ADVANCED FINANCIAL ACCOUNTING AND REPORTING

Problem Portion

Numbers 1 and 2 Partners!i" Formation#

A, B and C decided to form ABC Partnership. It was agreed that A will contribute an equipment with
assess
assessed
ed value
value of P100,00
P100,000 0 with
with histor
historica
icall cost
cost of P00,00
P00,000
0 and accumul
accumulate
ated
d deprec
depreciat
iation
ion of 
P!00,000. A da" after the partnership formation, the equipment
e quipment was sold for P #00,000.

B will contribute a land and building with carr"ing amount of P1,$00,000 and fair value of P1,%00,000.
&he land and building are sub'ect to a mortgage pa"able amounting to P#00,000 to be assumed b" the
 partnership. &he partners agreed that B will have !0( capital interest in the partnership. &he partners
also agreed that C will contribute sufficient cash to the partnership.

1. )hat is
is the total
total agreed
agreed capitali*
capitali*ation
ation of the ABC Partners
Partnership+
hip+
A. 1,%0
1,%00,
0,00
000
0
$% 2&''
&'''&'''
&'''
C. $,%0
$,%00,
0,00
000
0
. #,00
#,000,
0,00
000
0

$. )hat is
is the cash
cash to be contri
contributed
buted b" C in the ABC Partners
Partnership+
hip+
A% (''&'
'&'''
B. !00 ,000
C. -00 ,000
. 00,0
0,000

Numbers ) and * Partners!i" O"eration + Ca"ital A,,ount Transa,tions#

n /anu
/anuarar"
" 1, $01,
$01, A, B and C form formed
ed ABC
ABC Partn
Partner
ersh
ship
ip with
with tota
totall agre
agreed
ed capi
capita
tali
li*at
*atio
ion
n of 
P1,000,000.
P1,000,000. &he capital
capital interest
interest ratio of the ABC Partnership
Partnership is %1 while the profit
profit or loss ratio is
#$%, respectivel" for A, B and C.

uring $01, A and B made additional investments of P$00,000

P$00,00 0 and P%00,000, respectivel".
respectivel". At the end
of $01, B and C made drawings of P#00,000 and P100,000, respectivel". n ecember #1, $01, the
capital balance of B is reported at P$00,000.

#. )hat is the
the net income
income or net loss
loss of ABC Partnersh
Partnership
ip for the
the "ear ended
ended ecember
ecember #1, $01+
A% (''&
(''&''
'''
' loss
loss
B. 1,00
1,000,
0,00
000
0 los
losss
C. 00,
00,00
000
0 inco
incomeme
. 1,$00
1,$00,0
,000
00 inc
incom
omee

. )hat is the
the capital
capital balance
balance of C on ecember
ecember #1, $01+
$01+
A% 1%0,000
$% ('&'''
C% $00,000
D% $%0,000
 Page $

Numbers (& -& and . Partners!i" O"eration + Distribution o/ "ro/it or loss#

n /anuar" 1, $01, A, B and C formed ABC Partnership with original capital contribution of 
P#00,000, P%00,000 and P$00,000. A is appointed as managing partner.
partner.

uri
uring
ng $01,
$01, A, B andand C made
made addi
additi
tiona
onall inve
invest
stme
ment
ntss of P%00
P%00,00
,000,
0, P$00,
P$00,00
000
0 and P#00,
P#00,000
000,,
respectivel". At the end of $01, A, B and C made drawings of P$00,000, P100,000 and P00,000,
respectivel". At the end of $01, the capital balance of C is reported at P#$0,000. &he profit or loss
agreement of the partners is as follows

 10( interest on original capital contribution of the partners.

 2uarterl" salar" of P0,000 and P10,000 for A and B, respectivel".
 Bonus to A equivalent to $0( of 3et Income after
a fter interest and salar" to all partners
 4emainder is to be distributed equall" among the partners.

%. )hat is
is the partners
partnership
hip profit
profit for
for the "ear
"ear ended
ended ecember
ecember #1, $01+
$01+
A. 500
500,000
B. 1,0$
1,0$0,
0,00
000
0
C% 1&'(
1&'('&
'&''
'''
'
. 5!0
5!0,000

!. )hat is A6s share in

in partnershi
partnership
p profit for
for $01+
A. 150,0
0,000
B. #0 ,000
C% (*'&'
'&'''
. $00,0
0,000

-. )hat is
is B6s
B6s share
share in partner
partnership
ship profit
profit for $01+
A. $00,0
0,000
$% 20'&'''
C . % 0 ,0 0 0
 . 50 ,0 00
 Page $

Numbers (& -& and . Partners!i" O"eration + Distribution o/ "ro/it or loss#

n /anuar" 1, $01, A, B and C formed ABC Partnership with original capital contribution of 
P#00,000, P%00,000 and P$00,000. A is appointed as managing partner.
partner.

uri
uring
ng $01,
$01, A, B andand C made
made addi
additi
tiona
onall inve
invest
stme
ment
ntss of P%00
P%00,00
,000,
0, P$00,
P$00,00
000
0 and P#00,
P#00,000
000,,
respectivel". At the end of $01, A, B and C made drawings of P$00,000, P100,000 and P00,000,
respectivel". At the end of $01, the capital balance of C is reported at P#$0,000. &he profit or loss
agreement of the partners is as follows

 10( interest on original capital contribution of the partners.

 2uarterl" salar" of P0,000 and P10,000 for A and B, respectivel".
 Bonus to A equivalent to $0( of 3et Income after
a fter interest and salar" to all partners
 4emainder is to be distributed equall" among the partners.

%. )hat is
is the partners
partnership
hip profit
profit for
for the "ear
"ear ended
ended ecember
ecember #1, $01+
$01+
A. 500
500,000
B. 1,0$
1,0$0,
0,00
000
0
C% 1&'(
1&'('&
'&''
'''
'
. 5!0
5!0,000

!. )hat is A6s share in

in partnershi
partnership
p profit for
for $01+
A. 150,0
0,000
B. #0 ,000
C% (*'&'
'&'''
. $00,0
0,000

-. )hat is
is B6s
B6s share
share in partner
partnership
ship profit
profit for $01+
A. $00,0
0,000
$% 20'&'''
C . % 0 ,0 0 0
 . 50 ,0 00
 Page #

Number  Admission o/ "artner b "ur,!ase#

"ur,!ase#

n ecemb
ecember
er #1, $01,
$01, the 7tatem
7tatement
ent of 8inanc
8inancial
ial Posit
Position
ion of ABC Partne
Partnersh
rship
ip provid
provided
ed the
following data with profit or loss ratio of 1!#
Current Assets 1,000,000 &otal 9iabilities !00,000
 3oncurrent Assets
Assets $,000,000 A, Capital 500,000
B, Capital 00,000
C, Capital -00,000

n /anuar" 1, $015,  is admitted to the partnership b" purchasing 0( of the capital interest of B at a
 price of P%00,000.

)hat is the capital balance of B after the admission of  on /anuar" 1, $015+

A. %0
%0,000
$% *'&'''
C. $0,000
. #00
#00,000

Number 0 Retirement o/ "artner#

n ecember #1, $01, ABC Partnership6s 7tatement of 8inancial Positions shows that A, B and C
have capital balances of P%00,000, P#00,000 and P$00,000 with profit or loss ratio of 1#!. n
/anuar" 1, $015, C retired from the partnership and received P#%0,000. At the time of C6s retirement,
an asset of the partnership is undervalued.

)hat is the capital balance of A after the retirement of C+

A. !$
!$,%00
B. %#-,%00
C. %!$,%00
D% (2(
(2(&'''
&'''

Number 1' Retirement o/ "artners#

n ecember #1, $01, ABC Partnership6s 7tatement of 8inancial Position shows that A, B and C
have capital balances of P00,000, P#00,000 and P100,000 with profit or loss ratio of 1%. n
/anuar" 1, $015, C retired from the partnership and received P0,000. At the time of C6s retirement, the
assets and liabilities of the partnership are properl" valued.

)hat is the capital balance of B after the retirement of C+

A. $
$,000
B. #0,000
C% )1-
)1-&'''
&'''
. #$0
#$0,000
 Page 

Number 11
11 Partners!i" Dissolution + Admission o/ Ne3 Partner b
b In4estment#

n ecemb
ecember
er #1, $01,
$01, the 7tatem
7tatement
ent of 8inanc
8inancial
ial Posit
Position
ion of ABC Partne
Partnersh
rship
ip provid
provided
ed the
following data with profit or loss ratio of 1!#
Current Assets 1,#00,000 &otal 9iabilities #00,000
 3oncurrent Assets
Assets $,000,000 A, Capital 1,00,000
B, Capital -00,000
C, Capital 500,000
n /anuar" 1, $015,  is admitted to the partnership b" investing P1,000,000 to the partnership for 
$0( capital interest.

If the all the assets of the e:isting partnership are properl" valued, what is the capital balance of C after 
the admission of +
A% 0-'&''
&'''
$%   500,000
C%   0,000
D% 1,$00,000

Numbers 12 and 1) Admission o/ ne3 "artner b in4estment#

n ecemb
ecember
er #1, $01,
$01, the 7tatem
7tatement
ent of 8inanc
8inancial
ial Posit
Position
ion of ABC Partne
Partnersh
rship
ip provid
provided
ed the
following data with profit or loss ratio of %1
Current Assets 1,%00,000 &otal 9iabilities %00,000
 3oncurrent Assets
Assets $,000,000 A, Capital 1,100,000
B, Capital 1,$00,000
C, Capital -00,000
n /anuar" 1, $015,  is admitted to the partnership b" investing P%00,000 to the partnership for 10(
capital interest. &he total agreed capitali*ation of the new partnership is P#,000,000.

