NATIONAL MOCK BOARD EXAMINATION 2017 ADVANCED FINANCIAL ACCOUNTING AND REPORTING CASE 1 1.
Which of the following costs shall be considered as both prime costs and conversion costs? a. Supervisory salaries for manufacturing plant b. Property taxes on manufacturing plant c. Costs of direct materials used un production d. Employee benefits earned by machine operators in producing the firm’s product
2.
When a contract outcome cannot be estimated reliably, which action should be taken relative to recognizing revenue? A. Recognize contract revenue and costs by reference to the stage of completion of the contract at the balance sheet date. B. Recognize revenue only when it becomes possible to foresee the outcome of the contract. C. Recognize revenue only to the extent of costs incurred that it is probable will be recoverable. D. None of the above
3.
When treating exchange differences, what is included in income for the period? A. Gains or losses arising when monetary items are settled at amounts different from their carrying value B. Differences arising when monetary items held at the year-end are retranslated at the closing rate C. Exchange differences arising from the translation of a foreign operation previously classified in equity D. A and B E. B and C
4.
Which of the following examples of disclosures are required under IAS 27 (Revised)? A. The entity has elected not to prepare consolidated financial statements. The entity measures its investments in subsidiaries at fair value. The fair value was determined in accordance with its quoted price in the London Stock exchange at 31 December 20X1 of 400. B. The entity has elected not to prepare consolidated financial statements. The entity measures its investments in subsidiaries at cost. The summarized financial information for the joint venture is as follows: currents assets – 100; non-current assets – 400; current liabilities – 300, non-current liabilities – 200; revenue – 1,200. C. The entity has elected not to prepare consolidated financial statements. The entity measures its investments in subsidiaries at fair value. The amount of the transactions with its Subsidiary B is 1,300. Trade receivables from Subsidiary B are 200. The borrowings from Subsidiary B amount to 1,100. D. The entity has elected not to prepare consolidated financial statements. The entity measures its investments in subsidiaries and joint ventures at cost. The entity has two subsidiaries (ABC and DEF) and one joint venture (JHG). The subsidiaries are wholly owned whereas the joint venture is owned at 50%. The activities of the subsidiaries and joint venture are real estate.
5.
To which financial statements is IAS 29 applied? A. The primary statements of any entity that reports in the currency of a hyperinflationary economy B. The interim statements of any entity that reports in the currency of a hyperinflationary economy C. The cash flow statements of any entity that reports in the currency of a hyperinflationary economy D. The balance sheet of the parent entity that owns an entity located within a hyperinflationary economy
6.
PFRS 3 – Business Combinations does not apply to which of the following? I. Formation of a joint arrangement. II. Combination of entities or businesses under common control. III. Acquisition of an asset or a group of assets that constitute a business. IV. Acquisition by an investment entity of an investment in a subsidiary V. Not-for-profit organizations. a. I, II and III only b. I, II and IV only c. I, II, III and V only
d. I, II, III, IV and V
7.
Franchise fees received upon contract signing shall be recognized as income by the franchisor when the following conditions are met, EXCEPT: A. Substantial performance required under the contract is done B. Period of refund for any amount received under the contract has expired C. Franchise operations have earned considerable income to defray franchising expenses D. Collectability of any promissory note arising from the franchise agreement is reasonably assured
8.
Under PFRS 10, what factor/s should an investor consider in assessing whether it has de facto control over an entity? a. Voting patterns at future shareholders meetings b. Size of the investor’s holding of voting rights relative to the size of dispersion of other vote holders c. Non-voting rights held by the investor or other vote holder d. All of the above.
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9.
When will the average process costing method produce the same cost of goods manufactured as the FIFO process costing method? a. When materials are added 100% at the end of the process. b. When materials are added 100% at the beginning of the process. c. When the beg. WIP inventory and ending WIP are equal. d. When there is no beg. WIP inventory.
