CPA REVIEW SCHOOL OF THE PHILIPPINES

MANILA

ADVANCED FINANCIAL ACCOUNTING AND REPORTING Sunday, April 30, 2023

Final Preboard Examination 1:00 p.m to 4:00 p.m.

Numbers 1 and 2

On July 1, 2023, RNA Incorporated purchased an equipment from a foreign supplier for $100,000.
Payment terms are 20% down payment to be paid immediately, 50% of the balance to be paid on
December 31, 2023, and the rest to be paid on June 30, 2024. The selling spot rates (direct quotation)
on July 1, 2023, December 31, 2023, and June 30, 2024 are P53, P55, and P59, respectively.

1. How much is the balance of the accounts payable on January 1, 2024?

A. 1,650,000
B. 2,200,000
C. 4,400,000
D. 5,500,000

2. How much is the foreign exchange gain/(loss) to be included in the profits and losses of the
calendar year 2024?
A. 160,000
B. (160,000)
C. 120,000
D. (120,000)

Numbers 3 and 4

Grande Corporation has a 40% equity investment in a Company in Singapore, Leo Company. On
December 31, 2023, the balance in Grande’s Investment in Leo account was P1,065,600, equal to 40%
of Leo’s net assets of S$55,500 times a P48 year-end exchange rate. On this date, Grande has no
adjustment balance relative to its investment in Leo.

To hedge its net investment in Leo, Grande entered into a S$12,000 loan for one year at 12% interest
on January 1, 2024 at a spot rate of P48. The loan is denominated in Singapore Dollars, with principal
and interest payable on January 1, 2025. Assume that on November 2, 2024, Leo declares and pays a
S$3,500 cash dividend, when the spot rate is P46. On December 31, 2024, Leo reported net income of
S$12,500. The average exchange rate for the year 2024 is P52, and the closing rate is P50

3. How much is the translation adjustment that will appear in the Statement of Financial
Position of Grande Corporation on December 31, 2024 as a result of the hedge of net
investment in foreign operations?
A. 28,800
B. 72,000
C. 24,000
D. 4,800

4. How much is the translation adjustment that will appear in the Statement of Financial
Position of Grande Corporation on December 31, 2024 if Grande did not enter into a
hedging activity?
A. 28,800
B. 72,000
C. 24,000
D. 4,800
Page 2

Numbers 5 and 6

Ampro Face Inc. presents its financial statements in its country’s local currency, the Philippine Peso.
The majority of the day-to-day transactions of the company is denominated in Euros. Its parent
company presents its financial statements in Qatari Riyal. The following rates were made available:

PHP 1 EUR 1 QR 1
EUR QR PHP QR PHP EUR
Closing, 2023 0.017 ? ? 3.97 15.09 ?
Closing, 2024 0.018 ? ? 4.01 15.15 ?
Average, 2024 ? ? ? ? ? ?
July 1, 2024 0.016 ? ? 3.90 15.00 ?

In its Statement of Financial Position as of December 31, 2024, the company has PHP100,000
Investment in Associate and PHP50,000 Investment in debt securities held at amortized cost. Both
investment accounts were initially recognized on July 1, 2024.

5. How much investment in associate is to be included in the statement of financial position of

the parent as of December 31, 2024?
A. QR6,240
B. QR6,416
C. QR7,020
D. QR7,218

6. How much investment in debt securities held at amortized cost is to be included in the
statement of financial position of the parent as of December 31, 2024?
A. QR3,120
B. QR3,208
C. QR3,510
D. QR3,609

Numbers 7 and 8

A not-for-profit organization received the following contributions during the year ended December 31,
2023:
 Received the title to a plot of land which the donor purchased 5 years ago for P1,000,000. The
land is appraised at P5,000,000 on the date of donation. The donor made it clear that the land
will be used for any purpose deemed necessary by the board of trustees of the NPO.
 Cash donations amounting to P1,500,000 were received by the NPO. Of this amount, P600,000
was stipulated by the donor to be invested indefinitely. The donor of the remaining P900,000
stipulated that this amount will be dedicated for the procurement of a specialized equipment.