1$. )hat is the capital balance

balance of  after his admission
admission to the partnership+
partnership+
A. %00,0
0,000
$% )''&'''
C. #%0 ,000
. 00,0
0,000

1#. )hat is the capital balance

balance of C after the admission
admission of  to the partnership+
partnership+
A% ('&'
'&'''
B. $0 ,000
C. %00 ,000
. -0,0
0,000
 Page %

Numbers 1* and 1( Partners!i" Li5uidation + Lum" 6um Li5uidation#

n ecember #1, $01, the 7tatement of 8inancial Position of ABC Partnership with profit or loss
ratio of !1# of partners A, B and C respectivel", revealed the following data

Cash 1,000,000 ther 9iabilities $,000,000

4eceivable from A %00,000 Pa"able to B 1,000,000
ther noncash assets $,000,000 Pa"able to C 100,000
A, Capital -00,000
B, Capital ;!%0,000<
C, Capital #%0,000
n /anuar" 1, $015, the partners decided to liquidate the partnership. All partners are legall" declared
to be personall" insolvent. &he other noncash assets were sold for P1,%00,000. 9iquidation e:penses
amounting to P100,000 were incurred.

1. =ow much cash was received b" B at the end of partnership liquidation+
A% 2('&'''
$% 1%0,000
C% $50,000
D% $-0,000

1%. =ow much cash was received b" C at the end of partnership liquidation+
A% $-0,000
$% 1('&'''
C% #%0,000
D% $$0,000

Page !
Numbers 1-& 1. and 1 Partners!i" Li5uidation + Installment Li5uidation#

n ecember #1, $01, the 7tatement of 8inancial Position of ABC Partnership with profit or loss
ratio of %#$ of respective partners A, B and C. showed the following information

Cash 1,!00,000 &otal 9iabilities $,000,000

 3oncash assets 1,00,000 A, Capital 100,000
B, Capital %00,000
C, Capital 00,000

n /anuar" 1, $015, the partners decided to liquidate the partnership in installment. All partners are
legall" declared to be personall" insolvent.

As of /anuar" #1, $015, the following transactions occurred

  3oncash assets with a carr"ing amount P1,000,000 were sold at a gain of P100,000.
 9iquidation e:penses for the month of /anuar" amounting to P%0,000 were paid.
 It is estimated that liquidation e:penses amounting to P1%0,000 will be incurred for the month
of 8ebruar", $015.
 $0( of the liabilities to third persons were settled.
 Available cash was distributed to the partners.

As of 8ebruar" $, $015, the following transactions occurred

 4emaining noncash assets were sold at a loss of P100,000.
 &he final liquidation e:penses for the month of 8ebruar" amounted to P100,000.
 &he remaining liabilities to third persons were settled at a compromise amount of P1,%00,000.
 4emaining cash was finall" distributed to the partners.

1!. )hat is the amount of cash received b" partner C on /anuar" #1, $015+
A% $!0,000
$% 2*'&'''
C% #00,000
D% #%0,000

1-. )hat is the share of B in the ma:imum possible loss on /anuar" #1, $015+
A% $-%,000
$% 110,000
C% 1$0,000
D% 1-(&'''

1. )hat is the amount of total cash withheld on /anuar" #1, $015+
A%   %%0,000
$% 1,!00,000
C% 1&.('&'''
D% 1,-00,000

Page -
Numbers 10& 2' and 21 Cor"orate Li5uidation#

Caga"an Compan" is e:periencing financial problems which resulted to ultimate ban>ruptc". &he
statement of financial position of the entit" before liquidation is presented below
Cash 100,000 Income ta: pa"able $00,000
Inventor" #00,000 7alaries pa"able #00,000
9and $00,000 3ote pa"able 00,000
?ortgage pa"able 100,000
Accounts pa"able 00,000
Contributed capital %00,000
eficit ;1,-00,000<

 &he note pa"able is secured b" the inventor" with net reali*able value of P$%0,000.
 &he mortgage pa"able is secured b" the land with fair value of P1$0,000.

15. )hat is the amount received b" the holder of the note pa"able at the end of corporate liquidation+
A% #$0,000
$% #00,000
C% 2('&'''
D% $!0,000

$0. )hat is the amount received b" the holder of the mortgage pa"able at the end of corporate
liquidation+
A% 1$0,000
$% $00,000
C% 1%0,000
D% 1''&'''

$1. )hat is the amount received b" the emplo"ees at the end of corporate liquidation concerning their 
salaries+
A% 100,000
$% 12'&'''
C% -$,000
D% #00,000

Page 
Numbers 22 and 2) Cor"orate Li5uidation#

7urigao Compan" is ban>rupt and has undergone corporate liquidation. Presented below is its
statement of financial position before the start of liquidation

Cash #00,000 Accounts Pa"able 100,000

?achiner" %00,000 7alaries Pa"able $00,000
Building 1,$00,000 Income ta: Pa"able #00,000
9oan Pa"able 00,000
?ortgage pa"able %00,000
Contributed capital 00,000
eficit ;#00,000<

 9iquidation e:penses amounting to P!00,000 were paid.

 &he loan pa"able is secured b" the machiner" with fair value of P#00,000.
 &he mortgage pa"able is secured b" the building.
 At the end of liquidation, the holder of loan pa"able received P#0,000.

$$. )hat is the amount received b" the holder of accounts pa"able at the end of liquidation+
A% %,000
$% 1%,000
C% *'&'''
D% !0,000

$#. )hat is the amount of net free assets available at the end of liquidation+
A% '&'''
$%   0,000
C% 1$0,000
D% $00,000

Page 5
Numbers 2*& 2( and 2- 7oint Arran8ement ,lassi/ied as 7oint O"eration#

@ntit" A and @ntit" B incorporated @ntit" C to manufacture a microchip to be used b" the
incorporating entities as component for their final products of cellular phones and tablets.

&he contractual agreement of the incorporating entities provided that the decisions on relevant
activities of @ntit" C will require the unanimous consent of bo th entities.

  @ntit" A and @ntit" B have rights to the assets, and obligations for the liabilities, relating to the
arrangement. &he ordinar" shares of @ntit" C will be owned b" @ntit" A and @ntit" B in the ratio of 
!00. At the end of first operation of @ntit" C, the financial statements provided the following data

Inventor" 1,000,000 Accounts pa"able $,000,000

9and #,000,000 3ote pa"able 1,000,000
Building %,000,000 9oan pa"able ,000,000
7hare capital 1,000,000
4etained earnings 1,000,000
7ales revenue %,000,000

&he contractual agreement of @ntit" A and @ntit" B also provided for the following concerning the
assets and liabilities of @ntit" C

 @ntit" A owns the land and incurs the loan pa"able of @ntit" C.
 @ntit" B owns the building and incurs the note pa"able of @ntit" C.
 &he other assets and liabilities are owned or owed b" @ntit" A and @ntit" B on the basis of their 
capital interest in @ntit" C.
 &he sales revenue of @ntit" C includes sales to @ntit" A and @ntit" B in the amount of P1,000,000
and P$,000,000, respectivel". As of the end of the first "ear, @ntit" A and @ntit" B were able to
resell #0( and !0( of the inventor" coming from @ntit" C to third persons.

$. )hat is the amount of total assets to be reported b" @ntit" A concerning its interest in @ntit" C+
A% %,00,000
$% #,000,000
C% )&-''&'''
D% %,000,000

$%. )hat is the amount of total liabilities to be reported b" @ntit" B concerning its interest in @ntit" C+
A% 1&''&'''
$% $,$00,000
C% $,00,000
D% $,00,000

$!. )hat is the amount of sales revenue to be reported b" @ntit" A concerning its interest in @ntit" C+
A% $,#00,000
$% 2&1''&'''
C% #,000,000
D% $,%00,000

Page 10
Numbers 2. and 2 7oint Arran8ement ,lassi/ied as 7oint Venture E5uit 9et!od#

n /anuar" 1, $01, @ntit" A, a public entit", and @ntit" B, a public entit", incorporated @ntit" C
which has its fiscal and operational autonom". &he contractual agreement of the incorporating entities
 provided that the decisions on relevant activities of @ntit" C will require the unanimous consent of 
 both entities. @ntit" A and @ntit" B will have rights to the net assets of @ntit" C.

@ntit" A and @ntit" B invested P1,000,000 and P1,%00,000, respectivel", equivalent to 0!0 capital
interest of @ntit" C. &he financial statements of @ntit" C provided the following data for its two"ear 
operation
Net in,ome loss# Di4idends de,lared
$01 $00,000 100,000
$015 ;$,000,000< 

$-. )hat is the balance of Investment in @ntit" C to be reported b" @ntit" A in its 7tatement of 
8inancial Position on ecember #1, $015+
A% 1,00,000
$% 1,00,000
C% 2*'&'''
D%   $00,000

$. )hat is the balance of Investment in @ntit" C to be reported b" @ntit" B in its 7tatement of 
8inancial Position on ecember #1, $015+
A% 1,%00,000
$% 1,!$0,000
C% )-'&'''
D%   500,000

Page 11
Numbers 20 and )' 7oint 4enture : Inter,om"an Transa,tion#

n /anuar" 1, $01, @ntit" A, a public entit", and @ntit" B, a public entit", incorporated @ntit" C b"
investing P#,000,000 and P$,000,000 for capital interest ratio of !00. &he contractual agreement of 
the incorporating entities provided that the decisions on relevant activities of @ntit" C will require the
unanimous consent of both entities. @ntit" A and @ntit" B will have rights to the net assets of @ntit" C.

&he financial statements of @ntit" C provided the following data for $01

 @ntit" C reported net income of P1,000,000 for $01 and paid cash dividends of P00,000 on
ecember #1, $01.

 uring $01, @ntit" C sold inventor" to @ntit" A with gross profit of P%0,000. @ight" percent of 
those inventories were resold b" @ntit" A to third persons during $01 and the remainder was
resold to third persons during $015.

 n /ul" 1, $01, @ntit" C sold a machiner" to @ntit" B at a loss of P$0,000. At the time of sale, the
machiner" has remaining useful life of $ "ears.

