NCR CUP 2: ADVANCED FINANCIAL ACCOUNTING AND REPORTING

Elimination Round Questions and Answers

Note: All problem questions given to the contestants have no choices.

Easy
1. A not-for-profit entity has all of the following characteristics except that it will

a. operate for purposes other than to provide goods or service

b. at a profit.
c. have a positive fund balance.
d. not possess ownership interests like a corporation.
e. receive significant contributions from providers who do not
f. expect returns.

Answer: B
A not-for-profit entity operates for purposes other than to provide goods or service at a
profit, does not possess ownership interests like a corporation and receive significant
contributions from providers who do not expect returns.

2. A partnership in liquidation has converted all assets into cash and paid all liabilities. The order of
payment

a. will have amounts due to partners with respect to their capital accounts take
precedence over amounts owed by partners other than for capital and profits.
b. will be according to the partners’ residual profit and loss sharing ratios.
c. will have amounts owed by partners other than for capital and profits take
precedence over amounts due to partners with respect to their capital accounts.
d. Will be by any manner that is both reasonable and rational for the partnership.

Answer: C
The order of payment upon liquidation of a partnership will have amounts owed by
partners other than for capital and profits take precedence over amounts due to partners
with respect to their capital accounts.

3. The year-end balance sheet and residual profit and loss sharing percentages for the Ara, Belle,
and Grace partnership on December 31, 2005, are as follows:

Cash P 30,000
Accounts payable P 200,000
Loan to Ara 40,000
Loan from Belle 50,000
Other assets 480,000
Ara, capital (25%) 70,000
Belle, capital (25%) 80,000
Grace, capital (50%) 150,000

The partners agree to liquidate the business and distribute cash when it becomes available. A
cash distribution plan for the Ara, Belle, and Grace partnership will show that cash available, after
outside creditors are paid, will initially go to

a. Ara in the amount of P20,000.

b. Belle in the amount of P45,000.
c. Belle in the amount of P55,000.
d. Grace in the amount of P90,000.
 Answer: C
Vulnerability ranks:
Ara equity (P70,000 - P40,000)/.25 = P120,000 = 1
Belle equity (P80,000 + P50,0000/.25 = P520,000 = 3
Grace equity (P150,000/.5) = P300,000 = 2

Assumed loss absorption:

25% 25% 50%

Ara Belle Grace Total

Equities P30,000 P130,000 P150,000 P310,000

Loss to
Eliminate (30,000) (30,000) (60,000) (120,000)
Subtotals 0 P100,000 P90,000 P190,000
Loss to
Eliminate (45,000) (90,000) (135,000)
Subtotals P55,000 P0 P55,000

4. Under IFRS a parent may exclude a subsidiary from consolidation only if all of the following
conditions exist, except

a. It is wholly or partially owned and its owners do not object to nonconsolidation.

b. It does not have any debt or equity instruments publicly traded.
c. It has one class of stock.
d. Its parent prepares consolidated financial statements that comply with IFRS.

Answer: C
The requirement is to identify the item that is not a condition to exclude a subsidiary from
consolidation under IFRS. Answer (c) is correct because it is not required that the
subsidiary have only one class of stock.

5. A silent partner in a general partnership

a. Helps manage the partnership without letting those outside the partnership know this.
b. Retains unlimited liability for the debts of the partnership.
c. Both of the above are correct.
d. None of the above is correct.

Answer: B
A silent partner does not help manage the partnership but still has unlimited liability.

6. When Mill retired from the partnership of Mill, Yale, and Lear, the final settlement of Mill’s interest
exceeded Mill’s capital balance. Under the bonus method, the excess

a. Was recorded as goodwill.

b. Was recorded as an expense.
c. Reduced the capital balances of Yale and Lear.
d. Had no effect on the capital balances of Yale and Lear.

Answer: C
Under bonus method, the excess payment to the retiring partner shall reduce the capital
balances of the remaining partners.
7. Franchise fees are properly recognized as revenue

a. when received in cash.

b. when a contractual agreement has been signed.
c. after the franchise business has begun operations.
d. after the franchiser has substantially performed its service.

Answer: D
Franchisors record initial franchise fees as revenue only when and as they make
“substantial performance” of the services they are obligated to perform and when
collection of the fee is reasonably assured.