10. Group A has acquired the following. Which of the following acquisitions are business combinations under IFRS 3? A. Land and a vacant building from Company B. No processes, other assets or employees are acquired. Group A does not enter into any of the contracts of Company B. B. An operating hotel, the hotel’s employees, the franchise agreement, inventory, reservations system and all “back office” operations. C. All of the outstanding shares in Biotech D, a development stage company that has a license for a product candidate. Phase I clinical trials are currently being performed by Biotech D employees. Biotech D’s administrative and accounting functions are performed by a contract employee. a. All three acquisitions are business combinations under PFRS 3. b. A and B acquisitions are business combinations under PFRS 3. c. A and C acquisitions are business combinations under PFRS 3. d. B and C acquisitions are business combinations under PFRS 3. 11. Amounts that have been billed by the contractor but are not paid by the customer until the satisfaction of conditions specified in the contract for the payment of such amounts, or until defects have been rectified. a. Advances b. Incentives c. Retentions d. Progress billings 12. HFR Ltd. has a 12% holding in the shares of ABC Ltd. In addition, HFR has, through one of its subsidiaries, an option to buy 13% more shares in ABC. Although the exercise price is in the money, HFR does not have the intention and the financial ability to exercise this option. a. A subsidiary b. An associate c. A join arrangement d. None of these categories 13. In reporting a company that is to be liquidated, assets are shown at a. Book value b. Historical cost c. NRV
d. Present value using effective rate
14. Under PFRS 15 (effective January 1, 2018), revenue from contracts with customers a. Is recognized when the customer receive the right to receive consideration b. Is recognized even if the contract is wholly unperformed c. Can be recognized even when a contract is still pending d. Cannot be recognized until a contract exists 15. Entity A acquired Entity B. On the acquisition date, Entity B had an operating lease as a lessee with a remaining period of two years out of the original four years. Due to significant changes in the market, Entity B is paying less than what you would expect to currently pay for a similar lease. The value of the existing lease based on the current terms is 10,000 and that of a lease based on relative market terms is 13,000. How should Entity A account for this? a. Entity A should disregard this, as this is an operating lease of Entity B and no asset or liability is recognized related to operating leases. b. Entity A determines whether the terms of each operating lease in which Entity B is the lessee are favorable or unfavorable. Entity A should account for the difference between the value of the existing lease terms and the market terms in profit or loss. c. Entity A determines whether the terms of each operating lease in which Entity B is the lessee are favorable or unfavorable. Entity A should recognize an intangible asset separate from goodwill for the favorable portion of the operating lease relative to market terms. d. None of the above. 16. A partner’s drawing account is, in substance, a. A capital account b. A contra-capital account c. A salary expense account d. A loan account (a loan from the partnership) 17. Build Company recorded the following costs relating to the project of constructing a factory for a client: project manager costs of 1,000, costs of 1,500 to destroy an existing old factory building, costs of 500 to restore an old factory building, attributable insurance costs of 200, non-reimbursable general administration costs of 200, selling costs of 150, and reimbursable development costs of 200. Which of the following cost elements should not be included in the contract costs according to IAS 11 Construction Contracts? a. Costs relating to the destruction of an existing old factory building of 1,500 and restoration of an old factory building of 500 b. Attributable insurance costs of 200 and general administration costs of 200 c. Costs relating to the destruction of an existing old factory building of 1,500, restoration of an old factory building of 500, and general administration costs of 200 d. General administration costs of 200 and selling costs of 150 e. General administration costs of 200, selling costs of 150, and reimbursable development costs of 200 2|P
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18. Binfathi Group acquired an 80% interest in Entity B. The consideration for the 80% interest in Entity B was P36,000 in shares in Binfathi and P12,000 in cash. To issue the shares, Binfathi incurred a cost of P2,000 and incurred costs of P1,400 associated with legal fees and the valuation of Entity B. The fair value of the net assets of Entity B amounted to P64,000. How should Binfathi account for this acquisition? a. Binfathi shall book a gain (negative goodwill) through profit or loss of 3,200 related to the acquisition, recognize expenses of 1,400 and deduct from equity 2,000 relative to the cost of issuing the shares. b. Binfathi shall book goodwill as an asset of 200. c. Binfathi shall book a gain (negative goodwill) through profit or loss of 1,200 and recognize the costs of legal fees of 1,400 as expenses in profit or loss. d. Binfathi shall book a gain (negative goodwill) though profit or loss of 3,200 and recognize expenses of 3,400, relative to the costs of issuing shares, paying legal fees and performing the valuation of Entity B, in profit or loss. 19. Under the cost recovery method of revenue recognition (assuming properly disclosed in the notes to FS), a. Income is recognized immediately b. Income is recognized on a proportionate basis as the cash is received on the sale of the product c. Income is recognized when the cash received from sale of the product is lower than the cost of the product d. Income is recognized when the cash received from sale of the product is higher than the cost of the product 20. With which of the following disclosure requirements should an entity