AFAR Quiz

20 TH REGIONAL MID YEAR CONVENTION ADVANCED FINANCIAL ACCOUNTING AND REPORTING (AFAR) CUP Quiz Master’s Copy ELIMINATION ROUND EASY ROUND EASY # 1

Which of the following statements is incorrect concerning installment sales? I. II.

Installment contract receivable is always classified as a current asset. Installment contract receivable qualifies for inclusion under the current assets or non-current assets depending on the length of time required for its collection. A. B. C. D.

I only II only Both I and II Neither I nor II

EASY # 2

Partners Art and Tony, who share equally in profits and losses, have the following statement of financial position as of December 31, 2015: Cash Accounts receivable Inventories Equipment Total

₱120,000

100,000 140,000 80,000 440,000

Accounts payable Accumulated depreciation Art, capital Tony, capital Total

₱172,000

8,000 140,000 120,000 440,000

They agreed to incorporate their partnership, with the new corporation absor bing the net assets after the following adjustments: provision of allowance for bad debts of ₱10,000; restatement of the inventory at its current fair value of ₱160,000; and recognition of further depreciation on the equipment of ₱3,000. The corporation’s corporation’s share share capital is to have a par value of ₱100, and the partners are to be issued corresponding total shares equivalent to their adjusted capital balances. The total par value of the share capital that were issued to partners Art and Tony was: A. B. C. D.

₱260,000 ₱267,000 ₱273,000 ₱280,000

EASY # 3

O and M formed KERN Partnership several years ago. Capital account balances on December 31, 2016, 2016, after closing were as follows: O M

₱500,000

280,000

The partnership agreement provides O with an annual salar y of ₱10,000 plus a bonus of 5% of partnership net income for managing the business. M is provided an annual salary of ₱15,000 with no bonus. The remainder is shared evenly. Partnership net income for 2016 was ₱30,000. O and M each invested additional ₱5,000 during the year to to finance a special purchase. Year-end drawing account balances were ₱15,000 for O, and ₱10,000 for M. The capital balances of O and M on January 1, 2016 were: 20TH REGIONAL MID-YEAR CONVENTION – Academic Academic League Advanced Financial Accounting and Reporting Cup

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A. ₱503,250 and ₱291,750. B. ₱496,750 and ₱268,250. C. ₱505,000 and ₱290,000. D. ₱480,000 and ₱310,000.

EASY # 4 A partner’s drawing account, is, in substance, a

A. B. C. D.

Loan account Capital account Contra-capital account Salary expense account

EASY # 5

Which of the following statements is correct concerning franchise contracts? I.

If collection of initial franchise fee is not assured, the unearned franchise fee would always equal the balance of the note, regardless if the initial service is with direct franchise cost or not. When the initial franchise fee is not paid in full and the collectability of the note for the balance is reasonably assured, the method to be used by the franchisor to recognize revenue from the initial franchise fee is the installment method.

II.

A. B. C. D.


EASY # 6

Partners R and S share profits 3:1 after annual salary allowances of ₱40,000 and ₱60,000, respectively; however, if profits are not adequate to meet the salary allowances, the entire profit is to be divided in the salary ratio. Profits of ₱90,000 were reported for the year 2016. In 2017, it is ascertained that in calculating net income for the year-ended December 31, 2016, depreciation was overstated by ₱36,000 and ending inventory was overstated by ₱8,000. The adjustment to the capital of R and S amounted to A. B. C. D.

₱29,500

and ₱14,500 ₱36,000 and ₱54,000 ₱17,500 and ₱10,500 ₱53,500 and ₱64,500

EASY # 7

Which of the following circumstances will not result to the automatic dissolution of a general par tnership? A. B. C. D.

By death of any partner. By civil interdiction of any partner. By insolvency of any partner or of the partnership. By assignment of partner’s interest in the partnership to a third person.

20TH REGIONAL MID-YEAR CONVENTION – Academic League Advanced Financial Accounting and Reporting Cup

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EASY # 8

Trevor owns a 70% interest in a partnership, and has a capital balance of ₱140,000. Drake owns a 30% interest and has a capital balance of ₱60,000. Toto invests ₱50,000 for a 25 percent interest. Which of the two methods (bonus or goodwill) will benefit Toto if his P/L ratio is 20%? A. B. C. D.