8. JUMBO Corp. uses the percentage-of-completion method of revenue recognition in accounting

for its long-term construction contracts. JUMBO Corp.’s progress billings account is a

a. Revenue account
b. Non-current liability account
c. Contra current asset account
d. Contra non-current asset account

Answer: C
In the construction industry, operating cycles for construction contracts generally exceed
one year. Therefore, the predominant practice is to classify all contract-related assets and
liabilities as current. On the balance sheet, the Construction in Progress (CIP) account is
netted with the contra account, progress billings. If CIP exceeds billings, the excess is
reported as a current asset. If billings exceed CIP, the excess is reported as a current
liability.

9. Sagip Kapatid 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. Sagip Kapatid Charities should account for this contribution as a(n)

a. Unrestricted revenue only.

b. Restricted revenue only.
c. Unrestricted revenue and an expense.
d. Restricted revenue and an expense.

Answer: C
A contribution of utilities, such as electricity, as a contribution of other assets, not a
contribution of services. A simultaneous receipt and use of utilities should be recognized
as both an unrestricted revenue and an expense in the period of receipt and use. The
revenue and expense should be measured at estimated fair value. This estimate can be
obtained from the rate schedule used by the utility company to determine rates charged to
a similar customer.
 10. It is generally presumed that an entity is a variable interest entity subject to consolidation if its
equity is

a. Less than 50% of total assets.

b. Less than 25% of total assets.
c. Less than 10% of total assets.
d. Less than 10% of total liabilities.

Answer: C

It is presumed that an entity with equity of less than 10% of total assets does not have
sufficient funding to finance its activities unless there is definitive evidence to the
contrary.

Average

1. Property was purchased on December 31, 2018 for 20 million baht. The general price index in the
country was 60.1 on that date. On December 31, 2020, the general price index had risen to
240.4. If the entity operates in a hyperinflationary economy, what would be the carrying amount in
the financial statements of the property after restatement?

a. 20 million baht
b. 1.2 million baht
c. 80 million baht
d. 4.808 million baht

Answer: C
20 million x 240.4 / 60.4 = 80 million baht

2. Certain balance sheet accounts in foreign subsidiary of Cherry Company at December 31, 2018,
have been stated into Philippine pesos as follows:

Stated at
Current rates Historical rates
Accounts receivable, short term ₱200,000 ₱220,000
Accounts receivable, long term 100,000 110,000
Prepaid insurance 50,000 55,000
Goodwill 80,000 85,000
₱0 ₱0

This subsidiary’s functional currency is a foreign currency. What total amount of the preceding
items should be included in Cherry’s balance sheet?

a. ₱430,000
b. ₱435,000
c. ₱440,000
d. ₱450,000

Answer: A
The foreign currency is the functional currency, so a translation method or closing rate
method is appropriate. All assets are translated at the current exchange rate of ₱430,000.
3. Holmes Corporation started operations on January 1, 2016 selling home appliances and furniture
sets both for cash and on installment basis. Data on the installment basis sales operations of the
Company gathered for the years ending December 31, 2016 and 2017 were as follows:

2016 2017
Installment sales ₱400,000 ₱500,000
Cost of installment basis 240,000 350,000
Cash collected on installment sales:
2014 installment sales 210,000 150,000
2015 installment sales 300,000

Additional information:
On January 5, 2018, an installment sales on 2016 was defaulted and the merchandise with an
appraised value of ₱5,000 was repossessed. Related installment receivable balance on
January 5, 2018 was ₱8,000.

Recording the repossessed merchandise at its appraised value, gain or loss on the repossession
should be:

a. No gain or loss
b. ₱200 gain
c. ₱1,800 gain
d. ₱3,000 loss

Answer: B
Appraised value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ₱5,000
Less: Unrecovered cost:
Unpaid balance – 2016 . . . . . . . . . . . . . . . . . ₱8,000
Less: Deferred gross profit – 2010
(8,000 x 160/400) . . . . . . . . . . . . . . . . . ₱3,200 ₱4,800
Gain on repossession ₱ 200

4. Langdon Inc. manufactures a product that gives rise to a by-product called “Cerca.” The only
costs associated with Cerca are additional processing costs of ₱1.00 for each unit. Langdon
accounts for Cerca sales first by deducting its separable costs from such sales and then by
deducting this net amount from the cost of sales of the major product. For the past year, 2,000
units of Cerca were produced which were sold for ₱3.00 each.