$5. )hat is the investment income to be reported b" @ntit" A for the "ear ended ecember #1, $01+
A% !0#,000
$% !0!,000
C% (0*&'''
D% %5-,000

#0. )hat is the balance of Investment in @ntit" C to be reported b" @ntit" B on ecember #1, $01+
A% 2&2*2&'''
$% $,$1,000
C% $,$#,000
D% $,$,000

Page 1$
Numbers )1 and )2 7oint Venture + IFR6 /or 69Es Fair Value 9odel or E5uit 9et!od#

n /anuar" 1, $01, @ntit" A and @ntit" B, both 7?@s, incorporated @ntit" C, a 'ointl" controlled
entit" b" investing P%00,000 each in e:change for 10,000 ordinar" shares each of @ntit" C. @ntit" A
and @ntit" B each incurred P$0,000 transaction costs.

&he contractual agreement of the incorporating entities provided that the decisions on relevant
activities of @ntit" C will require the unanimous consent of both entities. @ntit" A and @ntit" B will
have rights to the net assets of @ntit" C.

8or the "ear ended ecember #1, $01, @ntit" C reported net income of P100,000 and declared
dividends in the amount of P#0,000.

n ecember #1, $01, the ordinar" shares of @ntit" C are quoted at P%!.

#1. If @ntit" A elected fair value model to account its investment in @ntit" C, what is the net effect on
@ntit" A6s profit or loss for the "ear ended ecember #1, $01+
A% ((&''' net "ro/it
$% !0,000 net profit
C% 1%,000 net profit
D% 0,000 net profit

#$. If @ntit" B elected equit" method to account its investment in @ntit" C, what is the carr"ing amount
of @ntit" B6s Investment in @ntit" C on ecember #1, $01+
A% %$0,000
$% %0,000
C% %#%,000
D% (((&'''

Numbers )) and )* 7oint Venture + IFR6 /or 69Es Cost 9et!od or E5uit 9et!od#

n /anuar" 1, $01, @ntit" A and @ntit" B, both 7?@s, incorporated @ntit" C, a 'ointl" controlled
entit" b" investing P$00,000 each in e:change for $0,000 ordinar" shares each of @ntit" C. @ntit" A
and @ntit" B each incurred P10,000 transaction costs.

&he contractual agreement of the incorporating entities provided that the decisions on relevant
activities of @ntit" C will require the unanimous consent of both entities. @ntit" A and @ntit" B will
have rights to the net assets of @ntit" C.

8or the "ear ended ecember #1, $01, @ntit" C reported net income of P%0,000 and declared
dividends in the amount of P10,000.

n ecember #1, $01, the investment in @ntit" C has value in use of P$1%,000.

##. If @ntit" A elected cost method to account its Investment in @ntit" C, what is the carr"ing amount
of @ntit" A6s Investment in @ntit" C on ecember #1, $01+
A% 21'&'''
$% $1%,000
C% $#0,000
D% $00,000

#. If @ntit" B elected equit" method to account its Investment in @ntit" C, what is the net effect in
@ntit" B6s profit or loss for the "ear ended ecember #1, $01+
A% $%,000 net profit
$% %,000 net profit
C% 1'&''' net "ro/it
D% 1%,000 net profit

Page 1#
Number )( Installment sales#

 3i>>o Compan", which began operations on /anuar" %, $01, appropriatel" uses the installment
method of revenue recognition. &he following information pertains to the operations for $01 and
$015

2'1 2'10
7ales #00,000 %0,000
Collections from 
$01 sales 100,000 %0,000

$015 sales  1%0,000

Accounts written off from

$01 sales $%,000 -%,000

$015 sales  1%0,000

ross profit rates #0( 0(

)hat amount should be reported as deferred gross profit on ecember #1, $015+
A% .(&'''
B. 0,000
C. 11$,000
. 1$%,000

Numbers )- and ).  Installment sales#

Appliance Compan" reports gross profit on the installment basis. &he following data are av ailable

2'1 2'10 2'2'

Installment sales $0,000 $%0,000 #00,000
Cost of goods  installment sales 10,000 11,$%0 $1!,000
ross profit !0,000 !,-%0 ,000

Colle,tions
$01 installment contracts %,000 -%,000 -$,%00
$015 installment contracts -,%00 0,000
$0$0 installment contracts !$,%00

De/aults
Dnpaid balance of $01 installment contracts 1$,%00 1%,000
Ealue assigned to repossessed merchandise !,%00 !,000
Dnpaid balance of $015 installment contracts 1!,000
Ealue assigned to repossessed merchandise 5,000

#!. )hat is the reali*ed gross profit before loss on repossession for $0$0+
A. 5,--%
$% (.&-2(
C. ,5-%
. %!,!$%

1. )hat is the loss on repossession for $0$0+

A. %,$%0
B. $,!00
C% .&('
. 5,000
 Page 1

Number ) Installment sales#

avao Compan" uses the installment method of income recognition. &he entit" provided the following
 pertinent data

2'1 2'10 2'2'

Installment sales #00,000 #-%,000 #!0,000
Cost of goods sold $$%,000 $%,000 $%$,000

Balance of eferred ross Profit at Fear end

$01 %$,%00 1%,000 
$015 %,000 5,000
$0$0 -$,000

)hat is the total balance of the Installment Accounts 4eceivable on ecember #1, $0$0+
A. $-0,000
$% 2..&(''
C. $-5,000
. #00,000

Numbers )0 and *' Installment 6ales#

n /anuar" 1, $01, an entit" sold a car to a customer at a price of P00,000 with a production cost of 
P#00,000. It is the entit"6s polic" to emplo" installment method to recogni*e gross profit from
installment sales.

At the time of sale, the entit" received cash amounting to $%( of the selling price and old car with
tradein allowance of P%0,000. &he said old car has fair value of P1%0,000. &he customer issued a
%"ear note for the balance to be pa"able in equal annual installments ever" ecember #1 starting
$01. &he note pa"able is interest bearing with 10( rate due on the remaining balance of the note.

&he customer was able to pa" the first annual installment and corresponding interest due. =owever,
after the pa"ment of the second interest due, the customer defaulted on the second annual installment
which resulted to the repossession of the car sold with appraised value of P110,000. n ecember #1,
$015, the repossessed car was resold for P10,000 after reconditioning cost of P10,000.

#5. )hat is the entit"6s reali*ed gross profit for the "ear ended ecember #1, $01+
A%   %0,000
$% 12'&'''
C% 10,000
D% 1$,000

0. )hat is the loss on repossession for the "ear ended ecember #1, $015+
A% #0,000
$% $0,000
C% 1'&'''
D% 0,000
 Page 1%

Numbers *1& *2 and *) Re4enue Re,o8nition + Fran,!ise Fees#

n /anuar" 1, $01, an entit" granted a franchise to a franchisee. &he franchise agreement required the
franchisee to pa" a nonrefundable upfront fee in the amount of P00,000 and ongoing pa"ment of 
ro"alties equivalent to %( of the sales of the franchisee. &he franchisee paid the nonrefundable upfront
fee on /anuar" 1, $01.

In relation to the nonrefundable upfront fee, the franchise agreement required the entit" to render the
following performance obligations

 &o construct the franchisee6s stall with standalone selling price of P$00,000.
 &o deliver 10,000 units of raw materials to the franchisee with standalone selling price of 
P$%0,000.
 &o allow the franchisee to use the entit" tradename for a period of 10 "ears starting /anuar" 1, $01
with standalone selling price of P%0,000.

n /une #0, $01, the entit" completed the construction of the franchisee6s stall. n ecember #1,
$01, the entit" was able to deliver #,000 units of raw materials to the franchisee. 8or the "ear ended
ecember #1, $01, the franchisee reported sales revenue amounting to P100,000.

&he entit" had determined that the performance obligations are separate and distinct from one another.

1. )hat is the amount of nonrefundable upfront fee to be allocated to the construction of the
franchisee6s stall+
A. $00,000
$% 1-'&'''
C. $%0,000
. 1$0,000

$. )hat is the amount of revenue to be recogni*ed in relation to the use of deliver" of raw materials
for the "ear ended ecember #1, $01+
A% 100,000
$% $00,000
C% -'&'''
D%   -%,000

#. )hat is the amount of revenue to be recogni*ed in relation to the use of entit"6s tradename for the
"ear ended ecember #1, $01+
A%   %,000
$% *&'''
C% %0,000
D% 10,000
 Page 1!

Numbers ** and *( Re4enue Re,o8nition + Net In,ome o/ Fran,!isor#

n /anuar" 1, $01, an entit" granted a franchise agreement to a franchisee. &he contract provided that
the franchisee shall pa" an initial franchise fee of P%00,000 and ongoing pa"ment of ro"alties
equivalent to ( of the sales of the franchisee.

n /anuar" 1, $01, the franchisee paid downpa"ment of P$00,000 and issued a #"ear noninterest
 bearing note for the balance pa"able in three equal annual installments starting ecember #1, $01.
&he note has present value of P$0,1# with effective interest rate of 1$(.

n /une #0, $01, the entit" completed the performance obligation of the franchise at a cost of 
P#%$,1!. Aside from that, the entit" incurred indirect cost of P$$,005.

&he franchisee started operation on /ul" 1, $01 and reported sales revenue amounting to P%0,000 for 
the "ear ended ecember #1, $01. &he franchisee paid the first installment on its due date.

. If the collection of the note receivable is reasonabl" assured, what is the gross profit to be
recogni*ed b" the entit" for the "ear ended ecember #1, $01 in relation to the initial franchise
fee+
A% !!,0$
$% ,01
C% $$,005
D% &').