comply, according to IAS 11, Construction Contracts (Select the incorrect item)? a. The amount of contract revenue recognized as revenue in the period b. The methods used to determine the stage of completion of contracts in progress c. Advances received in cash at the balance sheet date, for each material contract d. The methods used to determine the contract revenue recognized in the period 21. The “Home Office” ledger account in the accounting records of a branch is best described as: a. An equity account b. A revenue account c. A liability account d. A deferred income account 22. The consideration transferred in the business combination was P55,000. Transaction costs amount to P1,000. The fair value of the acquiree’s net assets at the acquisition date was P63,000. The acquirer has not yet decided whether to measure the 20% non-controlling interest (NCI) in the acquiree at the NCI’s proportionate share of the fair value of the acquiree’s net assets, which is P12,600, or at the NCI’s fair value, which is P13,000. Does the choice of measuring the NCI impact the determination of goodwill at the acquisition date? a. No, the accounting policy choice for NCI does not impact goodwill at the acquisition date. b. Yes, it does. If the acquirer values the NCI at its proportionate share of the fair value of the acquired business, the goodwill amounts to P4,600; if the acquirer values the NCI at its fair value, then the goodwill amounts to P5,000. c. Yes, it does. If the acquirer values the NCI at its proportionate share of the fair value of the acquired business, the goodwill amounts to P5,600; if the acquirer values the NCI at its fair value, then the goodwill amounts to P6,000. d. No, it does not. However, the accounting policy choice for NCI impacts the fair value of the acquiree’s net assets. If the acquirer values the NCI at its proportionate share of the fair value of the acquired business, the acquiree’s net assets amount to P63,000; if the acquirer values the NCI at its fair value, then the acquiree’s net assets amount to P63,400. 23. In partnership liquidation, the final cash distribution to the partners should be made in accordance with a. Partners’ profit and loss ratio b. Balances of the partners’ capital accounts c. Ratio of capital contributions by the partners d. Ratio of capital contributions less withdrawals by the partners 24. Entity A had several business acquisitions during the reporting period and after the reporting period. Entity A will disclose, among other information, the following:
The name and a description of the acquiree The acquisition date The percentage of voting equity interests acquired The primary reasons for the business combination and a description of how the acquirer obtained control of the acquiree
a. These disclosures shall be done for each business combination that occurred in the reporting period only, but are not required for business combinations that occurred after the end of the reporting period. b. These disclosures shall be done for each material business combination that occurred both in the reporting period and after the end of the reporting period, but before the financial statements are authorized for issue. The information is disclosed in aggregate for individually immaterial business combinations. c. These disclosures are optional for each business combination that occurred both in the reporting period and after the end of the reporting period, but before the financial statements are authorized for issue. d. These disclosures shall be done for each business combination that occurred both in the reporting period and after the end of the reporting period, but before the financial statements are authorized for issue.
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25. Under the installment method of revenue recognition, when interest is charged, each cash collection made after the sale is composed of: a. Cost and profit b. Cost and interest c. Interest and profit d. Cost, interest and profit 26. Entity A acquired Entity B, which is a material business combination, during the reporting period. Among the assets acquired, trade accounts receivable were provisionally accounted for at fair value of 1,736. Which of the following information shall be provided additionally to the fair value amount of the trade accounts receivable? Select all that apply. I. II. III. IV.
Entity A does not need to disclose any further information. Entity A must disclose that the fair value of the accounts receivable was determined provisionally. Entity A must disclose the nominal value of the accounts receivable. Entity A must disclose the amount of the contractual cash flows that it does not expect to collect. a.
I, II, III and IV
b. I, II and III only
c.
II, III and IV only
d.
I and II only
27. Which of the following is/are false? I. When estimating the outcome of cost-plus contracts, it is necessary to be able to predict the total costs, past and future, in order to assess the final profit, and also to make accurate assessments of the stage of completion that has been reached at the balance sheet date. II. In the case of a service provider, inventories (essentially their work in progress) should include profit margins and non-attributable overheads. a. I only b. II only c. I and II d. Both are True 28. In partnership liquidation, the final cash distribution to the partners should be made in accordance with a. Partners’ profit and loss ratio b. Balances of the partners’ capital accounts c. Ratio of capital contributions by the partners d. Ratio of capital contributions less withdrawals by the partners 29. In preparing the combined financial statements of the home office and its various branches: a. Both reciprocal and nonreciprocal accounts are combined b. Both reciprocal and nonreciprocal accounts are eliminated c. Reciprocal accounts are eliminated but nonreciprocal accounts are combined d. Reciprocal accounts are combined but nonreciprocal accounts are eliminated 30. The goodwill resulting from the acquisition of Entity C by Entity B amounts to 50,000. Which disclosures does Entity B provide relating to the goodwill? Select all that apply. I. II. III.