Sales revenue and cost of goods sold from the main product were ₱500,000 and ₱400,000
respectively. Compute the gross margin after considering the by-product sales and costs.

a. ₱96,000
b. ₱100,000
c. ₱104,000
d. ₱106,000

Answer: C
₱500,000 - (₱400,000 - ₱4,000) = ₱104,000

5. On January 1, 2018, Augustus Company sold land that cost ₱60,000 for ₱80,000, receiving a
note bearing interest at 10%. The note will be paid in three annual installments of ₱32,170
starting on December 31, 2018. Because collection of the note is very uncertain, Colt will use the
cost recovery method. How much revenue (profit from sale and interest) from this sale should
Colt recognize in 2018?

a. ₱0
 b. ₱6,000
c. ₱8,000
d. ₱20,000

Answer: A
Under the cost recovery method, no income is recognized on a sale until the cost of the
item sold is recovered through cash receipts. All cash receipts, both interest and principal
portions are applied first to the cost of the items sold. Then, all subsequent receipts are
reported as revenue. Because all costs have been recovered, the recognized revenue after
the cost recovery represents income (interest and realized gross profit). This method is
used only when the circumstances surrounding a sale are so uncertain that earlier
recognition is impossible.

6. Watson Corp. (a Philippine-based company) sold parts to a foreign customer on December 1,

2017, with payment of 10 million foreign currencies to be received on March 31, 2018. The
following exchange rates apply:
Forward rate
Dates Spot Rate (for 3/31/2018)
December 1, 2017 ₱0.0035 ₱0.0034 (4 months)
December 31, 2017 0.0033 0.0032 (3 month)
March 31, 2018 0.0038 N/A

Watson’s incremental borrowing rate is 12%. The present value factor for three months at an
annual rate of interest of 12% (1% per month) is 0.9706. Assuming that Watson entered into no
forward contract, how much foreign exchange gain or loss should it report on its 2017 income
statement with regard to this transaction?

a. ₱5,000 gain
b. ₱3,000 gain
c. ₱2,000 loss
d. ₱1,000 loss

Answer: C
No forward contract, therefore, only the sale transaction:
(₱0.0035 - ₱0.0033 = ₱0.0002 loss x 10 million foreign currencies = ₱2,000 loss)

7. The Milky Way Company owns 75% of The Andromeda Company. On December 31, 2018, the
last day of the accounting period, Andromeda sold to Milky Way a noncurrent asset for ₱200,000.
The asset’s original cost was ₱500,000 and on December 31, 2018 its carrying amount in
Andromeda’s books was ₱160,000. The group’s consolidated statement of financial position has
been drafted without any adjustments in relation to this noncurrent asset.

Under PAS 27 Consolidated and separate financial statements, what adjustments should be
made to the consolidated statement of financial statement figures for retained earnings and
non-controlling interest?

Retained earnings Non-controlling interest

a. Increase by ₱225,000 Increase by ₱75,000
b. Increase by ₱300,000 No change
c. Reduce by ₱30,000 Reduce by ₱10,000
d. Reduce by ₱40,000 No change

Answer: C
Upstream sales:
Selling price of non-current asset ₱200,000
Less: Book/carrying value, date of sale 160,000
 Gain on intercompany sale ₱40,000

Incidentally, the eliminating entries (assuming books are already closed) would be as
follows:
Retained earnings - Parent (75% x ₱40,000) ₱30,000
Non-controlling interest (25% x ₱40,000) 10,000
Noncurrent asset ₱40,000

The profit on intragroup assets are to be eliminated in full. Only the group share of the
profits of the subsidiary are taken to group retained earnings.
This is because the subsidiary sold the asset to the parent. This gain is not realized from a
group perspective per PFRS 10 and must be removed in full. It is then allocated between
the shareholders of the subsidiary, in the form of retained earnings (group share of the
gain) and the non-controlling interest.

8. If the Alaska Museum, a not-for-profit organization, received a contribution of historical artifacts, it

need not recognize the contribution if the artifacts are to be sold and the proceeds used to

a. Support general museum activities.

b. Acquire other items for collections.
c. Repair existing collections.
d. Purchase buildings to house collections.

Answer: B
An entity need not recognize the contributions of works of art and historical artifacts if the
collection is held for public exhibition rather than financial profit, cared for and preserved,
and, if sold, the proceeds are used to acquire other items for collections.