Bonus method, benefit of ₱833. Goodwill method, benefit of ₱833. Goodwill method, benefit of ₱16,667. Bonus method, benefit of ₱2,500.

EASY # 9

How should the balance in progress billings (PB) and construction-in-progress (CIP) be shown at reporting dates prior to the completion of a long-term construction contract? A. B. C. D.

PB as income while CIP as inventory. PB as deferred income while CIP as deferred expense. Net, as current asset (debit balance) or as current liability (credit balance). Net, as loss from construction (debit balance) or gain from construction (credit balance).

EASY # 10 The “home office” ledger account in the accounting records of a branch is best described as a/an A. B. C. D.

Equity account Revenue account Liability account Deferred income account

AVERAGE ROUND AVERAGE # 1

Video and Company has several branches located in the cities in the south namely, Dipolog, Dumaguete, Cebu, Bacolod and Cagayan de Oro. It authorizes transfers cash and inventories among branches. The head office ships goods ₱100,000 cost to Dipolog branch paying freight charges for ₱6,000. The home office authorizes the transfer of goods from Dipolog Branch to Cebu branch where the latter is charged for the cost of the goods, ₱100,000 and freight charges of ₱2,000 for the transfer. If the shipment had been made by the head office to the Cebu Branch, the freight charges would have been ₱9,000. The transfers resulted to difference in freight charge which should be disposed of as follows: A. B. C. D.

₱1,000

charge to Cebu branch by Dipolog branch. ₱1,000 charge to Cebu branch by head office. ₱1,000 to be equally charged among head office, Dipolog branch and Cebu branch. ₱1,000 savings.


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AVERAGE # 2

On July 1, 2015, GB Construction Corp. contracted to build an office building for RX, Inc. for a total contract price of ₱1,825,000.

Contract cost incurred Estimated costs to complete the contract Billings to RX, Inc.

2015 350,000 1,050,000 192,500

2016 930,000 685,000 1,420,000

2017 670,000 – 212,500

Which of the following statements is true? A. The inventory account, net at December 31, 2016, assuming no dependable estimates are available amount to ₱386,250 due to customer. B. The inventory account balance at December 31, 2016, using cost to cost method is ₱1,140,000. C. The recognized loss in 2016 using zero-profit method is ₱246,250. D. The realized gross profit in 2017 using percentage of completion method is ₱15,000 and the recognized loss in 2017 using zero-profit method is ₱125,000.

AVERAGE # 3 What is the preferred method of resolving a partner’s deficit balance?

A. The partnership must sell assets in order to cover the deficit balance. B. The other partners must contribute personal assets to cover the deficit balance. C. The partner with a deficit balance must contribute personal assets to cover the deficit, regardless of personal condition. D. The partners with a deficit balance must contribute personal assets to cover the deficit only if the partner’s personal assets exceed personal liabilities.

AVERAGE # 4

The Department of Health received an allotment from the Department of Budget and Management for Capita Outlay ₱2,300,000. Maintenance and Other Operating Expenses ₱740,000; and Personal Services ₱1,100,000. What will be the entry of the DOH in its regular agency books upon receipt of allotment? A. Dr. Cash – national Treasury, MDS Cr. Subsidy Income from National Government B. Dr. National Clearing Account Cr. Notice of Cash Allocation C. Dr. Cash Collecting Officer Cr. Cash in Bank – LCCA D. Memo Entry

4,140,000 4,140,000 4,140,000 4,140,000 4,140,000 4,140,000

AVERAGE # 5

Which of the following is incorrect when the outcome of construction contract cannot be measured reliabl y? A. Contract costs shall be recognized as an expense in the period in which they are incurred. B. Revenue shall be recognized only to the extent of contract costs incurred that it is probable will be recoverable. C. The entity shall use either the percentage of completion method or cost recovery method in accounting for its construction contracts. D. An expected loss on the construction contract shall be recognized as expense immediately when it is probable that total contract costs will exceed total contract revenue.