Entity B shall describe the factors that make up the goodwill to be recognized. Entity B shall disclose the total amount of goodwill deductible for tax purposes. Entity B shall disclose the amortization period of goodwill for tax purposes. a. I, II and III
b. I and II only
c.
I and III only
d.
I only
CASE 2 Queen Consolidated Inc.(QCI), a listed company, has 45 million shares on issue (QCI shares experience high trade volumes) and operates in three (3) business segments: real estate business, airline operations and finance business operating in the Philippines (nationwide) with an annual revenue of approximately P120 million (M) and net assets (book value) of approximately P300 M. QCI has 4 directors, quarterly reporting (as required for listed entities) and a December 31 annual year-end reporting date. On the other hand, STAR LAB Inc. (SLI) is a listed company and has 600 million shares on issue (SLI shares experience medium to high trade volumes). SLI operates in the Philippines in two business segments: on-line real estate advertising and home loans. The home loans business operates in two geographic locations within the country which are monitored separately for internal reporting purposes. SLI has annual revenue of approximately P30 M and net assets (book value) of approximately P201 M with 3 directors and a year-end reporting date of June 30. Both QCI and SLI prepare PFRS compliant financial statements. On April 1, 2016, QCI agrees to issue 30 million ordinary shares as consideration for the acquisition of 100% of the issued shares of SLI. As a result, the existing shareholders of SLI will take a 40% ownership interest in the combined entity. The published price of QCI’s ordinary shares as at that date is P28.50 per share. The published price of SLI’s ordinary shares as at that date is P1.50 per share. On May 1, 2016, QCI acquires 100% of the issued capital of SLI in exchange for 30 million QCI shares. The published price of QCI’s ordinary shares as at that date is P30 per share. The published price of SLI’s ordinary shares as at that date is P1.50 per share. QCI incurred legal fees and other due diligence costs as a result of the transaction totaling P15 M. QCI also maintains an acquisitions department. QCI’s costing systems are well established and QCI is able to determine the cost incurred by the 4|P
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acquisitions department for each acquisition undertaken. QCI’s cost records indicate that the department’s costs associated with this transaction were P6 M. QCI also incurred costs associated with the issue of shares totaling P3 M. As a result of the transaction above, 2 directors of SLI have now taken up board positions with QCI. There are now 6 directors in QCI. Based on the above information and independent assumptions below, determine the following: 31. Assume that a newly formed company, ARROWverse Company, effected the business combination between QCI and SLI by issuing shares to the owners of QCI and SLI in exchange for the issued shares of those companies. Also, assume that as a result of the transaction, the existing directors of QCI and two of the existing directors of SLI have taken up the board positions in ARROWverse Company. Which entity would be adjudged the acquirer under PFRS 3? a. QCI b. SLI c. ARROWverse Co. d. Any of the choices 32. Assume that in order to effect the business combination, SLI issued shares to the owners of QCI in exchange for the issued shares of QCI. Also assume that as a result of the transaction, the existing four directors of QCI taken up board positions with SLI and that one of the directors of SLI has resigned. There are now six directors in SLI. Which entity would be adjudged the acquirer under PFRS 3? a. QCI c. SLI since SLI initiated the combination b. SLI d. SLI since SLI transferred consideration 33. Which date would be adjudged the acquisition date under PFRS 3? a. April 1, 2016 b. May 1, 2016 c. Either since it’s an accounting policy choice
d.