9. A hedge of the exposure to changes in the fair value of a recognized asset or liability, or an
unrecognized firm commitment, is classified as a

a. Fair value hedge.

b. Cash flow hedge.
c. Foreign currency hedge.
d. Underlying.

Answer: A
A fair value hedge is a hedge of the exposure to changes in the fair value of a recognized
asset or liability or firm commitment.

10. Planet Company acquired a 70% interest in the Star Company in year 1. For the year ended
December 31, year 2, Star reported net income of ₱80,000. During year 2, Planet sold
merchandise to Star for ₱10,000 at a profit of ₱2,000. The merchandise remained in Star’s
inventory at the end of year 2. For consolidation purposes what is the non-controlling interest’s
share of Star’s net income for year 2?

a. ₱23,400
b. ₱24,000
c. ₱24,600
d. ₱26,000

Answer: B
Because Planet owns 70% interest in Star, the non-controlling interest in star is 30%.
Therefore, the non-controlling interest’s share in Star’s net income of ₱80,000 is
30% × ₱80,000 = ₱24,000. Planet’s sale of merchandise to Star for ₱10,000 will be
eliminated on the consolidated worksheet, and Planet’s income will be reduced by the
 intercompany profit of ₱2,000. This will not affect the non-controlling interest’s share of
income because it was a downstream sale from the parent to the subsidiary and is
eliminated by the parent.

Difficult

1. In general, an acquirer measures and accounts for assets acquired and liabilities assumed or
incurred in a business combination after the business combination has been completed in
accordance with other applicable IFRSs. However, which of the following that the International
Financial Reporting Standards 3 Business Combinations (IFRS 3) specifically provides
accounting requirements?

a. reacquired rights
b. contingent liabilities
c. contingent consideration
d. insurance contracts.

Answer: D
Paragraph 17 of IFRS 3 Business Combinations provide one of the two exceptions of
which insurance contracts are covered by IFRS 4 Insurance Contracts.

2. The governing board of Hirap Hospital, a nonprofit hospital affiliated with a religious organization,
acquired 100 BaMI Company bonds for P103,000 on June 30, 2016.

The bonds pay interest on June 30 and December 30. On December 31, 2016, interest of P3,000
was received from BaMI, and the fair value of the BaMI bonds was P105,000. The governing
board acquired the BaMI bonds with cash which was unrestricted, and it classified the bonds as
trading securities at December 31, 2016, since it intends to sell all of the bonds in January 2017.
As a result of the investment in BaMI bonds, what amount should be included in revenue, gains,
and other support on the statement of operations for the year ended December 31, 2016?

a. P0
b. P3,000
c. P2,000
d. P5,000

Answer: D
According to the AICPA Audit and Accounting Guide, Health Care Organizations,
unrealized gains on trading securities should be included as part of the amount reported
for revenue, gains, and other support on the statement of operations. These unrealized
gains are included in the performance indicator. Likewise, unrestricted revenues from
interest and dividends are included as part of the amount reported for revenue, gains, and
other support on the statement of operations. Therefore, Hirap Hospital should report both
the P3,000 of interest revenue and the P2,000 unrealized holding gain (P105,000 less
P103,000) in the amount reported for revenue, gains, and other support on its statement of
operations for the year ended December 31, 2016.

3. To determine whether it controls an investee an investor shall assess whether it has all the
following, except:

a. the purpose and design of the investor

 b. exposure, or rights, to variable returns from its involvement with the investee
c. the ability to use its power over the investee to affect the amount of the investor's
returns
d. power over the investee.

Answer: A
Paragraph B.2 of the Appendices to IFRS 10, Consolidated Financial Statements, states on
how to assess and determine whether an investor controls an investee on which it has all
the following:
(a) power over the investee;
(b) exposure, or rights, to variable returns from its involvement with the investee; and
(c) the ability to use its power over the investee to affect the amount of the investor's
returns.