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AVERAGE # 6

QPS Hospital had the following cash receipts and disbursements for the year ended December 31, 2016: Collections from patients Contribution for an establishment of term endowment Tuition from nursing school Interest receives from investment in permanent endowments Dividends received from investment in term endowments Payment of supporting expenses Payment of program expenses

2,500,000 500,000 1,000,000 175,000 200,000 750,000 1,075,000

The interest received from permanent endowment is restricted by the donor for acquisition of medic al equipment. How much is the net cash provided by operating activities? A. B. C. D.

₱1,675,000 ₱1,875,000 ₱2,050,000 ₱2,175,000

AVERAGE # 7

In case of admission of a new partner by investment in the partnership, which of the following statements is correct? A.

If there is bonus but without asset revaluation, the total contributed capital of all partners will be lower than the new agreed capitalization. B. If there is positive asset revaluation without bonus, the total contributed capital of all partners will be higher than the new agreed capitalization. C. If there is negative asset revaluation (asset impairment) but without bonus, the contributed capital of the new partner will be equal to his agreed capitalization in the new partnership. D. If there is positive asset revaluation or asset impairment, the difference between the total contributed capital of all partners and the new agreed capitalization shall be distributed to all partners including new partner using the new profit or loss ratio agreement.

AVERAGE # 8

When the home office ships merchandise to the branch above its cost, the cost of goods sold on the branch income statement is A. B. C. D.

Understated by the overvaluation of the inventory. Overstated by the overvaluation of the branch inventory acquired from outsiders. Overstated by the overvaluation of the branch inventory acquired from home office. Overstated by the difference between the unadjusted and post-closing balance in the allowance for overvaluation in the branch inventory account on the home office books.

AVERAGE # 9

Watkins, Inc. acquires all of the outstanding shares of Glen Corporati on on January 1, 2014. At that date, Glen owns only three assets and has no liabilities:

Inventory Equipment (10-year life) Building (20-year life)

Book value ₱40,000 80,000 200,000

Fair value ₱50,000 75,000 300,000


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If Watkins pays ₱450,000 in cash for Glen, what amount would be represented as a the subsidiary’s Building in the consolidation on December 31, 2016, assuming the book value at that date is still ₱200,000? A. B. C. D.

₱200,000 ₱255,000 ₱285,000 ₱300,000

AVERAGE # 10

For purposes of reporting in the statement of financial position, cash and receivables denominated in foreign currency are translated using A. Forward rate B. Closing rate C. Historical rate D. Average spot rate

DIFFICULT ROUND DIFFICULT # 1

Which of the following is true under IAS 21, “The Effects of Changes in Foreign Exchange Rates”? A. Entities covered must present its financial statements only in its functional currency. B. Entities covered may present its financial statements in any currency (currencies). C. Entities covered must present its financial statements in the local currency of the country in which the entity is based. D. Entities covered must present its financial statements in its functional currency but may present additional financial statements in any currency or currencies.

DIFFICULT # 2

On July 1, 2015, Great Corp. obtained a contract to construct a building. The building was estimated to be built at a total cost of ₱5,250,000 and is scheduled for completion on October 2017. The contract contains a penalty clause to the effect that the other party was to deduct ₱17,500 from the contract price for each week of delay. Completion was delayed for three weeks. Below are data pertaining to the construction period. In 2016, there was an increase in the contract price in the amount of ₱200,000 per cost escalation clause. Great Corp. uses percentage of completion method.

Costs incurred Estimated costs to complete Billings to customer

2015 ₱525,000 2,100,000 420,000

2016 ₱1,932,000 273,000 4,567,500

2017 ₱325,500 -1,260,000

How much is the excess construction in progress over progress billings or progress billings over construction in progress in 2016? (current asset or current liability) A. B. C. D.

₱682,500

current liability ₱682,500 current asset ₱635,250 current liability ₱635,250 current asset


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DIFFICULT # 3 On January 1, 2015, P Corporation purchased 80% of S Company’s outstanding shares for ₱620,000. At that date, all of S Company’s assets and liabilities had market values approximately equal to their book v alues and no goodwill was included in the purchase price. The following information was available for 2015: Income from own operations of P Corporation, ₱150,000; Operating loss of S Company, ₱20,000. Dividends paid in 2015 by P Corporation, ₱75,000; by S Company to P Corporation, ₱12,000.