Not determinable
34. Assume that on April 1, 2016, QCI agrees to issue 30 million ordinary shares as consideration for the acquisition of 100% of the issued shares of SLI and the agreement states that control passes as of the date of the agreement (April 1, 2016). QCI issues the 30 million QCI shares on June 1, 2016. Which date would be adjudged the acquisition date under PFRS 3? a. April 1, 2016 b. May 1, 2016 c. June 1, 2016 d. A, B or C since it’s an acctg. policy choice 35. Assume that on May 1, 2016, QCI acquires 100% of the issued capital of SLI in exchange for 10 million QCI shares. In the agreement is a clause that states that the acquisition date is from March 1, 2016. Which date would be adjudged the acquisition date under PFRS 3? a. 1- Mar-2016 b. 1-Apr-2016 c. 1-May-2016 d. 1-Jun-2016 e. Judgment between B or C 36. Assume that On May 1 2016, QCI acquires 100% of the issued capital of SLI in exchange for 10 million QCI shares. However, as SLI operates in a strictly controlled environment, changes in ownership need to be approved by the local government. The approval cannot be taken as a given because the local government does not operate on a consistent basis. The local government approved the transaction on July 1, 2016. a. April 1, 2016 b. May 1, 2016 c. July 1, 2016 d. A, B or C since it’s an acctg. policy choice CASE 3 Vex, general manager of AB Corporation, provided the following information for transactions that occurred during August. The corporation uses JIT costing system:
Raw materials purchased and requisitioned for product were ₱84,000. Direct labor costs of ₱78,000 were incurred. Actual factory overhead costs amounted to ₱250,000. Applied conversion costs totaled ₱340,000. This included ₱78,000 of direct labor. All units were completed.
37. How much is the balance of Finished Goods account in August 31? a. P412,000 debit b. P424,000 debit c. P412,000 credit
d.
P424,000 credit
CASE 4 PBC Company’s Job 004 manufactured 13,750 units that were completed in February at unit costs presented as follows: Direct materials Direct labor Factory overhead (includes an allowance of P15 Spoiled work)
P300 270 270
Final inspection of Job 004 disclosed 1,250 spoiled units, which were sold for P225,000. 38. What would be the unit cost of good units if the spoilage loss is attributable to exacting specifications of Job 004? a. P 840 b. P 889.50 c. P 825 d. P 862.50 39. What would be the unit cost of good units if the spoilage loss is attributable to internal failure? a. P 840 b. P 889.50 c. P 825 d. P 862.50 5|P
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CASE 5 On January 1, 2016, Bruno Co. acquired all of the identifiable assets and assumed all liabilities of Mars, Inc. by paying P1,000,000. On this date, identifiable assets and liabilities assumed have fair value of P1,600,000 and P900,000, respectively. Terms of the agreement are as follows: (a) 30% of the price shall be paid on January 1, 2016; (b) the balance on December 31, 2017 (the prevailing market rate on the same date is 12%). The acquirer shall also transfer its piece of land with book and fair value of P500,000 and P300,000, respectively. Included in the liabilities assumed is an estimated liability for deficiency taxes. The carrying amount and fair value of this provision amounted to P120,000 and P97,500, respectively. The acquiree guarantees that this provision would only be settled for P90,000. Based on the foregoing, determine the following: 40. The amount of indemnification asset to be recognized, if any a. P30,000 b. P22,500 c. P7,500
d.
P0
41. The net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed measured in accordance with PFRS 3 a. P730,000 b. P722,500 c. P707,500 d. P700,000 CASE 6 CP, LK and TQ share profits in the ratio of 3:5:2. On April 30, LK opted to retire from the partnership. The capital balances on this date follow: CP P280,000 LK P350,000 TQ P320,000 42. Assuming LK sold her interest to TQ for P375,000, which of the following statements is false upon retirement of LK? a. LK’s personal assets will increase by P375,000. b. The capital account of CP will not change. c. TQ’s capital account in the partnership will increase by P670,000. d. The total capital of the partnership after the retirement of LK is P950,000. CASE 7 The production data for Department 1 for August 2016 are as follows: Actual units 40,000 296,000 244,000 32,000
WIP, August 1 (1/4 done as to conversion costs) Started in August Transferred out during August Spoiled units Cost of beginning work-in-process: Materials Conversion costs
₱500,000 ₱60,000
Current costs: Materials Conversion costs
₱2,960,000 ₱1,884,000
Unit costs: Materials Conversion costs
₱10 ₱6
Materials are added at the start of the process. Conversion costs are added evenly during the process. The company uses the FIFO method of costing. Inspection occurs, when production is 100% complete. Normal spoilage is 11% of good units transferred out during August.
What are the costs allocated to the following? 43. Next Department a. P3,264,000
b. P4,456,000
c.
P4,433,440
d.
P3,944,000
44. In-process, end in Department 1 a. P1,370,560 b. P1,317,440
c.
P888,000
d.
Not determinable
45. Period cost a. P512,000
c.
P82,560
d.