4. On January 1, 2016, Kaloka Corp. purchased all of Taranta Corp.’s common stock for
P1,200,000. On that date, the fair values of Taranta’s assets and liabilities equaled their carrying
amounts of P1,320,000 and P320,000, respectively. During 2016, Taranta paid cash dividends of
P20,000. Selected information from the separate balance sheets and income statements of
Kaloka and Taranta as of December 31, 2016, and for the year then ended follows:
Kaloka Taranta
Balance sheet accounts
Investment in subsidiary P1,320,000 --
Retained earnings 1,240,000 560,000
Total stockholders’ equity 2,620,000 1,120,000
Income statement accounts
Operating income 420,000 200,000
Equity in earnings of Sharp 140,000 --
Net income 400,000 140,000

In Kaloka’s December 31, 2016 consolidated balance sheet, what amount should be reported as
total retained earnings?

a. P1,240,000
b. P1,360,000
c. P1,380,000
d. P1,800,000

Answer: A
When the equity method of accounting is used, the parent company’s retained earnings
will be equal to the consolidated retained earnings balance. It can be determined that the
equity method is being followed because the account “Equity in earnings of Taranta”
appears in the parent’s income statement. In addition it is important to note that the
balance sheet accounts presented are dated as of the end of the year; therefore, the
parent company’s retained earnings of P1,240,000, should already include all income
statement balance account adjustments. Thus, no additional income amounts will need to
be added to the P1,240,000 retained earnings balance, in order to determine the total
retained earnings balance.
5. Which of the following is true?

a. In a joint arrangement, a single party controls the arrangement on its own.

b. An arrangement can be a joint arrangement when all of its parties have joint control
of the arrangement.
c. An entity that is a party to an arrangement shall assess whether the contractual
arrangement gives all the parties, or a group of the parties, control of the
arrangement individually.
d. A party with joint control of an arrangement can prevent any of the other parties, or a
group of the parties, from controlling the arrangement.

Answer: D
Answer A is incorrect because in a joint arrangement, no single party controls the
arrangement on its own.
Answer B is incorrect because an arrangement can be a joint arrangement even though
not all of its parties have joint control of the arrangement.
Answer C is incorrect because an entity that is a party to an arrangement shall assess
whether the contractual arrangement gives all the parties, or a group of the parties,
control of the arrangement collectively.

6. The following condensed balance sheet is presented for the partnership of Erwin and Levi, who
share profits and losses in the ratio of 60:40, respectively:

Other Assets 450000

Erwin, Loan 20000
470000
Accounts
Payable 120000
Erwin, Capital 195000
Levi, Capital 155000
470000

The partners have decided to liquidate the partnership. If the other assets are sold for P385,000,
what amount of the available cash should be distributed to Erwin?

a. P136,000
b. P156,000
c. P159,000
d. P195,000

Answer: A

This situation represents a simple liquidation since all assets are distributed at one point
in time rather than in installments. In a simple liquidation all of the noncash assets are
sold and the proceeds from their sale are compared to their book value to compute the
gain or loss. The gain or loss on the assets is then distributed to the partners’ accounts
before any of the cash is distributed. The partner loan should not be considered a
noncash asset for the purpose of determining gain or loss, thus, Erwin is responsible to
the partnership for the repayment of the entire amount of the loan. The repayment of the
loan reduces that partner’s (Erwin) distribution as follows:
 Partner balances
before liquidation Erwin Levi Total
Loan (debit) P(20,000) -- P(20,000)
Capital (credit) 195,000 P155,000 350,000
Net balances P175,000 P155,000 P330,000
Loss on sale of other assets (450 – 385) 39,000 26,000 (65,000)
Cash available for partners P136,000 P129,000 P265,000
Cash available for credits 120,000
Total cash from sale of noncash assets $385,000

7. IFRS 4 Insurance Contracts applies to the following except:

a. Insurance contracts
b. Product warranties issued directly by a manufacturer, dealer or retailer
c. Financial instruments that it issues with a discretionary participation feature
d. Reinsurance contracts.

Answer: B
IFRS 15 Revenue from Contracts with Customers and IAS 37 Provisions, Contingent
Liabilities and Contingent Assets are the applicable standards for product warranties
issued directly by a manufacturer, dealer or retailer.

8. HARLEY QUINN 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?

a. P840,000
b. P865,000
c. P850,000
d. P955,000

Answer: C

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
9. Matatalo Tayo Ventures operates a branch in Cebu City. Selected accounts taken from the May
31, 2016 statements of Matalo Tayo and its branch follow:

Home Office Branch

Sales P380,000 P353,000
Shipments to branch 150,000 -
Shipments to branch-loading 39,500 -

Inventory, June 1, 2015 24,000 16,000

Purchases 300,000 60,000

Shipments from home office - 187,500

Inventory, May 31, 2016 28,000 20,700

The branch ending inventory included items costing P8,700 that were acquired from outside
suppliers. What is the realized markup on branch merchandise that would be recognized by the
home office?

