the following information (For 1):

SPOT RATES
Bid Rate Offer Rate
Inception Date P 43 P 45
Reporting Date 48 49
Maturity Date 49 55

FORWARD RATES
120-day 90-day futures 60-day futures 30-day futures
futures
Inception Date P 43 P 45 P 44 P 46
Reporting Date 42 46 47 49
Maturity Date 45 48 49 52

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On October 1, 2014, KEL Co. sold merchandise worth 2,750 to a Japanese company, payable on
January 31, 2015. To hedge this foreign currency exposure, KEL contracted to sell 2,750 on
October 1, 2014 to be delivered on January 31, 2015.

On the reporting date, how much is the net forex gain/loss from this hedging activity?

A. P2,750 loss
B. P2,750 gain
C. P30,250 gain
D. P30,250 loss

Problems 42 43 (BUSINESS COMBINATION ACQUISITION OF NET ASSETS)

Problem 42. Condensed statements of financial position of Love Corp. and You Corp. as of
December 31, 2014 are as follows:

Love You
Current assets P175,000 P 65,000
Noncurrent assets P725,000 P425,000
Total assets P900,000 P490,000

Liabilities P 65,000 P 35,000

Ordinary Shares, P20 par P550,000 P300,000
Retained Earnings P 35,000 P 25,000
Retained earnings P250,000 P130,000

On January 1, 2015, Love Corp. issued 35,000 stocks with a market value of P25/share for the
assets and liabilities of You Corp. The book value reflects the fair value of the assets and
liabilities, except that the noncurrent assets of You have fair value of P630,000 and the
noncurrent assets of Love are overstated by P30,000. Contingent consideration, which is
determinable, is equal to P15,000. Love also paid for the stock issuance costs worth P34,000
and other acquisition costs amounting to P19,000.

How much is the combined total assets after the merger?

A. P1,742,000
B. P1,825,000
C. P1,772,000
D. P1,567,000

Problem 43. The following are the condensed statement of financial position of Ayiziel and
Vianney on January 1, 2015:

Ayiziel Vianney
Total Assets P4,100,000 P1,223,000

Liabilities P1,110,000 P 320,000

Ordinary Shares P1,240,000 P 518,000
Share Premium P 500,000 P 40,000
Retained Earnings P1,250,000 P 345,000

Cido Corp. acquired the net assets of both Ayiziel and Vianney by issuing 81,250 shares to
Ayiziel and 22,550 shares to Vianney. The par value of these shares is P35/share and market
value as of January 1, 2015 is P40/share. Cido also paid for the following expenses:

Ayiziel Vianney
Indirect costs P 37,500 P 40,500
Finders fee P 26,500 P 14,000
Acctg. And legal fees for SEC registration P137,500 P145,000
Printing costs of stock certificates P 50,000 P 37,500

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If Cidos retained earnings has a balance of P4,300,000 on January 1, 2015, how much is the (1)
goodwill and (2) adjusted retained earnings to be presented in the statement of financial
position of Cido?

A. P260,000 ; P4,112,750
B. P0 ; P4,112,750
C. P260,000 ; P4,182,500
D. P259,000 ; P4,181,500

PROBLEM 44 (BUSINESS COMBINATION ACQUISITION OF STOCKS)

On April 1, 2014, Aonuevo Corp. acquired 80% of the outstanding stocks of Sy Corp. for
P2,500,000. Sy Corp.s stockholders equity at the end of 2011 is as follows:Ordinary shares, P80
par P2,000,000, Share premium P500,000, and Retained Earnings P750,000. The fair value of
the non-controlling interest is P685,000. All the assets of Sy were fairly valued except for its
inventories which are overvalued by P90,000, Land which is undervalued by P50,000, and
Patent which is undervalued by P125,000. The said patent has a remaining useful life of five
years. Both companies use the straight line method for depreciation and amortization.
Shareholders equity of Aonuevo Corp. on December 31, 2014 is composed of: Ordinary
shares, P50 par P3,500,000, Share premium P750,000, and Retained Earnings P2,460,000.
Goodwill, if any, should be decreased by P22,500 every year-end. No additional issuance of
capital stocks occurred.

For the two years ended, December 31, 2014 and 2015 , Aonuevo Corp. and Sy Corp. reported the
following:

Aonuevo Corp. Sy Corp.

2014 2015 2014 2015
Net income from own P525,000 P550,000 P485,000 (from P520,000
operations date of acquisition)
Dividends declared at year-end P 50,000 P 35,000 P 35,000 P 50,000

On December 31, 2014, compute for:

Non-controlling interest in net assets of subsidiary

A. P781,150
B. P701,320
C. P781,150
D. P718,510

PROBLEM 45 - 46 (JOINT ARRANGEMENT)

On December 31, 2011 entity A acquired 30 per cent of the ordinary shares that carry voting
rights of entity Z for CU100,000. In acquiring those shares entity A incurred transaction costs of
CU1,000.