7. How much is the contribution revenue – temporarily restricted for the year ended
December 31, 2023?
A. 5,900,000
B. 1,500,000
C. 900,000
D. 0

8. Assuming the investment yielded P50,000 dividend income, and the specialized equipment
was purchased for P900,000 cash, how much is the net assets released from restriction?
A. 5,950,000
B. 950,000
C. 900,000
D. 50,000
Page 3

Number 9

A non-profit hospital had the following data available:

Gross patient service (before charity care or contractual adjustment) P800,000
Charity care for poor and indigent patient 32,000
Contractual adjustment allowed to PhilHealth members 15,000
Provision for doubtful accounts 5,000

How much is the gross patient service revenue of the hospital?

A. 800,000
B. 768,000
C. 753,000
D. 748,000

Number 10

On January 1, 2023, TYC entered into a joint arrangement classified as a joint venture. TYC acquired
50% interest in the joint venture for a total cost of P800,000. In its statement of comprehensive
income, the joint venture reported a net profit of P2,000,000 and other comprehensive income of
P500,000. On September 2, 2023, the joint venture declared cash dividends amounting to P200,000 to
all its shareholders, to be paid on January 1, 2024.

How much is the balance of the investment in joint venture account of TYC as of December 31,
2023?
A. 1,700,000
B. 1,800,000
C. 1,950,000
D. 2,050,000

Number 11

The investment in joint venture account of HIR on January 1, 2023 showed a balance of P300,000.
HIR owns 60% of the outstanding shares of the joint venture which incurred a net loss of P1,500,000
in 2023, recovered with a net income of P1,200,000 in 2024, and continued its good performance in
2025 with a net income of P2,000,000. On June 22, 2025, HIR received P200,000 cash dividends from
the joint venture which was declared during that same year.

How much is the balance of the investment in joint venture account of HIR as of December 31,
2025?
A. 1,120,000
B. 1,200,000
C. 1,720,000
D. 1,800,000

Number 12

In the statement of activities of a non-profit organization, expenses are deducted from

A. Temporarily restricted revenues
B. Unrestricted revenues
C. Any of the choices
D. None of the choices
Page 4

Numbers 13 and 14

On January 1, 2023, Entity A and Entity B, both SMEs, incorporated Entity C, a jointly controlled
entity by investing P400,000 each in exchange for 50,000 ordinary shares each representing 50% share
of Entity C. Entity A and Entity B each incurred P20,000 transaction costs.

The contractual agreement of the incorporating entities provided that the decisions on relevant
activities of Entity C will require the unanimous consent of both entities. Entity A and Entity B will
have rights to the net assets of Entity C.

For the year ended December 31, 2023, Entity C reported net income of P100,000 and declared
dividends in the amount of P20,000.

On December 31, 2023, the investment in Entity C has a value in use of P430,000.

13. If Entity A elected cost method to account its Investment in Entity C, what is the carrying
amount of Entity A’s Investment in Entity C on December 31, 2023?
A. 420,000
B. 430,000
C. 460,000
D. 400,000

14. If Entity B elected equity method to account its Investment in Entity C, what is the net effect
in Entity B’s profit or loss for the year ended December 31, 2023?
A. 50,000 net profit
B. 10,000 net profit
C. 20,000 net profit
D. 30,000 net profit

Numbers 15 and 16

A National Government Agency in the Philippines paid one of its accounts payable and withheld cash
of P9,000, which represents the 5% withholding VAT in accordance with relevant tax laws.

15. The entry of the NGA will include a debit to

A. Accounts payable P171,000
B. Accounts payable P180,000
C. Cash - Modified Disbursement System (MDS), Regular P171,000
D. Cash - Modified Disbursement System (MDS), Regular P180,000

16. The entry of the NGA will include a credit to

A. Accounts payable P171,000
B. Accounts payable P180,000
C. Cash - Modified Disbursement System (MDS), Regular P171,000
D. Cash - Modified Disbursement System (MDS), Regular P180,000

Number 17

A statement of functional expenses is required for which of the following private not-for-profit
institutions?
A. College
B. Hospital
C. Voluntary Health and Welfare Organization
D. All of the choices
Page 5
Numbers 18 and 19

According to the law, this government agency has a budget of P10 billion. The DBM permitted the
government agency to proceed with one of its proposed projects with an estimated cost of P39 million.
As its first phase of the project, the government agency hired a handful of personnel for a total of P8
million. The DBM authorized the government agency to pay half of the personnel compensation,
which the government agency did except for P1 million.