a. P39,500
b. P37,500
c. P37,100
d. P39,100

Answer: C
Shipments to branch-loading/allowance for overvaluation
of merchandise before adjustments 39,500
Allowance for overvaluation of ending inventory (after (2,400
adjustment): (20,700-8,700)x25/125* )
Realized mark up on branch merchandise 37,100

*Since there are no shipments in transit and there was no error in recording shipments,
therefore, the shipments from office account was correctly recorded, so, to compute for
the billing price would be: 187,500/150,000 = 25%. Markup on cost would be 25%

10. Zero, Inc. was involved in two default and repossession cases during the year:

I. A refrigerator was sold to Sweet Sixteen for P 18,000, including a 35% mark up on selling
price. Sweet made a down payment of 20%, four of the remaining 16 equal payments, and
then defaulted on further payments. The refrigerator was repossessed, at which time the
fair value was determined to be P 6,000.
II. An oven that cost P 12,000 was sold to Teen Eighteen for P 16,000 on the installment basis.
Teen made a down payment of P 2,400 and paid P 800 a month for six months, after which
he defaulted. The oven was repossessed and the estimated value at the time of repossession
was determined to be P 7,500.

What is the gain or loss on repossession that Zero, Inc. must report for financial reporting
purposes?

a. P1,100 loss
b. P1,020 loss
c. P 900 gain
 d. P 120 loss

Answer: B
In Case A, the loss on repossession is computed as follows:
Fair value of repossessed merchandise P 6,000
Less: Unrecovered cost
(P18,000 - 3,600 - (900* x 4)) x 65% 7,020
Loss on repossession P 1,020
*Remaining equal payments (P18,000 x 80%) / 16 = P900
In Case B, there is a gain on repossession of P900. It is not reported in the financial
statements as the repossessed merchandise should be carried at the lower of cost or net
realizable value.
NCR CUP 2: ADVANCED FINANCIAL ACCOUNTING AND REPORTING
Clincher Round Questions and Answers
Note: All problem questions given to the contestants have no choices. These questions serve
also as substitute also to voided questions.

Easy
1. Partners JJ and KK share in p/l in the ratio of 60:40 respectively. JJ’s salary is 60,000 and 30,000
for KK. The partners are also paid interest on their average capital balances. In 2017, JJ received
30,000 of interest and KK, 12,000. The p/l allocation is determined after deductions of salary and
interest payments. If KK’s share in the residual was 60,000 in 2017, what is the total partnership
income?

a. 192,000
b. 345,000
c. 282,000
d. 387,000

Answer: C

JJ KK Total
Salary 60000 30000 90000
Interest 30000 12000 42000
Balanc
150000
e
282000

2. Partner A first contributed P50,000 of capital into an existing partnership on March 1, 2015. On
June 1, 2015, the partner contributed another 20,000. On September 1, 2015 the partner
withdrew 15,000 from the partnership, Withdrawals in excess of P10,000 are charged to the
partner’s capital account. The annual weighted-average capital balance is

a. 62,000
b. 51,667
c. 60,000
d. 48,333

Answer: B
March: 50,000 x 3 150,000
June: 70,000 x 3 210,000
September: 65,000 x 4 260,000
620,000
divide by: Months per Annum 12 months
51,667
3. When property other than cash is invested in a partnership, at what amount should the noncash
property be credited to the contributing partner’s capital account?

a. Fair value at the date of contribution.

b. Contributing partner’s original cost.
c. Assessed valuation for property tax purposes.
d. Contributing partner’s tax basis.

Answer: A
 Noncash assets contributed to an entity should be recorded at fair market value at the
date of contribution. The creation of a new entity creates a new accountability for these assets.
The partner’s original cost relates to a previous accountability. The assessed valuation and the
tax basis may differ from fair market value.

Average
1. A business combination is accounted for properly as a purchase. Direct costs of combination,
other than registration and issuance costs of equity securities, should be

a. Capitalized as a deferred charge and amortized.

b. Deducted directly from the retained earnings of the combined corporation.
c. Deducted in determining the net income of the combined corporation for the period in
which the costs were incurred.
d. Included in the acquisition cost to be allocated to identifiable assets according to their
fair values.

Answer: D
Direct costs of acquisition, such as legal, accounting, consulting, and finder’s fees, are
included in the cost of the company acquired. The costs of registration and issuance of
equity securities reduce the otherwise determinable fair value of the securities, ordinarily
as a debit to additional paid-in capital.