%. If the collection of the note receivable is reasonabl" assured, what is the net income to be reported
 b" the entit" for the "ear ended ecember #1, $01+
A% 0&('
$% 5,%0
C% -0,0$
D% 5$,0#-
 Page 1-

Numbers *-& *. and * Constru,tion ,ontra,t : Per,enta8e o/ Com"letion 9et!od#

n /anuar" 1, $01, 7olid Compan" accepted a longterm construction pro'ect for an initial contract
 price of P1,000,000 to be completed on /une #0, $0$0. n /anuar" 1, $015, the contract price was
increased to P1,%00,000 b" reason of change in the design of the pro'ect. &he outcome of the
construction contract can be estimated reliabl". &he pro'ect was completed on ecember #1, $0$0
which resulted to penalt" amounting to P$00,000. &he entit" provided the following data concerning
the direct costs related to the said pro'ect for $01 and $015

2'1 2'10
Costs during the "ear 0,000 !0,000
4emaining estimated costs to complete at "earend !!0,000 $0,000

!. )hat is the construction revenue for the "ear ended ecember #1, $01+
A% #0,000
$% *''&'''
C% 0,000
D% #!0,000

-. )hat is the reali*ed gross profit for the "ear ended ecember #1, $015+
A% $00,000
$%   0,000
C% 1'&'''
D% 100,000

. )hat is the balance of construction in progress on ecember #1, $015+

A% 1&2''&'''
$% 1,0$0,000
C% 1,1$0,000
D%   500,000
 Page 1

Numbers *0& (' and (1 Constru,tion ,ontra,t : Cost Re,o4er 9et!od#

n /anuar" 1, $01, =ardroc> Compan" started the construction of a building at a fi:ed contract price
of P1,000,000. n the same date, the customer paid a mobili*ation fee equal to %( of contract price
that will be deductible from the first billing. &he outcome of construction contract cannot be estimated
reliabl"

uring $01, the entit" billed the customer equivalent to #0( of the contract price. uring $015, the
entit" billed again the customer amounting to $0( of the contract price. uring $0$0, the entit" billed
again the customer amounting to 0( of the contract price. &he remaining billing was made at the "ear 
of completion of the pro'ect.

&he entit" made collection from the customer at the end of $01, $015 and $0$0, in the amount of 
P1$0,000, P%0,000 and P10,000, respectivel". &he entit" provided the following data concerning the
direct costs related to the said pro'ect

2'1 2'10 2'2'

Cumulative costs incurred at "earend #!0,000 00,000 -0,000
4emaining estimated costs to complete at "earend 0,000 $%0,000 %0,000

5. )hat is the reali*ed gross profit for the "ear ended ecember #1, $015+
A%   %0,000
$% $00,000
C% 1('&'''
D% 0

%0. )hat is the e:cess of construction in progress over progress billings or e:cess of progress billings
over construction in progress on ecember #1, $0$0+
A% )'&''' e;,ess billin8s
$% 0,000 e:cess billings
C% $0,000 e:cess construction in progress
D% %0,000 e:cess construction in progress

%1. )hat is the balance of accounts receivable on ecember #1, $0$0+

A% 1%0,000
$% 1''&'''
C% 1$0,000
D%   %0,000
 Page 15

Numbers (2& () and (* <ome O//i,e& $ran,! and A8en, Transa,tions#

7iargao Compan" set up a branch in a province. &he entit" and its branch provided the following data
for the second "ear of branch operation

<ome O//i,e $ran,!

7ales revenue to outside customer 1,000,000 %00,000
Beginning inventor" %0,000 #0,000
Purchases from outside supplier 00,000 100,000
7hipment to branch $00,000
7hipment from home office $%0,000
@nding inventor" 0,000 %0,000
perating e:penses 1%0,000 0,000

 &he home office to branch mar>up based on cost is $%( this "ear and last "ear.
 $0( of the beginning inventor" of the branch came from outside supplier.
 $( of the ending inventor" of the branch came from the last "ear6s shipment from the home
office while %0( of the ending inventor" of the branch came from current "ear 6s shipment from the
home office.

%$. )hat is the net income reported b" the branch in its separate income statement for the current "ear+
A% 1)'&'''
$% 1$,000
C% 11,000
D%   5%,000

%#. )hat is the ending inventor" to be reported b" the entit" in its combined statement of financial
 position+
A% 1$,000
$% 11%,000
C% 1#0,000
D% 122&-''

%. )hat is the overstatement in the cost of goods sold reported b" the branch in its separate income
statement for the current "ear+
A% %,000
$% %0,000
C% %$,000
D% *.&*''
 Page $0

Number (( <ome o//i,e and bran,!#

&he home office in 2ue*on Cit" ships and bills merchandise to its provincial branch at cost. &he
 branch carries its own accounts receivable and ma>es its own collections. &he branch also pa"s its
e:penses. &he branch transactions for $01 are reflected in the following information

Cash $0,000
Accounts receivable 0,000
=ome ffice 10,000
7hipments from =ome ffice $%0,000
7ales $$%,%00
@:penses %%,%00
ecember #1, $01 inventor" !%,000

)hat is the balance of the Investment in Branch account in the home office boo>+
A. 10,000
B. 15%,000
C% 1-(&'''
. 1-%,000

Numbers (- and (. <ome o//i,e and bran,!#

Coffee Compan" decided to open a branch in ?anila. 7hipments of merchandise to the branch totaled
P%,000 which included a $0( mar>up on cost. All accounting records are >ept at the home office. &he
 branch submitted the following report summari*ing the operations for the "ear ended ecember #1,
$01

7ales on account -,000

7ales on cash basis $$,000
Collections of accounts receivable !0,000
@:penses paid #,000
@:penses unpaid 1$,000
Purchase of merchandise for cash $!,000
Inventor" on hand, ecember #1G 0( from home office #0,000
4emittance to home office %%,000

%!. )hat is the branch inventor" on ecember #1, $01 at cost+

A. $%,000
B. $0,000
C% 2-&'''
. 10,000

%-. )hat is the branch net income for the current "ear+
A% 1&'''
B. ,000
C. 00
. %00
 Page $1

Numbers (& (0& -' and -1 $usiness Combination : A,5uisition o/ Net Assets#

@ntit" A acquired the net assets of @ntit" B b" issuing 10,000 ordinar" shares with par value of P10
and bonds pa"able with face amount of P%00,000. &he bonds are classified as financial liabilit" at
amorti*ed cost.

At the time of acquisition, the ordinar" shares are publicl" quoted at P$0 per share. n the other hand,
the bonds pa"able are trading at 110.

@ntit" A paid P10,000 share issuance costs and P$0,000 bond issue costs. @ntit" A also paid P0,000
acquisition related costs and P#0,000 indirect costs of business combination.

Before the date of acquisition, @ntit" A and @ntit" B reported the following data

Entit A Entit $
Current assets 1,000,000 %00,000
 3oncurrent assets $,000,000 1,000,000
Current liabilities $00,000 00,000
 3oncurrent liabilities #00,000 %00,000
rdinar" shares %00,000 $00,000
7hare premium 1,$00,000 #00,000
4etained earnings 00,000 100,000

At the time of acquisition, the current assets of @ntit" A have fair value of P1,$00,000 while the
noncurrent assets of @ntit" B have fair value of P1,#00,000. n the same date, the current liabilities of 
@ntit" B have fair value of P!00,000 while the noncurrent liabilities of @ntit" A have fair value of 
P%00,000.

%. )hat is the goodwill or gain on bargain purchase arising from business combination+
A% ('&''' 8ood3ill
$% 1%0,000 gain on bargain purchase
C% 1$0,000 goodwill
D% -0,000 gain on bargain purchase

%5. )hat total amount should be e:pensed as incurred at the time of business combination+
A%   $0,000
$% .'&'''
C%   #0,000
D%   %0,000

!0. )hat is @ntit" A6s amount of total assets after the business combination+
A% ,%$0,000
$% ,10,000
C% *&.('&'''
D% ,0,000

!1. )hat is @ntit" A6s amount of total liabilities after the business combination+
A. $,$0,000
B. $,%10,000
C. $,#$0,000
D% 2&1)'&'''
 Page $$

Numbers -2 and -) $usiness Combination + A,5uisition o/ ma=orit s!ares#

@ntit" A acquired 0,000 out of 100,000 outstanding ordinar" shares of @ntit" B which enabled the
former to obtain control of the latter at an acquisition price of P1,000,000. @ntit" A paid P100,000
acquisition related costs and P%0,000 indirect costs of business combination.

At the date of acquisition, the net assets of @ntit" B are reported at P1,!00,000. An asset of @ntit" B is
overvalued b" P!0,000 while one liabilit" is undervalued b" P0,000.

!$. )hat is the initial measurement of noncontrolling interest in net assets in the consolidated
statement of financial position+
A% #$0,000
$% )''&'''
C% $%0,000
D% #1!,000

!#. )hat is the goodwill or gain on bargain purchase arising from business combination+
A% $%0,000 gain on bargain purchase
$% 1%0,000 gain on bargain purchase
C%   %0,000 goodwill
D% 2''&''' 8ain on bar8ain "ur,!ase

Numbers -* and -( 6te" A,5uisition#

n /anuar" 1, $01, @ntit" A acquired #0,000 out of 100,000 outstanding ordinar" shares of @ntit" B
for P50,000 or #0( interest. 8or the si: months ended /une #0, $01, @ntit" B reported net income of 
P0,000.

n /ul" 1, $01, @ntit" A acquired additional !0,000 ordinar" shares of @ntit" B or !0( interest at a
 price of P per share or total cost of P$0,000. @ntit" A paid P$0,000 acquisition related costs and
P10,000 indirect costs of business combination.

&he acquisition price per share of the additional shares clearl" reflected the fair value of the e:isting
interest of @ntit" A in @ntit" B. It is the polic" of @ntit" A to initiall" measure the noncontrolling
interest in net assets of the acquiree at fair value. &he fair value of the noncontrolling interest in net
assets of the acquiree is reliabl" measured at P%0,000.