Not determinable
b. P82,000
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CASE 8 BTS Company acquired all of the outstanding shares of BigBang Company by issuing its own P15 par value ordinary shares totaling 46,667 shares at market price of P 15.70. BTS Company had the following expenditures incurred: Finder’s fee paid Pre-acquisition audit fee/accounting due diligence, 30% was paid General administrative costs Legal fees for the combination paid Audit and legal fees for SEC registration of share issue Listing fees paid for the shares issued Other share issuance costs paid (inclusive of any tax cost) Other indirect costs paid Documentary stamp tax (DST) paid on the original issuance 46. The total amount debited to expense should be a. P 153,000 b. P 163,000 CASE 9
c.
P 50,000 40,000 15,000 32,000 46,000 10,000 10,000 16,000 3,500
P 176,333
d.
P 179,833
CV and LX are partners with profit and loss of 80:20 and capital balances of P700,000 and P350,000, respectively. TM is to be admitted into the partnership by purchasing a 30% interest in the capital, profit and losses for P420,000. Assuming that no asset revaluation is to be made, 47. a. b. c. d.
Which of the following is true in the books of the partnership upon admission if TM? Increase in assets in the amount of P420,000. Credit capital accounts of the selling partners with total amount of P315,000 The entry upon admission will not affect the total capital of the partnership. Decrease in capital account of the acquiring partner in the amount of P105,000.
48. Assume this time, upon admission of TM, the equipment of the partnership is undervalued, which of the following is false? a. Increase in assets in the amount of P350,000. b. The capital account of CV will be credited in the amount of P280,000 for his share in the adjustment of the undervalued equipment. c. The capital account of LX will be debited in the amount of P56,000 upon transfer of capital to the new partner. d. The capital account of CV will have a net decrease of P14,000 as a result of revaluation of asset and admission of TM. CASE 10 XXX Inc. sells automatic weapons costing P700,000 at a price of P1,200,000. Division Corp. buys a dozen of automatic weapons on installment and trade in six of its old weapons at a trade-in value of P300,000 each. XXX Inc. spends P25,000 to recondition the old guns and sells them for P315,000. XXX Inc. expects a 10% gross profit from the sale of used guns. 49. What is the under-allowance granted by XXX Inc, on the trade-in transaction? a. P249,000 b. P234,000 c. P99,000
d.
P0
CASE 11 On December 31, 2016, the following figures were taken from the trial balances of Blackpink Company and 2ne1 Co.: Current assets Noncurrent assets
Blackpink P 175,000 725,000
Liabilities Ordinary Share Capital, P20 par Share Premium Accumulated profits (losses)
65,000 550,000 35,000 250,000
P
2ne1 65,000 425,000 35,000 300,000 25,000 130,000
On January 1, 2017, Blackpink issues 35,000 shares with a market value of P25/share for the net assets of 2ne1. The book value reflects the fair value of the assets and liabilities, except that the noncurrent assets of 2ne1 have fair value of P630,000 and Blackpink discovered an error on its books that resulted into an overstated noncurrent asset of P30,000. Contingent consideration payable after 2 years if profit target will be achieved, which is determinable, have an expected value of P18,151. Applicable discount rate on this type of agreement is 10%. Blackpink also paid for the share issuance costs worth P34,000 and other acquisition related costs amounting to P19,000. Based on the foregoing, determine the following: 50. The amount of gain on bargain purchase recognized a. P215,000 b. P233,151
c.
P230,000
d.
P0
51. Combined total assets after the merger a. P1,742,000 b. P1,745,151
c.
P1,775,151
d.
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CASE 12 The company signed an P800,000 contract to build an environmentally friendly access trail to Morayta, Manila. The project was expected to take approximately 3 years. The following information was collected for each year of the project – Year 1, Year 2, and Year 3: Cost Expended during the Year Year 1 Year 2 Year 3
P100,000 150,000 250,000
Expected Support Additional Trail feet Additional trail additional cost to timbers laid support timbers constructed feet to be completion during the year to be laid during the year constructed P450,000 150 850 3,000 15,200 280,000 300 520 7,500 8,200 -0500 -08,000 -0-
Compute the amount of revenue to be recognized in Year 3, assume that the company employs 52. the efforts-expended method of estimating percentage of completion, if the company measures its progress by the number of support timbers laid in the trail a. P428,864 c. P428,864 b. P422,640 d. P350,800 53. an output measure, if the company measures its progress by the number of trail feet that have been completed: a. P428,864 c. P428,864 b. P422,640 d. P350,800 CASE 13 The Brooke Corporation has two branches, Branch P and Branch Q. The home office shipped P80,000 in merchandise to Branch P and prepaid the freight charges of P500. A short time thereafter, Branch P was instructed to ship this merchandise to Branch Q at a prepaid freight cost of P700. Freight charges for this merchandise normally cost P800 when shipped from the home office directly to Branch Q. 54. Compute the excess freight on transfers of merchandise: a.