18. The entry for the DBM’s authority to pay the personnel compensation will include
A. Debit to Cash, Modified Disbursement System (MDS), Regular, P4,000,000
B. Debit to Subsidy Income from National Government, P8,000,000
C. Debit to Salaries and Wages Expense, P4,000,000
D. Credit to Cash, Modified Disbursement System (MDS), Regular P3,000,000

19. Which of the following statements is true?

A. The amount of P10B requires a memorandum entry in both the Registry of Appropriations
and Allotments (RAPAL) and Registry of Allotments, Obligations and Disbursements
(RAOD)
B. The amount of P1M shall be monitored in the Registry of Revenues and Other Receipts
(RROR)
C. The amount P39M is considered as both allotment and obligation
D. None of the choices

Number 20
The following are the special journals prescribed by the GAM for NGAs, except
A. Check Disbursements Journal
B. Cash Disbursements Journal
C. Cash Receipts Journal
D. Sales Journal

Number 21
A journal entry with a credit to the “Cash-Modified Disbursement System (MDS), Regular” account
will most likely be recorded in the
A. Special Journal
B. General Journal
C. Cash Disbursements Journal
D. Check Disbursements Journal

Number 22
Under PAS 21, which of the following statements pertain to functional currency?
A. Currency other than functional currency of the entity
B. Currency in which the financial statements are presented
C. Currency of the accumulated savings in primary bank account
D. Currency of the primary economic environment in which the entity operates

Number 23
Which of the following items should be restated in the case of an entity whose functional currency is
the currency of a hyperinflationary economy?
A. Monetary items
B. Non-monetary items carried at cost
C. Non-monetary items carried at fair value
D. All of the choices
Page 6

Number 24

Which of the following statements regarding consolidated financial statements is true?

A. There are ledgers kept for the group entity prepared at the end of each reporting period, which
combine the separate financial statements of a parent and its subsidiaries.
B. The purpose of consolidated financial statements is to show the financial performance, financial
position and cash flows of the legal entity.
C. In the consolidated financial statements, transactions and realized profits within the group must be
eliminated and adjusted.
D. Consolidation elimination entries and adjustments have to be understood with reference to the
original entries that are passed in the individual books of either the parent or the subsidiary.

Number 25

Which of the following statements regarding business combination is false?

A. If events after acquisition reveal new information that was not present at acquisition date, the
changes in fair value of the contingent consideration are not deemed as measurement period
adjustments.
B. Any acquisition related cost incurred by the acquirer in relation to the business combination,
whether direct or indirect acquisition cost are not included in the consideration transferred.
C. IFRS 3 requires the fair value to be determined on the date of exchange, the date on which
consideration is transferred.
D. In a business combination which is brought about by the acquisition of net assets of the other
entity, the legal and economic entity are one.

Number 26

Which of the following statements regarding consolidated financial statements is true?

A. Debit Share Premium relating to issuance of stocks in the working paper to record the cost of SEC
registration and listing fees.
B. Credit Investment in Subsidiary Company Stock in the working paper to record the purchase of
outstanding shares from the subsidiary.
C. Debit Non-controlling Interest in Net Assets in the working paper to assign to the non-controlling
stockholders their share in the gain on bargain purchase.
D. Credit Equipment in the working paper to adjust a fair value differential of an overvalued
equipment.

Number 27

Which of the following statements regarding job order costing is true?

A. If annual overhead costs are expected to be P1,050,000 and direct labor costs are expected to be
P1,750,000, then for every peso of manufacturing overhead, sixty percent of direct labor will be
assigned.
B. If the Manufacturing Overhead Control account has a debit balance at the end of a period, it means
that actual overhead costs were less than overhead costs applied to jobs.
C. Mr. XYZ is being paid P500 an hour for straight-time and P750 an hour for overtime. One week
he worked forty five hours, which included five hours of overtime, and three hours of idle time
caused by material shortages. Compensation would be reported as P21,000 of direct labor and
P2,750 of manufacturing overhead.
D. Spoilage occurring on specific jobs should be considered in computing predetermined overhead
rates.
Page 7

Number 28

JBG’s Peanut Butter purchases peanuts and processes them into peanut butter, peanut powder and
peanut shells. The standard yield from each 300 pound sack of unprocessed peanut is 60 pounds of
butter, 135 pounds of powder and 105 pounds of shells. The powder can be sold for P90 per pound
and butter for P110 per pound at the split off point. The shells are thrown away at no cost. The cost of
peanuts is P4,500 per three hundred pounds. It costs P11,100 in labor and overhead to process each
three hundred pounds of peanuts up to the split off point.