At the acquisition date, the net assets of @ntit" B were reported at P00,000. An asset of @ntit" B was
overvalued b" P%0,000 while one liabilit" wass overvalued b" P#0,000.

!. )hat is the gain on remeasurement of the e:isting Investment in @ntit" B as a result of step
acquisition+
A% 1&'''
$% #0,000
C% $,000
D% 1$,000

!%. )hat is the goodwill or gain on bargain purchase as a result of the business combination+
A% 1,000 goodwill
$% $0,000 gain on bargain purchase
C% $,000 goodwill
D% )'&''' 8ood3ill
 Page $#

Numbers --& -. and - Consolidated Finan,ial 6tatements#

n /anuar" 1, $01, @ntit" A acquired -0( of outstanding ordinar" shares of @ntit" B at a price of 
P$10,000. n the same date, the net assets of @ntit" B were reported at P$!0,000. n /anuar" 1, $01
@ntit" A reported retained earnings of P$,000,000 while @ntit" B reported retained earnings of 
P$00,000.

All the assets and liabilities of @ntit" B are fairl" valued e:cept machiner" which is undervalued b"
P0,000 and inventor" which is overvalued b" P10,000. &he said machiner" has remaining useful life
of four "ears while 0( of the said inventor" remained unsold at the end of $01.

8or the "ear ended ecember #1, $01, @ntit" A reported net income of P1,000,000 and declared
dividends of P$00,000 in the separate financial statements while @ntit" B reported net income of 
P1%0,000 and declared dividends of P$0,000 in the separate financial statements.

@ntit" A accounted the investment in @ntit" B using cost method in the separate financial statements.

!!. )hat is the noncontrolling interest in net assets on ecember #1, $01+
A% 1$,00
$% 1#0,$00
C% 1$!,000
D% 1))&''

!-. )hat is the consolidated net income attributable to parent shareholders for the "ear ended
ecember #1, $01+
A% 1&1'2&2''
$% 1,1!$,$00
C% 1,11,$00
D% 1,05%,$00

!. )hat is the amount of consolidated retained earnings on ecember #1, $01+
A% #,01$,$00
$% $,551,$00
C% 2&0(2&2''
D% $,5%,$00
 Page $

Numbers -0& .'& .1 and .2 Consolidated Finan,ial 6tatements : Inter,om"an sales#

n /anuar" 1, $015, @ntit" A acquired !0( of outstanding ordinar" shares of @ntit" B at a gain on
 bargain purchase of P0,000. 8or the "ear ended ecember #1, $0$0, @ntit" A and @ntit" B reported
sales revenue of P$,000,000 and P1,000,000 in their respective separate income statements. At the
same "ear, @ntit" A and @ntit" B reported cost of goods sold of P1,$00,000 and P-00,000 in their 
respective separate income statements.

uring $015, @ntit" A sold inventor" to @ntit" B at a selling price of P$0,000 with gross profit rate of 
0( based on cost. n the other hand, @ntit" B sold inventor" to @ntit" A at a selling price of 
P00,000 with gross profit rate of #0( based on sales during $0$0.

n ecember #1, $015, $%( of the goods coming from @ntit" A remained in @ntit" B6s inventor" but
all were eventuall" sold to third persons during $0$0. As of ecember #1, $0$0, 0( of the goods
coming from @ntit" B were eventuall" sold to third persons.

8or the "ear ended ecember #1, $0$0, @ntit" A reported net income of P%00,000 while @ntit" B
reported net income of P$00,000 and distributed dividends of P%0,000. @ntit" A accounted for its
inventor" in @ntit" B using cost method in its separate financial statements.

!5. )hat is the consolidated sales revenue for the "ear ended ecember #1, $0$0+
A% 2&-''&'''
$% $,#$0,000
C% #,000,000
D% $,-$0,000

-0. )hat is the consolidated gross profit for the "ear ended ecember #1, $0$0+
A% 1,1$0,000
$% 1&'*&'''
C% 1,0$,000
D% 1,1%$,000

-1. )hat is the noncontrolling interest in net income for the "ear ended ecember #1, $0$0+
A% 100,00
$%   %5,$00
C% (1&2''
D%   ,000

-$. )hat is the consolidated net income attributable to parent6s shareholders for the "ear ended
ecember #1, $0$0+
A% -!!,00
$% %5!,00
C% !0!,00
D% -2-&''
 Page $%

Numbers .)& .*& .( and .- Consolidated 6tatements:Inter,om"an 8ain or loss on dis"osal#

n /anuar" 1, $015, @ntit" A acquired 0( of outstanding ordinar" shares of @ntit" B at a gain on
 bargain purchase of P10,000. &he following intercompan" transactions occurred for between the two
entities

 n /anuar" 1, $015, @ntit" B sold a land to @ntit" A with a cost of P1,000,000 at a selling price of 
P1,100,000. &he land was eventuall" sold b" @ntit" A to third persons during $0$0.

 n /anuar" 1, $015, @ntit" A sold a white machiner" to @ntit" B with a cost of P$00,000 and
accumulated depreciation of P0,000 at a selling price of P10,000. &he machiner" is alread" 
"ears old at the date of sale. &he residual value of white machiner" is immaterial.

 n /ul" 1, $0$0, @ntit" B sold a blac> machiner" to @ntit" A at with a cost of P$-0,000 and
accumulated depreciation of P10,000 at a selling price of P!0,000. &he machiner" is alread" !
"ears old at the date of sale. &he residual value of blac> machiner" is immaterial.

8or the "ear ended ecember #1, $0$0, @ntit" A reported net income of P00,000 while @ntit" B
reported net income of P%00,000 and distributed dividends of P1%0,000. @ntit" A accounted for its
inventor" in @ntit" B using cost method in its separate financial statements.

-#. )hat is the consolidated depreciation e:pense of machiner" for $0$0+

A% *'&'''
$% %%,000
C% !1,!!-
D% $,###

-. )hat is the consolidated carr"ing amount of machiner" on ecember #1, $0$0+
A% $$%,000
$% 21(&'''
C% $00,000
D% $10,000

-%. )hat is the noncontrolling interest in net income for $0$0+

A% 1$,000
$% 10%,000
C% 12(&'''
D% 10,000

-!. )hat is the consolidated net income attributable to parent shareholders for $0$0+
A% 1,%#,-%0
$% 1,%1,-%0
C% 1,#5,-%0
D% 1&*1&.('
 Page $!

6e"arate Finan,ial 6tatements : Cost 9et!od and Fair Value 9odel or E5uit 9et!od

Numbers ..& .& .0 and '

 n /anuar" 1, $0$0, @ntit" A acquired 50( of outstanding ordinar" shares of @ntit" B at a price of 
P500,000. @ntit" A paid P$0,000 costs related to acquisition of shares.

At the acquisition date, the net assets of @ntit" B were reported at P5%0,000. All the assets of @ntit" B
are properl" valued e:cept for a machiner" which is undervalued b" P1%0,000. &he machiner" has a
remaining useful life of % "ears.

8or the "ear ended ecember #1, $0$0, @ntit" B reported net income of P$00,000 and declared
dividends in the amount of P#0,000.

&he fair value of Investment in @ntit" B on ecember #1, $0$0 is P1,000,000 while the cost of 
disposal is %(.

@ntit" A voluntaril" prepared its separate financial statements.

--. If @ntit" A elects cost method to account its Investment in @ntit" B in its separate financial
statements, what is the carr"ing amount of the Investment in @ntit" B on ecember #1, $0$0+
A%   500,000
$% 02'&'''
C% 1,000,000
D%   5%0,000

-. )hat is the investment income for $0$0 if @ntit" A elects cost method to account its Investment
in @ntit" B in its separate financial statements+
A%   -,000
$% 2.&'''
C% 10,000
D% 10-,000

-5. If @ntit" A elects fair value model to account its Investment in @ntit" B in its separate financial
statements, what is the carr"ing amount of the Investment in @ntit" B on ecember #1, $0$0+
A%   500,000
$%   5$0,000
C% 1&'''&'''
D%   5%0,000

0. )hat is the net effect in profit or loss for $0$0 if @ntit" A elects fair value model to account its
Investment in @ntit" B in its separate financial statements+
A%   -,000
$%   $-,000
C% 10,000
D% 1'.&'''
 Page $-

Numbers 1& 2 and ) Non"ro/it Or8ani>ation + 6tatement o/ Finan,ial Position#

In the first "ear of operations of a nonprofit organi*ation, the following transactions occurred

 &he nonprofit organi*ation received P1,000,000 fund from a donor who stipulated that it shall be
invested indefinitel" and the dividend from such investment shall be used for research pro'ect of 
the organi*ation. ividend amounting to P1%0,000 was received during the "ear but onl" P%0,000
was spent for the research pro'ect.

 &he nonprofit organi*ation received P#00,000 fund from a donor who stipulated that it shall be
used for the acquisition of service car. &he nonprofit organi*ation used P100,000 of the fund for the
acquisition of a service car with useful life of % "ears. &he car was acquired at the middle of the
"ear.

 &he nonprofit organi*ation received P%00,000 fund who stipulated that it shall be used based on the
discretion of the Board of &rustees of the nonprofit organi*ation. &he nonprofit organi*ation used
P100,000 for the acquisition of souvenir items which were sold b" the nonprofit organi*ation for 
P1%0,000. &he remaining P00,000 was designated b" the Board of &rustees for future fundraising
 pro'ects.