P700
b.
P800
c.
P500
d. P400
CASE 14 On May 31, 2016, TVD Company, a subsidiary of CW Philippines Corporation, through TO Inc., completed the purchase of the net assets (including certain contracts) of Archie Company. The transaction between TVD Company and Archie Company qualifies for recognition under PFRS 3 since it involves acquisition of group of assets qualifying as a business. The total purchase price paid for said acquisition is P2 M. Based on the guidance provided for under IFRS 3, below are the fair values of Archie Company’s assets and liabilities: Real Property Leases Personal Properties (BV is P600,000) Business Contracts Customer and Supplier List Transportation and Warehouse Management System Unearned Revenues Key employees
[nil] 800,000 [nil] [nil] [nil] [nil] [nil]
Entities involved are all subject to the 30% regular corporate income tax (RCIT). Based on the tax rules in the Philippines for this type of acquisition, TVD Company can depreciate the acquisition cost of the assets other than land (if any) acquired over the remaining life thereof and claim the same as a deduction for income tax purposes. TVD Company is expected to be in net income/taxable income position in the future and is not expected to incur any losses for both accounting and tax purposes. Based on the foregoing, determine the following: 55. Total amount of net assets (including DTA/DTL, if any) that will be considered in determining the goodwill or gain on bargain purchase a. P1,220,000 c. P800,000 b. P1,160,000 d. P0 since acquisition of assets only 56. The amount of DTA or DTL to be recognized related to the goodwill (GW), if any a. P0 since initial recognition exception per PFRS 3 b. P0 since initial recognition exception per PAS 12 c. P0 since upon actual write off of goodwill, the same is not allowed to be deducted for income tax purposes d. P234,000 DTA e. P234,000 DTL 57. The net impact on total asset of the transaction above is a. P0 b. P600,000 c.
P800,000
d.
P1,800,000 8|P
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CASE 15 On January 1, 2016 an entity purchased a tract of vacant land that is situated overseas for Baht90,000. The entity classified the land as investment property. The fair value of the land at December 31, 2013 is Baht100,000. The entity’s functional currency is Php (Peso). Spot currency rates: January 1, 2013 : 1 Baht= P2 Weighted average exchange rate in 2013 : 1 Baht = P2.04 December 31, 2013 : 1 Baht = P2.10 58. What is the carrying amount of the investment property at December 31, 2016 and what amount would be presented in profit or loss for the year ended December 31, 2016? a. Carrying amount of investment property = P210,000. Profit for the year includes P30,000 increase in the fair value of the investment property. b. Carrying amount of investment property = P210,000. Profit for the year includes P20,400 increase in the fair value of the investment property and P9,600 foreign exchange (forex) gain. c. Carrying amount of investment property = P180,000. Profit for the year includes no amount in respect of the investment property. d. Carrying amount of investment property = P189,000. Profit for the year includes P9,000 forex gain. CASE 16 The ABC Chemical Company produces a product known as “minergy” from which by-product results. • • • • • •
This by-product can be sold at ₱10 per pound. The manufacturing costs of the main product and by-product up to the point of separation for the three months ended March 31, 2012 follows: Materials, ₱175,000; Labor, ₱100,000; Overhead, ₱100,000. The units processed were 35,000 pounds of the main product and 3,500 pounds of the by-product. During the period, 31,500 pounds of the “minergy” were sold at ₱48; while the company was able to sell 2,625 pounds of the by-product. Selling and administrative expenses related to the main product amounted to ₱210,000. Disposal cost per each unit of the by-product is ₱2.
Assume that the by-product is inventoried and recorded at net realizable value. The net realizable value of the by-product reduces the manufacturing costs of “minergy”. What is the unit cost of “minergy”? Assume that the by-product is recorded as realized. What is the cost of inventory of “minergy”? a.
P10.71; P37,500
b.
P9.91; P37,500
c.
P9.91; P34,700
d.