On July 1, 2015, there was a downstream sale of equipment at a gain of ₱25,000. The equipment is expected to have a remaining useful life of 10 years from the date of sale. Also, on January 1, 2015, there was an upstream sale of furniture at a loss of ₱7,500. The furniture is expected to have a useful life of five years from the date of sale. Non-controlling interest is measured at fair market value. How much is the consolidated net income attributable to parent s hareholders’ equity? A. B. C. D.

₱97,250 ₱115,050 ₱112,250 ₱103,050

DIFFICULT # 4

An entity is reporting in a hyperinflationary economy. The monetary assets exceed monetary liabilities. Which of the following statements is true? I. II.

There will be a loss on the net monetary position. The loss in the net monetary position is recognized in other comprehe nsive income. A. B. C. D.


DIFFICULT # 5

On January 1, 2015, Brave Construction Corp. began constructing a ₱2,100,000 contract. The following are the relevant information provided the corporation: Brave uses percentage of completion method. For the year ended December 31, 2016, Brave billed its client an additional 55% of the contract price.

Construction in progress Estimated costs to complete Costs incurred Excess of construction in progress over billings

2015 ₱441,000 ? 425,250 ₱84,000 current liability

2016 ? ? 969,000 ₱330,750 current liability

2017 ? -675,750 --

How much is the balance of construction in progress in 2016? A. B. C. D.

₱1,680,000 ₱2,010,750 ₱1,349,250 ₱1,365,000


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DIFFICULT # 6

On July 1, 2015, Issue Company purchased 80% of the outstanding shares of Intrigue Company at a cost of ₱1,600,000. On that date, Intrigue had ₱1,000,000 of share capital and ₱1,400,000 of retained earnings. For 2015, Issue had income of ₱560,000 from its separate operations and paid dividends of ₱300,000. For 2015, Intrigue reported income of ₱130,000 and paid dividends of ₱60,000. All the assets and liabilities of Intrigue have book values equal to their respective fair market values. Assume income was earned evenly throughout the year except for the intercompany transaction on October 1. On October 1, 2015, Issue purchased an equipment from Intrigue for ₱200,000. The book value of the equipment on that date was ₱240,000. The loss of ₱40,000 is reflected in the income of Intrigue indicated above. The equipment is expected to have a useful life of 5 years from the date of sale. In the December 31, 2015 consolidated statement of financial position, how much is the consolidated net income attributable to the parent company? A. B. C. D.

₱642,400 ₱930,400 ₱946,400 ₱962,400

DIFFICULT # 7

Which of the following statements is true about installment sales? I. When the periodic inventory system is used, trade-ins are recor ded in a separate nominal account and this balance is added to purchases at the end of the period. II. Installment receivable, installment sales and deferred gross profit accounts should be maintained separately according to the year of sale. A. B. C. D.


DIFFICULT # 8

Problem 1: The following selected accounts were taken from the trial balance of Survival Company as of December 31, 2016: Accounts receivable Installment receivable – 2014 Installment receivable – 2015 Installment receivable – 2016 Merchandise inventory Purchases Fright-in Repossessed merchandise Repossession loss Cash sales Charge sales Installment sales Deferred gross profit – 2014 Deferred gross profit – 2015 Operating expenses Shipment on installment sales

750,000 150,000 450,000 2,700,000 525,000 3,900,000 30,000 150,000 240,000 900,000 1,800,000 4,460,000 222,000 393,600 150,000 2,787,500


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Additional information:  



Gross profit rates for 2014 and 2015 installment sales were 30% and 32%, respectively. The entry for repossessed goods was: Repossessed merchandise Repossession loss Installment receivable – 2014 Installment receivable – 2015

150,000 240,000 180,000 210,000

Merchandise on hand at the end of 2016 (new and repossessed) was ₱282,000.

What is the realized gross profit in 2016? A. B. C. D.

₱965,400 ₱2,129,900 ₱2,011,100 ₱2,251,100

DIFFICULT # 9

On October 31, 2016, Pointers Philippines took delivery from a British firm of inventory costing £1,450,000. Payment is due on January 31, 2017. At the same time Pointers paid ₱16,500 cash to acquire a 90-day call option for £1,450,000.

Strike price Spot rate Forward rate Fair value of call option

October 31, 2016 ₱12.60 12.61 12.72 ?