Entity A has entered into a contractual arrangement with another party (entity C) that owns

25 per cent of the ordinary shares of entity Z, whereby entities A and C jointly control entity Z.

Entity A uses the cost model to account for its investments in jointly controlled entities. A
published price quotation does not exist for entity Z.

In January 2012 entity Z declared and paid a dividend of CU20,000 out of profits earned in

20X1. No further dividends were paid in 2012, 2013 or 2014.

Problem 45. At December 31, 2011, 2012 and 2013, in accordance with Section 27
Impairment of Assets, management assessed the fair values of its investment in entity Z as
CU102,000, CU110,000 and CU90,000 respectively. Costs to sell are estimated at CU4,000
throughout. Entity A measures its investment in entity Z on 31 December 20X1, 20X2 and 20X3
respectively at:

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A. P102,000, P110,000, P90,000.
B. P101,000, P101,000, P90,000.
C. P98,000, P106,000, P86,000.
D. P98,000, P101,000, P86,000.

Problem 46. Assuming, a published price quotation exists for entity Z. Entity A measures its
investment in entity Z on 31 December 2011, 2012 and 2013 respectively at:

A. P102,000, P110,000, P90,000.

B. P101,000, P101,000, P90,000.
C. P98,000, P106,000, P86,000.
D. P98,000, P101,000, P86,000.

PROBLEM 47 (BUSINESS COMBINATION)

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

Entity A Entity B

Current assets P500 P700

Non-current assets 1,300 3,000
Total assets 1,800 3,700

Current liabilities P300 P600

Non-current liabilities 400 1,100
Total liabilities 700 1,700

Equity
Retained earnings 800 1,400
Issued equity
100,000 ordinary shares 300
60,000 ordinary shares 600
Total shareholders equity 1,100 2,000
Total liabilities and Equity 1,800 3,700

On September 30, 2011 Entity A issues 2.5 shares in exchange for each ordinary share of Entity
B. All of Entity Bs shareholders exchange their shares in Entity B. Therefore, Entity A issues
150 ordinary shares in exchange for all 60 ordinary shares of Entity B. The fair value of each
ordinary share of Entity B at September 30, 2011 is P40. The quoted market price of Entity As
ordinary shares at that date is P16. The fair values of Entity As identifiable assets and liabilities
at September 30, 2011 are the same as their carrying amounts, except that the fair value of
Entity As non-current assets at September 30, 2011 is P1,500,000. Entity A is the legal parent
and accounting acquiree. While Entity B is the legal subsidiary and accounting acquirer. What is
the amount of goodwill to be reported in the consolidated financial statements?

A. 200,000 B. 300,000 C.400,000 D. 500,000

PROBLEM 48 (DECONSOLIDATION)

Entity P has a 90% controlling interest in Entity S. On December 31, 2010, the carrying value of
Entity Ss net assets in Entity Ps consolidated financial statements is P450,000 and the carrying
amount attributable to the non-controlling interests in Entity S (including the non-controlling

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interests share of accumulated other comprehensive income) is 45,000. On January 1, 2011,
Entity P sells 80% of the share in Entity S to a third party for cash proceeds of P540,000. As a
result of the sale, Entity P loses control of Entity S but retains a 10% non-controlling interest in
Entity S. The fair value of the retained interest on that date is P54,000.

Determine the gain or loss on disposal (deconsolidation)

A. P144,000 gain C. P189,000 gain

B. P144,000 loss D. P189,000 loss

PROBLEM 49 (INSURANCE CONTRACTS)

An insurance contract can contain both deposit and insurance elements. An example might be a
reinsurance contract where the cedent receives a repayment of the premiums at a future time if
there are no claims under the contract. Effectively this constitutes a loan by the cedent that will
be repaid in the future. IFRS 4 requires that

A. Each payment by the cedent is accounted for as a loan advance and as a payment for
insurance cover.
B. The insurance premium is accounted for as a revenue item in the statement of income
C. The premium is accounted for under PAS 18
D. The premium paid is treated purely as a loan, and it is accounted for under PAS 39

PROBLEM 50 (SERVICE CONCESSION ARRANGEMENT)

An operator builds a road at a cost of P100 M, the fair value of construction services is P110 M,
the total operating costs of the road are P70 M and total cash inflows over the life of the
concession are P200 M. Applying IFRIC 12, Service Concession Arrangement, by how much is
total revenue under the intangible asset model higher or lower than the total revenue under the
financial asset model over the life of the concession?

A. No difference B. P10 M C. P110 M D. (P110M)

-END-

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