1. )hat is the amount of permanentl" restricted net assets at the end of the first "ear+
A% 1,100,000
$% 1,#00,000
C% 1,$00,000
D% 1&'''&'''

$. )hat is the amount of temporaril" restricted net assets at the end of the "ear+
A% 100,000
$% )''&'''
C% $00,000
D% -00,000

#. )hat is the amount of unrestricted net assets at the end of the "ear+
A% -*'&'''
$% %0,000
C% %50,000
D% !#0,000
 Page $

Non"ro/it Or8ani>ation + 6tatement o/ A,ti4ities and 6tatement o/ Cas! Flo3s

Numbers *& (& - and .

n /anuar" 1, $0$0, a nonprofit organi*ation received P1,000,000 cash donation from a donor who
stipulated that the amount should be invested indefinitel" in revenue producing investment. &he deed
of donation also provided that the dividend income shall be used for the acquisition of computers of 
the nonprofit organi*ation.

n ecember #1, $0$0, the nonprofit organi*ation received P100,000 cash as dividend income from
the investment of the fund.

n /anuar" 1, $0$1, the nonprofit organi*ation acquired a computer at a cost of P$0,000 with a useful
life of % "ears without residual value.

. In the statement of activities of the 3P for the "ear ended ecember #1, $0$0, which of the
following is the proper effect of the transactions+
A% In,rease in tem"oraril restri,ted net assets b P1''&'''%
$% Increase in unrestricted net assets b" P1,000,000.
C% Increase in unrestricted net assets b" P1!,000.
D% ecrease in temporaril" restricted net assets b" P$0,000.

%. In the statement of activities of the 3P for the "ear ended ecember #1, $0$1, which of the
following is the proper effect of the transactions+
A% Increase in temporaril" restricted net assets b" P100,000.
$% Increase in unrestricted net assets b" P1,000,000.
C% In,rease in unrestri,ted net assets b P1-&'''%
D% ecrease in temporaril" restricted net assets b" P100,000.

!. =ow should the cash flows be reported in 3P6s 7tatement of Cash 8lows for the "ear ended
ecember #1, $0$0+
A% Cash receipts from operating activities b" P100,000.
$% Cas! re,ei"ts /rom /inan,in8 a,ti4ities b P1&1''&'''%
C% Cash disbursements for investing activities b" P%0,000.
D% Cash disbursements for financing activities b" P1,000,000

-. =ow should the cash flows be reported in 3P6s 7tatement of Cash 8lows for the "ear ended
ecember #1, $0$1+
A% Cash receipts from operating activities b" P100,000.
$% Cash receipts from financing activities b" P1,100,000.
C% Cas! disbursements /or in4estin8 a,ti4ities b P2'&'''%
D% Cash disbursements for investing activities b" P100,000.
 Page $5
Number 
Go4ernment A,,ountin8 9anual
n ecember #1, $01, the epartment of 8inance billed its lessee on one of its buildings in the
amount of P10,000. n /anuar" #1, $015, the epartment of 8inance collected all of the accounts
receivable. n 8ebruar" $, $015, the epartment of 8inance remitted the entire collected amount to
the Bureau of &reasur". )hat is the 'ournal entr" to record the remittance b" the epartment of 
8inance to the Bureau of &reasur"+
A. ebit  Accounts 4eceivable P10,000 and Credit  4ent Income P10,000
B. ebit  Accounts 4eceivable P10,000 and Credit  4etained @arnings P10,000
C. ebit  Cash Collecting fficers P10,000 and Credit  Accounts 4eceivable P10,000
D% Debit + Cas! + Treasur?A8en, De"osit& Re8ular + P1'&''' and
Credit Cas! + Colle,tin8 O//i,er + P1'&'''

Numbers 0 and 0'

n /anuar" 1, $01, the epartment of Public )or>s and =ighwa"s ;P)=< received a P10,000,000
appropriation from the national government for the acquisition of machiner". n 8ebruar" 1, $01,
P)= received the allotment from the epartment of Budget and ?anagement. n ?arch 1, $01,
P)= entered into a contract with CA& Inc. for the acquisition of the machiner" with a price of 
P,000,000. n April 1, $01, P)= received the 3otice of Cash Allocation from epartment of 
Budget and ?anagement net of 1( withholding ta: for income ta: of supplier and %( withholding of 
8inal &a: on EA& of supplier. n ?a" 1, $01, CA& Inc. delivered the machiner" to P)=. n /une
1, $01, P)= paid the obligation to CA& Inc. n /ul" 1, $01, P)= remitted the withheld income
ta: and final EA& to BI4.

5. )hat is the 'ournal entr" on ?arch 1, $01+

A. 3o entr" but 'ust posting to appropriate 4APA9
B. 3o entr" but 'ust posting to appropriate 4APA9 and to 4A
C% No entr but =ust "ostin8 o/ OR6 Obli8ation Re5uest and 6tatus# to a""ro"riate RAOD
. ebit ?achiner" P,000,000 and credit Accounts Pa"able P,000,000

50. )hat is the 'ournal entr" on April 1, $01+

A% Debit Cas!:9D6& Re8ular P.&(2'&''' and Credit 6ubsid In,ome /rom National
Go4ernment P.&(2'&'''%
$% ebit ?achiner" P,000,000 and Credit Accounts Pa"able P,000,000
C% ebit Accounts Pa"able P,000,000 and Credit ue to BI4 P0,000 and Cash?7,
4egular P-,%$0,000.
D% ebit ue to BI4 P0,000 and Credit 7ubsid" Income from 3ational overnment
P0,000.

Number 01
epartment of =ealth ;=< received 3otice of Cash Allocation in the amount of P100,000 from
epartment of Budget and ?anagement. = made a total cash disbursements in the amount of 
P5%,000. )hat is the 'ournal entr" to recogni*e reversion of unused 3otice of Cash Allocation b" =
in its boo>s+
A% Debit 6ubsid In,ome /rom National Go4ernment P(&''' and ,redit Cas!:9D6& Re8ular
P(&'''%
B. ebit 4etained @arnings of 8A P%,000 and credit Cash?7, 4egular P%,000.
C. ebit @:penses of 8A P%,000 and credit Cash?7, 4egular P%,000.
. ebit Investment of 8A P%,000 and credit Cash?7, 4egular P%,000.

Number 02
&he Bureau of &reasur" received P$0,000 cash remittance from epartment of Agrarian 4eform
;A4< from its miscellaneous income. )hat is the 'ournal entr" of the Bureau of &reasur" in its
accounting boo>s to record the receipt of cash remittance from the income of a national government
agenc"+
A% Debit Cas! in $an@& Lo,al $an@ P2'&''' and Credit Cas!:Treasur?A8en, De"osit& Re8ular
P2'&'''%
B. ebit Cash in Ban>, 9ocal Ban> P$0,000 and Credit ?iscellaneous Income of A P$0,000.
C. ebit Cash in Ban>, 9ocal Ban> P$0,000 and Credit 7avings of A, 4egular P$0,000.
. ebit Cash in Ban>, 9ocal Ban> P$0,000 and Credit CashCollecting fficer, A P$0,000.
Page #0

Number 0) Forei8n ,urren, transa,tion#

n 7eptember 1, $01, Bain Compan" received an order for equipment from a foreign customer for 
#00,000 local currenc" units ;9CD< when the D7 dollar equivalent was H5!,000. Bain shipped the
equipment on ctober 1%, $01, and billed the customer for #00,000 9CD when the D7 dollar 
equivalent was H100,000. Bain received the customer remittance in full on 3ovember 1!, $01, and
sold the #00,000 9CD for H10%,000. In the income statement for the "ear ended ecember #1, $01,
what amount should Bain report as part of net income a foreign e:change transaction gain+
A. H 0
B. H,000
C% (&'''
. H5,000

Number 0* Forei8n ,urren, transa,tion#

n 7eptember 1, $01, Cano Compan", a D7 corporation, sold merchandise to a foreign firm for 
$%0,000Botswana pula. &erms of the sale require pa"ment in pula on 8ebruar" 1, $015.. n 7eptember 
1, $01, the spot e:change rate was H.$0 per pula. At ecember #1, $01, Cano6s "earend, the spot
rate was H.15, but the rate increased to H.$$ b" 8ebruar" 1, $015, when pa"ment was received. =ow
much should Cano report as foreign e:change transaction gain or loss as part of $015 income+
A. H 0
B. H$,%00 loss
C. H%,000 gain
D% .&('' 8ain

Number 0( Forei8n ,urren, transa,tion#

=unt Compan" purchased merchandise for #00,000 from a vendor in 9ondon on 3ovember #0, $01.
Pa"ment in British pounds was due on /anuar" #0, $015. &he e:change rates to purchase one pound
were as follows

No4ember )'& 2'1 De,ember )1& 2'1

7potrate H1.!% H1.!$
#0da" rate 1.! 1.%5
!0da" rate 1.!# 1.%!

In the income statement, what amount should =unt report as foreign e:change transaction gain as part
of net income+
A. H1$,000
$%  0&'''
C. H !,000
. H 0
 Page #1

Number 0- Forei8n ,urren, transa,tion#

Ball Compan" had the following foreign currenc" transactions during $01

 ?erchandise was purchased from a foreign supplier on /anuar" $0, $01, for the D7 dollar 
equivalent of H50,000. &he invoice was paid on ?arch$0, $01, at the D7 dollar equivalent of 
H5!,000.

 n /ul" 1, $01, Ball borrowed the D7 dollar equivalent of H%00,000 evidenced b" a note pa"able
in the lender6s local currenc" on /ul" 1, $0$0. n ecember #1, $01, the D7 dollar equivalents of
the principal amount and accrued interest were H%$0,000 and H$!,000, respectivel". Interest on the
note is 10( per annum.