December 31, 2016 ₱12.60 12.62 12.77 ₱34,000

January 21, 2017 ₱12.60 12.64 12.78 ?

Given the information above, compute the following: Foreign exchange gain or loss on option contract due to change in time value on December 31, 2016; and foreign exchange gain or loss due to change in intrinsic value on January 31, 2017. A. ₱3,000

gain; ₱29,000 gain B. ₱10,500 loss; ₱14,500 gain C. ₱10,500 loss; ₱29,000 gain D. ₱3,000 gain; ₱14,500 gain

DIFFICULT # 10 Which of the following is true under IAS 21, “The Effects of Changes in Foreign Exchange Rates”?

A. Entities covered must present its financial statements only in its functional currency. B. Entities covered may present its financial statements in any currency (currencies). C. Entities covered must present its financial statements in the local currency of the country in which the entity is based. D. Entities covered must present its financial statements in its functional currency but may present additional financial statements in any currency or currencies.


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FINAL ROUND FINAL # 1 (AVERAGE T)

What is one of the more popular input measures used to determine the p rogress toward completion in the percentage of completion method? A. B. C. D.

Cost to cost basis Cost percentage basis Revenue percentage basis Progress completion basis

FINAL # 2 (EASY P)

Mango Inc. acquired on January 1, 2016 all the issued and outstanding common shares of Celine Inc. for ₱310,000 and Celine Inc. is dissolved. On this day, the assets and liabilities of Celine Inc. show: Cash Merchandise inventory Plant and equipment Goodwill Liabilities

₱30,000

90,000 160,000 50,000 (60,000)

Per appraisal, plant and equipment and merchandise inventory were valued at ₱190,000 and ₱75,000, respectively. What is the amount of goodwill resulting from this transaction? A. ₱125,000 B. ₱40,000 C. ₱75,000 D. ₱90,000

FINAL # 3 (AVERAGE T)

Under the installment method of accounting for installment sales, A. Gross profit is not recognized until the amount of cash received exceeds the cost of the item sold B. Revenue, costs and gross profit are recognized proportionate to the cash that is received from the sale

of the product C. Gross profit is deferred proportionate to cash uncollected from sale of the product, but total revenues and costs are recognized at the point of sale D. Revenues and costs are recognized proportionate to the cash received from the sale of the product, but gross profit is deferred until all cash is received.

FINAL # 4 (DIFFICULT T)

Should the following costs be included in the consideration transferred in a business combination, according to IFRS 3? I. II. A. B. C. D.

Costs of maintaining an ‘acquisitions’ department Fees paid to accountants to effect the combination



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FINAL # 5 (DIFFICULT P)

On July 1, 2016, Peru Company purchased 1,750 shares of Lima Corp. common stock at cost of ₱75 per share and classified it as available-for-sale security. On October 1, Peru Company purchased an at-the-money put option on Lima Corp. at a premium of ₱24,500 with strike price of ₱115 per share and an expiration date of April 2017. Peru Company specifies that only the intrinsic value of the option is to be used to measure effectiveness. The following shows that fair value of the hedged item and the hedging instrument. 10/1/16 Lima’s share price Intrinsic value Time value Fair value

12/31/16

3/3/17

4/17/17

₱115

₱103

₱95

₱95

0 24,500 ₱24,500

21,000 15,050 ₱36,050

35,000 3,170 ₱38,710

35,000 0 ₱35,000

What is the cumulative effect on Retained Earnings of the hedge and sale? A. ₱10,500 B. ₱70,000 C. ₱45,500 D. ₱80,500

FINAL # 6 (AVERAGE P)

Celica Motors sold a car for ₱180,000 pounds (£) to a customer in London on March 16, 2016 when the spot rate was ₱68.45 = £1. On April 20, 2016, Celica received thirty percent of the selling price as partial payment. The spot rate at the time was ₱67.48 = £1. The balance was paid in May 5 when the spot rate was ₱68.63 = £1. How much was the foreign currency gain/loss on this transaction? A. ₱29,700

loss B. ₱29,700 gain C. ₱142,200 loss D. ₱142,200 gain

FINAL # 7 (EASY T)

A large not-for-profit organization’s statement of activities should report the net change for net assets that are Unrestricted A. Yes B. Yes C. No D. No

Permanently restricted Yes No No Yes

FINAL # 8 (EASY T)

Franchise fees received upon contract signing shall be recognized as income by the franchisor when the following conditions are met, except A. B. C. D.