2. ABC Manufacturing Company ships merchandise costing P40,000 on consignment to XYZ

Stores. ABC pays P3,000 of freight costs to a transport company, and XYZ pays P2,000 for local
advertising costs that are reimbursable from ABC. By the end of the period, three fourths of the
consigned merchandise has been sold for P50,000 cash. XYZ notifies ABC of the sales, retains a
10% commission and the paid advertising costs, and remits the cash due ABC. Select the journal
entry that appropriately records the notification of sale and the receipt of cash by ABC.

A. Cash P40,000
Advertising expense 2,000
Commission expense 5,000
Freight expense 3,000
Revenue from consignment sales P50,000
B. Cash P43,000
Advertising expense 2,000
Commission expense 5,000
Revenue from consignment sales P50,000
C. Cash P50,000
Revenue from consignment sales P50,000
D. Cash P45,000
Commission expense 5,000
Revenue from consignment sales P50,000

Answer: B
ABC debits the cash received P43,000 [P50,000 sales - P2,000 advertising - (.10 x P50,000)
sales commission]. The advertising and commission expenses are debited for P2,000 and
P5,000, respectively. Finally, P50,000 of gross revenue is credited.

3. Using the cost-recovery method of revenue recognition, profit on an installment sale is recognized

a. On the date of the installment sale.

b. In proportion to the cash collections.
c. After cash collections equal to the cost of goods sold have been received.
d. On the date the final cash collection is received
 Answer: C
Under the cost-recovery method, no revenue is recognized until cash payments by the
buyer exceed the seller's cost of the merchandise sold. This method is appropriate when
collection of the revenue is very uncertain.

Final
1. In general, an acquirer measures and accounts for assets acquired and liabilities assumed or
incurred in a business combination after the business combination has been completed in
accordance with other applicable IFRSs. However, which of the following that the International
Financial Reporting Standards 3 Business Combinations (IFRS 3) specifically provides
accounting requirements?

a. reacquired rights
b. contingent liabilities
c. contingent consideration
d. insurance contracts.

Answer: D
Paragraph 17 of IFRS 3 Business Combinations provide one of the two exceptions of
which insurance contracts are covered by IFRS 4 Insurance Contracts.

2. The following condensed balance sheet is presented for the partnership of Erwin and Levi, who
share profits and losses in the ratio of 60:40, respectively:

Other assets P450,000

Erwin, loan 20,000
P470,000
Accounts payable P120,000
Erwin, capital 195,000
Levi, capital 155,000
P470,000

The partners have decided to liquidate the partnership. If the other assets are sold for P385,000,
what amount of the available cash should be distributed to Erwin?

a. P136,000
b. P156,000
c. P159,000
d. P195,000

Answer: A
This situation represents a simple liquidation since all assets are distributed at one point
in time rather than in installments. In a simple liquidation all of the noncash assets are
sold and the proceeds from their sale are compared to their book value to compute the
gain or loss. The gain or loss on the assets is then distributed to the partners’ accounts
before any of the cash is distributed. The partner loan should not be considered a
noncash asset for the purpose of determining gain or loss, thus, Erwin is responsible to
the partnership for the repayment of the entire amount of the loan. The repayment of the
loan reduces that partner’s (Erwin) distribution as follows:

Partner balances
before liquidation Erwin Levi Total
Loan (debit) P(20,000) -- P(20,000)
 Capital (credit) 195,000 P155,000 350,000
Net balances P175,000 P155,000 P330,000
Loss on sale of other assets (450 – 385) 39,000 26,000 (65,000)
Cash available for partners P136,000 P129,000 P265,000
Cash available for credits 120,000
Total cash from sale of noncash assets P385,000

3. The Income Statements of Pain Inc. and Sick Co. are:

Pain Sick
Sales & Other Income P1,000,000 P400,000
Cost of Sales 500,000 150,000
Other Expenses 300,000 170,000

Net Income P200,000 P80,000

Dividends Paid P60,000 P20,000

How much is the Net Income attributable to Parent assuming Pain Inc. owns 80% of Sick Co.?
a. P280,000
b. P264,000
c. P200,000
d. P248,000

Answer: D

Total income of Pain & Sick P280,000

Dividend income from subsidiary (80% x
20,000) (16,000)
Non-controlling interest (20% x 80,000) (16,000)

Net income attributable to Parent P248,000