In Ball6s $01 income statement, what amount should be included as foreign e:change transaction loss
as part of net income+
A. H 0
B. H !,000
C. H$1,000
D% 2.&'''

Number 0. Forei8n ,urren, transa,tion#

n 3ovember #0, $01, &"rola Publishing Compan", located in Colorado, e:ecuted a contract with
@rnest Bl"ton, an author from Canada, providing for pa"ment of 10( ro"alties on Canadian sales of 
Bl"ton6s boo>. Pa"ment is to be made in Canadian dollars each /anuar" 10 for the previous "ear6s
sales. Canadian sales of the boo> for the "ear ended ecember #1, $015, totaled H%0,000 Canadian.
&"rola paid Bl"ton his $015 ro"alties on /anuar" 10, $0$0. &"rola6s $015 financial statements were
issued on 8ebruar" 1, $0$0. 7pot rates for Canadian dollars were as follows

 3ovember #0, $01 H.-

/anuar" 1, $015 H.
ecember #1, $015 H.5
/anuar" 10, $0$0 H.50

=ow much should &"rola accrue for ro"alties pa"able at ecember #1, $015+
A. H,#%0
B. H.$%
C% *&*('
. H,%00
 Page #$

Numbers 0& 00& 1'' and 1'1 Forei8n Curren, Transa,tion#

n 3ovember 1, $0$0, an entit" acquired on account goods from a foreign supplier at a cost of H1,000.
&he accounts pa"able are paid on /anuar" #0, $0$1.

n ecember 1, $0$0, an entit" sold on account the said goods to a foreign customer at a selling price
of H1,%00. &he accounts receivable are collected on 8ebruar" $, $0$1.

&he entit" is operating in Philippine econom" wherein the functional currenc" is the Philippine Peso.

&he following direct e:change rates are provided

$uin8 s"ot rate 6ellin8 s"ot rate

 3ovember 1, $0$0 P0 P$
ecember 1, $0$0 #5 0
ecember #1, $0$0 % -

5. )hat is the sales revenue for $0$0+

A% (&(''
B. !0,000
C. !-,%00
. -$,000

55. )hat is the carr"ing amount of accounts receivable on ecember #1, $0$0+
A. %,%00
B. !0,000
C% -.&(''
. -$,000

100. )hat is the carr"ing amount of accounts pa"able on ecember #1, $0$0+
A. 0,000
B. $,000
C. %,000
D% *.&'''

101. )hat is the net foreign currenc" gain for $0$0+

A% *&'''
B. %,000
C. #,000
. !,000
 Page ##

Translation o/ Finan,ial 6tatements in Fun,tional Curren, to Presentation Curren,

Numbers 1'2& 1')& 1'* and 1'(

@ntit" A owns ma'orit" of the outstanding ordinar" shares of @ntit" B which is operating in Dnited
7tates of America wherein the functional currenc" is the D7A H. =owever, the presentation currenc" of 
@ntit" B is the Philippine Peso because that is the presentation currenc" of @ntit" A. 8or the "ear ended
ecember #1, $0$0, @ntit" B presented its 7tatement of 8inancial Position in its functional currenc" of 
D7A H
Current assets H10,000 Current liabilities H10,000
 3oncurrent assets 0,000 3oncurrent liabilities $0,000
rdinar" share capital %,000
Preference share capital ,000
4etained earnings -,000
&otal Assets ('&''' &otal 9iabilities and shareholders ('&'''

 &he ordinar" shares are issued on /anuar" 1, $015 while the preference shares are issued on /ul" 1,
$015.
 B reported H1,000 net income during $0$0 and declared dividends in the amount of H$00 on
ecember 1, $0$0.
 &he translated amount of retained earnings on ecember #1, $015 is P#00,000.

&he following direct e:change rates are provided

/anuar" 1, $015 P0

/ul" 1, $015 $
ecember #1, $015 #
ecember 1, $0$0 1
ecember #1, $0$0 %
Average rate $0$0 

10$. )hat is the amount of net assets in D7 dollars on ecember #1, $015+
A% 10&2''
B. $0,000
C. 15,000
. $0,$00

10#. )hat amount of translation gain as component of other comprehensive income should be
 presented in the of statement of comprehensive income for the "ear ended ecember #1, $0$0+
A% )&-''
B. #5,$00
C. 0,00
. 1,00

10. )hat is the translated retained earnings balance on ecember #1, $0$0+
A. #00,000
$% ))(&''
C. #,000
. $1,00

10%. )hat is the cumulative translation credit that should to be presented in the statement of financial
 position on ecember #1, $0$0+
A. $%,00
$% 2&2''
C. $!,00
 . $,!00
Page #

Numbers 1'- and 1'. 6tandard Costin8 + Dire,t material 4arian,e#

 3egros Compan" recentl" setup its standard costs for its direct materials. &he entit" sets the
 benchmar> at # units of direct materials per product at a standard price of P% per unit of direct material.

uring the "ear, the entit" acquired 00 units of direct materials at a total cost of P$,00 or P! per unit.
&he entit" also manufactured 100 products using $%0 units of direct materials.

10!. )hat is the direct material price variance+

A. $%0 unfavorable
B. #00 favorable
C. #%0 favorable
D% *'' un/a4orable

10-. )hat is the direct material usage variance+

A. 1%0 unfavorable
B. #00 unfavorable
C% 2(' /a4orable
. #%0 favorable

Numbers 1' and 1'0 6tandard ,ostin8 : Dire,t labor 4arian,e#

Bacolod Compan" recentl" setup its standard costs for its direct labor. &he entit" sets the benchmar> 
at $ direct labor hours per product at a standard rate of P100 per direct labor hour.

uring the "ear, the entit" manufactured 10 products using #0 direct labor hours at total direct labor 
costs of P$,00 or P0 per direct labor hour.

10. )hat is the direct labor rate variance+

A% -'' /a4orable
B. 00 unfavorable
C. $00 favorable
. 00 unfavorable

105. )hat is the direct labor efficienc" variance+

A. 00 favorable
$% 1&''' un/a4orable
C. !00 unfavorable
. $00 favorable
 Page #%
Number 11' 7ob Order Costin8#

7imple Compan" emplo"s actual costing for its production. &he entit" provided the following data
concerning its production during the "ear
ecrease in direct materials during the "ear %00,000
9abor cost during the "ear 00,000
Actual factor" overhead during the "ear #00,000
Increase in wor> in process during the "ear $00,000
ecrease in finished goods during the "ear 100,000

)hat is the cost of goods manufactured during the "ear+

A. 1,$00,000
$% 1&'''&'''
C. 1,00,000
. 1,100,000

Numbers 111& 112 and 11) 7ob order ,ostin8#

?arawi Compan" emplo"s normal costing for its production. &he following data are provided during
the current "ear

 3et purchases of raw materials during the "ear %00,000

&otal labor costs during the "ear 00,000
epreciation of factor" assets during the "ear 100,000
Dtilities on the factor" during the "ear #00,000
$e8innin8 Endin8
4aw materials inventor" $00,000 #00,000
)or> in process inventor" %00,000 $00,000
8inished goods inventor" !00,000 #00,000

 &he entit" uses a single account for its direct material and indirect materials. Indirect material used
is onefourth of the total direct material used.
 &he indirect labor cost is 1J of the total labor costs.
 &he overhead application rate is 0( of direct labor costs.
 An" over or under application of overhead is considered material.

111. )hat is the total manufacturing cost during the current "ear+
A% 1&(-'&'''
B. 1,%00,000
C. 1,!0,000
. 1,-0,000

11$.)hat is the cost of goods manufactured during the current "ear+

A% $,00,000
$% 1&-'&'''
C% 1,50,000
D% 1,00,000

11#. )hat is the over or under application of overhead+

A% !0,000 over application
$% 10,000 under application
C% *'&''' under a""li,ation
D% 1!0,000 over application
 Page #!

Numbers 11*& 11( and 11- 7oint Produ,t and $:Produ,t Costin8#

7ila" Compan" is conducting a 'oint production at a total costs of P%00,000. &he 'oint production
results to the following inventories

Alt Tab Del

Dnits produced $0,000 units 10,000 units %,000 units
7elling price at split off P1%0 P$00 P%

Alt and &ab are considered main products while el is considered b"product. &he entit" considers its
 b"product as material. &he b"product requires additional processing cost per unit of P0.0 and its
cost of disposal is P0.$0 per unit.

11. )hat is the value to be given to product el+

A% $%,000
$% $1,000
C% $,000
D% 2'&'''

11%. )hat is the 'oint cost allocated to product Alt if the entit" emplo"s ph"sical method+
A% ###,###
$% #1!,!!-
C% #1-,###
D% )2'&'''

11!. )hat is the 'oint cost allocated to product &ab if the entit" emplo"s relative sales value method+
A% #00,000
$% $00,000
C% 102&'''
D% $,000
 Page #-

Number 11. 7ust:in:Time In4entor and $a,@/lus! Costin8#

&alisa" Compan" is emplo"ing bac>flush costing in connection with 'ustintime production process.
&he entit" provided the following production data for the "ear

 &he entit" acquired direct materials during the "ear at a cost of P100,000
 &he entit" reported direct labor cost of P$00,000.
 &he actual factor" overhead incurred during the "ear amounted to P1-0,000.
 &he standard factor" overhead application rate is -%( of direct labor cost.
 &he ending finished goods inventor" is reported at P1$0,000.