Substantial performance required under the contract is done. Period of refund for any amount received under the contract has expired. Franchise operations have earned considerable income to defray franchising expenses. Collectability of any promissory note arising from the franchise agreement is reasonably assured.


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Which of the following statement/s is/are false, according to IFRS 3? I. II. A. B. C. D.

The acquirer should recognize the investee’s contingent assets if certain conditions are met. The acquirer should recognize the investee’s contingent liabilities if certain conditions are met. I only II only Both I and II Neither I nor II


The following data were taken from the statement of realization and liquidation of Intercontinental Corporation for the quarter ended June 30, 2016 Assets to be realized Supplementary credits Liabilities to be liquidated Supplementary charges Liabilities liquidated Assets acquired Assets realized Liabilities assumed Assets not realized

₱515,625

796,875 843,750 731,250 562,500 562,500 656,250 281,250 234,375

The ending capital balances of share capital and retained earnings are ₱648,750 and ₱178,500, respectively. A net loss of ₱226,500 for the period. How much is the ending balance of cash? A. B. C. D.

₱1,125,000 ₱1,260,000 ₱978,750 ₱807,000


Given a hyperinflationary economy under IAS 29, which of the following elements of the statement of financial position is not restated using the general price index? A. B. C. D.

Monetary assets and liabilities Nonmonetary assets and liabilities Monetary and nonmonetary assets Monetary and nonmonetary liabilities

FINAL # 12 (EASY T)

Which of the following classifications is required for reporting of expenses by all not -for-profit organizations? A. Natural classification in the statement of activities or notes to the financial statements. B. Functional classification in the statement of activities or notes to the financial statements. C. Functional classification in the statement of activities and natural classification in a matrix format in a

separate statement. D. Functional classification in the statement of activities and natural classification in the notes to the financial statements.


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FINAL # 13 (AVERAGE P)

100% of the equity share of Richway Company was acquired by Sunlife Company on June 30, 2016. Sunlife issued 500,000 new ₱1 ordinary shares which had a fair value of ₱8 each at the acquisition date. In addition, the acquisition resulted in Sunlife incurring fees payable to external advisers of ₱200,000 and share issue costs of ₱180,000. In accordance with IFRS 3, how much is the total acquisition cost of business combination? A. B. C. D.

₱4.00

million ₱4.18 million ₱4.20 million ₱4.38 million

FINAL # 14 (EASY P)

On January 1, 2015, Brendan Inc. reports net assets of ₱760,000 although (equipment with a four-year life) having a book value of ₱440,000 is worth ₱500,000 and unrecorded patent is valued at ₱45,000. Brandon Corporation pays ₱692,000 on that date for an 80% ownership in Brendan. If the patent is to be written-off over a 10-year period, at what amount should it be reported on the consolidated statements at December 31, 2016? A. B. C. D.

₱28,000 ₱32,400 ₱36,000 ₱40,500


Achievement Company which began operations on January 1, 2016 appropriately uses the installment method of accounting. The following data pertain to Achievement’s operations for the year 2016: Installment sales (before over/under-allowance) Operating expenses Regular sales Total collections for the year (excluding interest of ₱84,000) Cost of regular sales Cost of installment sales Accounts receivable – 12/31/2016 Installment receivable written-off (no provision was made) Estimated resale value of repossessed merchandise Profit usual on sale of repossessed merchandise Repossessed accounts Actual value of trade-in merchandise Trade-in allowance Reconditioning cost of repossessed merchandise

3,150,000 367,500 1,312,500 2,088,000 752,500 2,205,000 512,500 154,000 290,000 15% 350,000 280,000 490,000 57,500

How much is the deferred gross profit at December 31, 2016? What is the net income for the year ended December 31, 2016? A. B. C. D.