P10.71; P34,700
CASE 17 The historical comprehensive income statement of Reese Company for 2016 Sales Less: Cost of sales Inventory, January 1 Add: Purchases Less: Inventory, December 31 Gross profit Less: Operating expenses, other than depreciation Depreciation expense Net loss
2,500,000 175,000 1,250,000 250,000
1,175,000 1,325,000 1,000,000 1,000,000 675,000
Sales were earned, purchases other than ending inventory were made and operating expenses other than depreciation expense were incurred evenly throughout the year. Ending inventory was acquired during the last week of December 2016 Depreciable assets were acquired on January 1, 2013 General price indices were: January 1, 2013 January 1, 2016 December 31, 2016
125 140 360
59. If Reese Company was operating in a hyperinflationary economy, the amount to be reported as net income (loss) is a.
P2,720,000
b.
P2,412,000
c.
P972,000
d.
P675,000
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CASE 18 On December 31, 2016, Conti’s Inc. authorized Mary Grace Co. to operate as a franchisee for an initial franchise fee of P3.40 million (M). Upon signing the contract, P0.90M was received and the balance is paid by a note, due in 5 equal annual installments, beginning December 31, 2017. The prevailing market rate is 12%. The down payment is nonrefundable and it represents a fair measure of the services already performed by Conti’s and substantial future services are still required. 60. How much is the deferred revenue to be recognized as of December 31, 2016? a. P 1,518,677 b. P 1,802,390 c. P 2,500,000
d.
P 2,702,390
CASE 19 Forrest Company uses standard cost system for its production process and applies overhead on direct labor hours. The following information is available for August when Forrest made 4,500 units: Standards: DLH per unit Variable overhead per DLH Fixed overhead per DLH Budgeted variable overhead Budgeted fixed overhead Actual: Direct labor hours Variable overhead Fixed overhead
2.50 P1.75 P3.10 P21,875 P38,750 10,000 P26,250 P38,000
61. Using two-variance approach, what is the controllable variance? a.
P 5,812.50 U
b.
P 5,812.50 F
c.
P 4,375 U
d.
P 4,375 F
c.
P 3,875 F
d.
P 6,062.50 U
62. What is the non-controllable variance? a.
P 3,125 F
b. P 3,875 U
CASE 20 On January 2, 2016, GCC Corporation purchase 80% of VIP Company’s outstanding shares for P19,000,000. Included in the price paid is control premium amounting to P500,000. The direct cost (acquisition related) amounted to P45,000 was debited as part of the investment in subsidiary account since GCC opted to use the cost method of accounting its investment in accordance with PAS 27. NCI is measured at the present ownership instruments' proportionate share in the recognized amounts of the VIP's identifiable net assets. At that date, VIP had P16M of ordinary shares outstanding and accumulated profits of P6.40M. GCC’s accumulated profits at the date of acquisition was P13.80M. VIP’s equipment with remaining life of 5 years had a book value of P9.00M and a fair value of P10.52M. VIP’s remaining assets had book value equal their fair values. All intangible assets except goodwill are expected to have remaining lives of 8 years. The income and dividend figures on the separate financial statements (SFS) for both GCC and VIP are as follows: Net income of GCC in 2016 is P3.60M; 2017 is P4.40M. Net income of VIP in 2016 is P1.36M; 2017 is P2.04M. Dividends declared by GCC in 2016 is P0.88M; 2017 is P1.56M. Dividends declared by VIP in 2016 is P0.28M; 2017 is P0.52M. Based on the foregoing, determine the following: 63. Non-controlling interest in net assets (NCINAS) in 2017 a. P 5,000,000 b. P 5,209,600
c.
P 5,158,000
64. Consolidated accumulated profits attributable to GCC in 2017 a. P 20,953,600 b. P 20,929,600 c. P 21,089,600
d.
d. P 5,182,400
P 21,044,600
e.
P 21,332,800
CASE 21 A taxpayer from the city of Las Pinas has the following information relating with his real property: FMV of Land, P500,000; FMV of Res. House, P1,500,000. The one percent (1%) real property tax and 1% special education tax are both based on the assessed value of the real property. The assessed value is 20% of the fair market value. Garbage fees amounted to P500. 65. How much is the total amount collected from the taxpayer? a. P 40,500 b. P 8,500
c.
P 400,500
d.
P 4,500
* * * END OF EXAMINATION * * * Queen of the Most Holy Rosary, pray for us!
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