)hat is the cost of goods sold under bac>flush costing+

A. -0,000
B. #%0,000
C% ))'&'''
. #00,000

Numbers 11& 110 and 12' $a,@/lus! ,ostin8#

Pana" Compan" has a c"cle of # da"s, uses a 4aw and In Process Account ;4IP< and charges all
conversion costs to cost of goods sold. At the end of each month, all inventories are counted,
conversion costs components are estimated and inventor" account balances are ad'usted. 4aw material
cost is bac>flushed from 4aw and in Process ;4IP< Account to finished goods. &he following
information is provided for the month of /une

Beginning Balance of 4IP account, including P1,000 conversion cost %,000

Beginning Balance of finished goods account including P!,000 conversion cost 10,000
4aw materials received on credit 00,000
irect labor cost #00,000
8actor" overhead applied %00,000
@nding 4IP inventor" per ph"sical count, including P-,000 conversion cost $0,000
@nding finished goods inventor" per ph"sical count, including P,000 conversion cost !,000

11.)hat is the amount of conversion cost included cost of goods sold in /une+
A. 0$,000
$% .0-&'''
C. -5,000
. 00,000

115.)hat is the amount of direct materials bac>flushed from 4IP to finished goods+
A% )01&'''
B. 0,000
C. #-,000
. #5%,000

1$0. )hat is the amount of direct materials bac>flushed from finished goods to cost of goods sold+
A. #5%,000
B. 00,000
C% )0)&'''
. #5,000
 Page #

Numbers 121 and 122 A,ti4it $ased Costin8#

4omblon Compan" is choosing between traditional costing and activit"based costing. &he following
data are provided

A,ti4it:$ased Costin8

A,ti4it ,enter Cost dri4er Amount o/ a,ti4it Center ,ost

?aterial handling Kilos handled 100,000 >g. $00,000
Painting Dnits painted %0,000 units #00,000
Assembl" ?achine hours 10,000 hours %00,000

Traditional Costin8
&raditional 9abor hours 100,000 hours 1,000,000

/ob 1 contains #,000 units. It weighs 10,000 >ilos and uses #00 machine hours. &he direct labor hours
on the 'ob total -,000 hours.

1$1. )hat is the applied overhead under traditional costing+

A% .'&'''
B. !0,000
C. 0,000
. %0,000

1$$. )hat is the applied overhead under Activit" Based Costing+

A% ()&'''
$% %!,000
C% %,000
D% #,000
 Page #5

Numbers 12)& 12*& 12( and 12- Pro,ess Costin8 3it!out 6"oila8e#

&acloban Compan" is emplo"ing process costing regarding its production c"cle.

Conversion costs are added uniforml" during the production process while direct materials are added
10( at the start of production process, %0( at the middle of the production process and the remainder 
at the end of production process.

&he production data of the entit" during the "ear are

Beginning )or> in Process Inventor" 10,000 units ;#0( incomplete as to conversion costs<
Dnits started during the "ear #0,000 units
@nding )or> in Process Inventor" %,000 units ;-%( incomplete as to conversion costs<

 &here is no spoilage during the period.

 &he costs of beginning inventor" consist of P10#,000 costs of direct materials and P10-,%00
conversion costs.
 &he total manufacturing costs consist of P$%$,000 costs of direct materials and P1!,$%0
conversion costs.

1$#. )hat is the cost per unit of direct material under average process costing+
A% 1'
$% 5
C% 
D% -

1$. )hat is the cost per unit of conversion cost under average process costing+
A% 10
$% 5
C% 
D% .

1$%. )hat is the cost per unit of direct material under 8I8 process costing+
A% 10
$% 5
C% 
D% -

1$!. )hat is the cost per unit of conversion cost under 8I8 process costing+
A% (
$% 5
C% 
D% -
 Page 0

Numbers 12.& 12& 120& 1)' and 1)1 Pro,ess Costin8 3it! 6"oila8e#

7amar Compan" is emplo"ing process costing regarding its production c"cle.

 Conversion costs are added uniforml" during the production process while direct materials are added
$0( at the start of production process, %( at the middle of the production process and the remainder 
at the end of production process. 3ormal spoilage is 10( of units started during the "ear.

&he entit" is conducting inspection when the production process is at %( of conversion cost. &he
entit" provided the following production data during the "ear

Beginning )or> in Process Inventor" 10,000 units ;0( incomplete as to conversion costs<
Dnits started during the "ear 0,000 units
@nding )or> in Process Inventor" %,000 units ;0( complete as to conversion costs<
Dnits completed during the period #,000 units

1$-. )hat is the abnormal spoilage in units during the "ear+

A% -,000 units
$% ,000 units
C% )&''' units
D% $,000 units

1$. )hat is the equivalent unit of production for direct material under average process costing+
A% *2&-(' units
$% 1,1%0 units
C% #,$%0 units
D% #,-%0 units

1$5. )hat is the equivalent unit of production for conversion cost under average process costing+
A% ,!%0 units
$% *(&1(' units
C% #,$%0 units
D% !,1%0 units

1#0. )hat is the equivalent unit of production for direct material under 8I8 costing+
A% #%,1%0 units
$% #-,$%0 units
C% )-&1(' units
D% #,%0 units

1#1. )hat is the equivalent unit of production for conversion cost under 8I8 costing+
A% )0&1(' units
$% 1,$%0 units
C% #-,%0 units
D% #,!%0 units
 Page 1

Numbers 1)2& and 1)) Forei8n ,urren, !ed8e#

n ecember 1, $0$0, @ntit" A imported goods at a price of H1,000 pa"able on ?arch 1, $0$1. In
order to hedge this foreign currenc" denominated importation, @ntit" A entered into a forward contract
with a ban> to purchase H1,000. @ntit" A is operating in Philippine econom" where the functional
currenc" is Philippine peso. &he following direct e:change rates are given

De,ember 1& 2'2' De,ember )1& 2'2' 9ar,! 1& 2'21

Bu"ing spot P# P0 P1
7elling spot %  5

1#$. )hat is the foreign currenc" gain or loss on the hedged item for $0$0+
A% $,000 loss
$% 1&''' 8ain
C% #,000 gain
D% ,000 gain

1##. )hat is the foreign currenc" gain or loss on the hedging instrument for $0$1+
A% *&''' 8ain
$% $,000 loss
C% 1,000 loss
D% #,000 gain
 Page $

Numbers 1)* and 1)( <ed8in8#

Kline Compan" purchased inventor" on 3ovember #0, $01 for H10,000 pa"able ?arch 1, $015. n
ecember 1, $01, the entit" entered into a forward contract to purchase H10,000in 50 da"s to hedge
the purchase of inventor" on 3ovember #0, $01. &he relevant e:change rates are

6"ot rate For3ard rate

 3ovember #0, $01 P% P-
ecember 1, $01 ! 
ecember #1, $01 %0 %1

1#. )hat amount of foreign currenc" transaction gain from the forward contract should be included
in net income for $01+
A. %0,000
B. 0,000
C% )'&'''
. 0

1#%. )hat amount of foreign currenc" transaction loss should be included in income from the
revaluation of accounts pa"able for $01+
A. 0,000
$% ('&'''
C. 10,000
. 0

Number 1)- <ed8in8#

n ecember 1, $01 )inston Compan" entered into a forward contract to purchase H10,000 in 50
da"s to hedge a commitment to purchase equipment being manufactured to the entit"6s specifications.
&he e:pected deliver" date is ?arch 1, $015, at which time settlement is due to the manufacturer. &he
hedge qualifies as a fair value hedge. &he relevant e:change rates are

6"ot rate For3ard rate

ecember 1, $01 P P5
ecember #1, $01 %$ %1

)hat amount of foreign currenc" transaction gain from the forward contract should be included in net
income for $01+
A% 2'&'''
B. 0,000
C. 10,000
. 0
 Page #

Numbers 1). and 1) Fair 4alue !ed8e#

n 3ovember 1, $0$0, @ntit" A entered into a firm commitment for the e:portation of goods at a price
of H$,000. eliver" will happen on /anuar" #1, $0$0. In order to hedge this foreign currenc"
denominated firm commitment, @ntit" A entered into a forward contract with a ban> to sell H$,000.
@ntit" A is operating in Philippine econom" where the functional currenc" is Philippine peso. @ntit" A
elects to use fair value hedge to account this hedge of firm commitment. &he following direct e:change
rates are given

No4ember 1& 2'2' De,ember )1& 2'2' 7anuar )1& 2'21

7pot rate P# P0 P

50da" forward rate 1 # 
!0da" forward rate % $ 1
#0da" forward rate - ! $

1#-. )hat is the carr"ing amount of firm commitment asset or liabilit" on ecember #1, $0$0+
A% ,000 liabilit"
$% 1'&''' liabilit
C% $,000 liabilit"
D% !,000 liabilit"

1#. )hat is the foreign currenc" gain or loss on hedging instrument for $0$1+
A% *&''' 8ain
$% $,000 loss
C% !,000 loss
D% ,000 gain
 Page 

Numbers 1)0& 1*'& 1*1 and 1*2 Cas! /lo3 !ed8e#

n 3ovember 1, $0$0, @ntit" A anticipated the purchase of equipment on /anuar" #1, $0$1 at a price
of H1,$00. In order to hedge this highl" probable forecasted importation, @ntit" A entered into a
forward contract with a ban> to purchase H1,$00. @ntit" A is operating in Philippine econom" where
the functional currenc" is Philippine peso. &he following direct e:ch ange rates are made available

No4ember 1& 2'2' De,ember )1& 2'2' 7anuar )1& 2'21

7pot rate P% P P#
50da" forward rate $ 1 #
!0da" forward rate ! % 0
#0da" forward rate   0

1#5. )hat is the unreali*ed holding gain or loss to be recogni*ed as component of other 
comprehensive income in the statement of comprehensive income for the "ear ended ecember 
#1, $0$0+
A% 2&*'' 8ain
$% 1,$00 gain
C% #,!00 loss
D% ,00 gain

10. )hat is the unreali*ed holding gain or loss to be recogni*ed as component of other 
comprehensive income in the statement of comprehensive income for the "ear ended ecember 
#1, $0$1+
A% ,00 loss
$% 1&2'' loss
C% #,!00 gain
D% $,00 gain

11. )hat is the cumulative unreali*ed gain or loss before reclassification to be reported as
component of other comprehensive income in the 7tatement of Changes in equit" on ecember 
#1, $0$1+
A% 1&2'' 8ain
$% 1,00 loss
C% $,00 gain
D% 0

1$. )hat is the cost of equipment in Philippine peso on /anuar" #1, $0$1+
A% ,000
$% %0,00
C% 5,$00
D% (1&-''