₱353,500

; ₱455,000 ₱353,500 ; ₱640,500 ₱287,000 ; ₱441,000 ₱287,000 ; ₱525,000


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DM, Inc. works on a ₱10,500,000 contract in 2016 to construct an office building. During 2016, DM, Inc. uses the cost to cost method. At December 31, 2016, the balances in certain accounts were: Construction in progress – ₱3,780,000; Accounts receivable – ₱360,000; and Billing on construction in progress – ₱1,800,000; Contract retention – ₱180,000; Mobilization fee – ₱140,000. At December 31, 2016, the total estimated cost at the completion is ₱7,350,000. The realized gross profit in 2016 A. ₱1,102,500 B. ₱1,062,500 C. ₱1,242,500 D. ₱1,134,000

FINAL # 17 (DIFFICULT T) In a business combination, an acquirer’s interest in the fair value of the net assets acquired exceeds the consideration transferred in the combination. Under IFRS 3, the acquirer should

A. Recognize the excess immediately in profit or loss B. Recognize the excess immediately in other comprehensive income C. Reassess the recognition and measurement of the net assets acquired and the consideration transferred, then recognize any excess immediately in profit or loss D. Reassess the recognition and measurement of the net assets acquired and the consideration transferred, then recognize any excess immediately in other comprehensive income


For purposes of adjusting financial statements for changes in the general price level, monetary items consist of A. Cash and cash equivalents plus all receivables with a fixed maturity date. B. Cash, other assets expected to be converted into cash and current liabilities. C. Assets and liabilities which are classified as current in th e financial statements. D. Assets and liabilities whose amounts are fixed by contract or otherwise in terms of pesos regardless of price level change. FINAL # 19 (AVERAGE P)

Levin intends to sell ¥400,400 under a forward contract dated December 1. At what amount must Forward Contract Receivable and Forward Contract Payable be presented on December 31? Dates December 1 December 31 March 22

A. B. C. D.

FC Receivable ₱220,220 ₱200,200 ₱212,212 ₱200,200

Forward rates ₱0.55 ₱0.50 ₱0.48

Spot rates ₱0.53 ₱0.49 ₱0.46

FC Payable ₱200,200 ₱220,220 ₱196,196 ₱200,200


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Confidence Corporation sells goods on the installment basis. For the year just ended, the following were reported: Cost of installment sales, ₱8,400,000; Loss on repossession, ₱202,500; Wholesale value of repossessed merchandise, ₱1,687,500; Repossessed accounts, ₱2,700,000; deferred gross profit after adjustment, ₱1,620,000. How much was the collections for the year? A. ₱5,850,000 B. ₱6,600,000 C. ₱3,900,000 D. ₱3,150,000


A parent entity is acquiring a majority holding in an entity whose shares are dealt in on a recognized market. Under IFRS 3, which two of the following measurement bases may be used in measuring the non-controlling interest at the acquisition date? I. II. III. IV. A. B. C. D.

The nominal value of the shares in the investee not acquired The fair value of the shares in the investee not acquired The non-controlling interest in the investee’s assets and liabilities at book value The non-controlling interest in the investee’s assets and liabilities at fair value I & II III & IV II & IV II & III

FINAL # 22 (EASY P)

On April 1, 2015, ZZ Corporation paid cash of ₱620,000 for all of the net assets of AA Company appropriately accounted for as a merger. The recorded assets and liabilities of AA Corporation on April 4, 2015 follow: Cash Inventory Property, plant and equipment (net of accumulated depreciation of ₱220,000)

₱60,000

180,000 320,000

Goodwill ( net of accumulated amortization of P50,000) Liabilities Net assets

100,000 (120,000) ₱540,000

On April 1, 2015 AA’s inventory had a fair value of ₱150,000 and property, plant and equipment (net) had a fair value of ₱380,000. The amount of goodwill recorded in the books of ZZ as a result of the business combination should be: A. B. C. D.

₱150,000 ₱120,000 ₱50,000 ₱0


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FINAL # 23 (AVERAGE P) On October 1, 2016, BDO Company acquired 100% of PCI Company when the fair value of PCI’s net assets was ₱116 million and their carrying amount was ₱120 million. The consideration transferred comprised ₱200 million in cash transferred at the acquisition date, plus another ₱60 million in cash to be transferred 11 months after the acquisition date if a specified profit target was met by PCI. At the acquisition date there was only a low probability of the profit target being met, so the fair value of the additional consideration liability was ₱10 million. In the event, the profit target was met and the ₱60 million cash was transferred. What amount should BDO present for goodwill in its statement of consolidated financial position at December 31, 2017, according to IFRS 3? A. B. C. D.

₱94

million ₱80 million ₱84 million ₱144 million

FINAL # 24 (EASY T)

A statement of financial position, which reports unrestricted temporarily restri cted, and temporarily restricted, and permanently restricted net assets, is required for which one of the following organizations? I. II. A. B. C. D.

A public university A private, not-for-profit hospital

Both I and II I only Neither I nor II II only


The following account balances appear on the books of Fulfillment Company as of December 31, 2016: Cash Receivable Merchandise inventory Accounts payable Deferred gross profit – 2014 Sales Purchases Expenses 

150,000 800,000 75,000 30,000 261,250 1,250,000 640,000 425,000

The receivable account is a controlling account for three subsidiary ledgers which show the following totals: 2015 installment contracts 2016 installment contracts Charge accounts (terms, 30 days, net)

 

 

150,000 600,000 50,000

The gross profit on sales on installment contract for 2015 was 55% on installment contract for 2016, 50%. Collections on installment contracts for 2015 total ₱300,000 for the year just closed; on installment contracts for 2016, ₱400,000; on charge accounts, ₱200,000. Account balances from installment sales made prior to 2015 were also collected. Repossession for the year was on installment contract for 2015 on which the uncollected balance at the time of repossession amounted to ₱50,000


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

Merchandise repossessed was erroneously debited as a newly acquired merchandise equal to the amount defaulted by the customer.



Appraisal report show that this repossessed merchandise ha s a true worth of ₱20,000 at the time of repossession and remain unsold at year end.



The final inventory of the merchandise (new) valued at cost amounted to ₱45,000.

What is the total realized gross profit in 2016? A. B. C. D.

₱626,250 ₱756,250 ₱495,000 ₱365,000

CLINCHER QUESTIONS CLINCHER #1

AIG Company acquired 70% interest in EASTWEST Company for ₱1,960,000 when the fair value of EASTWEST’s identifiable assets and liabilities was ₱700,000 and elected to measure the non-controlling interest at its share of the identifiable net assets. Annual impairment reviews of goodwill have not resulted in any impairment losses being recognized. EASTWEST’s current statement of financial position shows share capital of ₱300,000 and retained earnings of ₱1,400,000.

₱100,000,

a revaluation reserve of

Under IFRS 3, Business Combinations, what figure in respect of goodwill should now be carried in AIG’s consolidated statement of financial position? A. ₱1,470,000

B. ₱160,000 C. ₱1,260,000 D. ₱700,000

CLINCHER # 2

Under IAS 11, “Construction Contracts”, any anticipated excess of contract costs over contract revenue shall A. B. C. D.

Be recognized as soon as it is anticipated Be recognized when it is actually incurred Be recognized based on the percentage completed Not be recognized when using the cost recovery method

CLINCHER # 3

Partially secured creditors are A. Creditors that have no lien on specific assets. B. Creditors that have a lien on specific assets, whose estimated realizable value is less than the

amount of liability. C. Creditors that have a lien on specific assets, whose estimated realizable value equals or exceeds the amount of liability. D. Creditors that have no lien on specific assets but the claims rank ahead of other unsecured liabilities in order of payment.


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CLINCHER # 4

P Corporation used debentures with a par value of ₱610,000 to acquire 100% of the net assets of S Company on January 1, 2016 and S Company is dissolved. On that date, the fair value of the bonds issued by P Corp. was ₱564,000, and the following balance sheet data were reported by S Co.: Balance sheet item Cash and receivables Inventory Land Plant and equipment Accumulated depreciation Goodwill Total assets

Historical cost ₱55,000 105,000 60,000 400,000 (150,000) 10,000 ₱480,000

Fair value ₱50,000 200,000 100,000 300,000

Accounts payable Ordinary share capital Share premium - ordinary Accumulated profits Total liabilities and equity

₱50,000

₱50,000

100,000 60,000 270,000 ₱480,000

P Corporation incurred an out-of-pocket expenses of ₱20,000. How much goodwill is to be recognized on the books of P as a result of the business combination? A. B. C. D.

₱0 ₱10,000 ₱20,000 ₱30,000


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AFAR Quiz

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