Which of the following statements regarding joint and by-product costing is false?
A. The total joint cost from this process amount to P15,600
B. Using the physical quantity method, the total joint cost allocated to peanut butter from 300 pounds
of peanut amount to P3,120
C. Using the sales value at split off, the total joint cost allocated to each pound of powder amount to
P74.88
D. Using the sales value at split-off, the total joint cost allocated to peanut butter amount to P5,491

Number 29

ABC Corporation manufactures a product that gives rise to a by-product called Biomix. The only cost
associated with Biomix are additional processing costs of P5 for each unit. ABC accounts for Biomix
sales first by deducting its separable costs from such sales and then by deducting this net amount from
the cost of sales of the main product. This year, 15,000 units of Biomix were produced and eighty
percent were sold at P25 each. Sales revenue and Cost of goods sold from the main product were
P2,000,000 and P1,000,000, respectively, for the year.

Which of the following statements regarding joint and by-product costing is false?
A. The gross margin after considering the by-product sales and costs amount to P1,240,000
B. If ABC changes its method of accounting for Biomix sales by showing the net amount as other
income, the gross margin will increase by P240,000
C. There will be no effect on net income, assuming ABC changes its method of accounting for
Biomix sales by showing the net amount as other income.
D. The net income will be higher if ABC will recognize Biomix upon production and the treatment of
the by-product is a deduction of its net amount from total joint cost.

Number 30

The CB Company owns 65% of the HD Company. On their separate financial statements, CB
Company has Trade Receivables of P3,412,500, including P84,000 due from HD and HD Company
has Trade Receivables P1,148,000, including P115,500 due from XY.

What figure should appear for trade receivables in CB’s consolidated statement of financial
position?
A. 4,560,500
B. 4,476,500
C. 4,361,000
D. 0
Page 8

Number 31

V Corp. owns 70% of F Corp’s ordinary shares. On August 1, 2023, F Corp. sold a machine to V
Corp. for P2,030,000. The carrying amount of the machine is P1,190,000 and has a remaining life of 8
years.

Due to this intercompany transaction, how much is the net adjustment (increase/decrease) in the
consolidated net income attributable to the non-controlling interest for 2023?
A. 43,750 increase
B. 13,125 increase
C. 306,250 decrease
D. 238,875 decrease

Number 32

G Company acquired inventories on October 18, 2023, from its 65% owned subsidiary, B Company.
The inventories were sold for P1,246,000 including the 25% markup on cost. Out of these inventories,
55% were sold to outsiders. During the year, G Co. reported net income of P3,105,000 and B Co.
reported net income of P1,876,000.

Based on the above transaction, how much is the realized profit to be allocated to controlling
interest in 2024?
A. 112,140
B. 72,891
C. 137,060
D. 89,089

Number 33

AB Corp. acquired on January 1, 2023, 90% of the outstanding common stock of XY Corp. for
P1,055,700. On that date, XY's statement of financial position showed stockholders' equity of:
Ordinary shares, P130 par – P650,000; Retained earnings – P498,000. The excess of cost over book
value is attributable to an asset which has an estimated remaining useful life of five years. For the year
ended December 31, 2023, XY reported net income of P147,000 and paid cash dividends of P18 per
share on its ordinary shares.

How much is the non-controlling interest in net assets in the consolidated statement of financial
position on December 31, 2023?
A. 117,300
B. 120,500
C. 132,000
D. 122,500

Number 34

LF, VR, and HQ, with capital balances of P668,000; P416,250; and P329,500 respectively, decided to
dissolve the partnership 6 months prior to year-end. Their profit and loss ratio is 45:25:30. Net income
for the 6 months period is P360,000. Prior to liquidation the Statement of Financial Position shows
cash at P633,500 and liabilities at P874,800.

If HQ received P493,750 after payment of P698,550 to outside creditors, how much is the total
amount of cash paid by the partnership during the period?
A. 2,836,050
B. 2,137,500
C. 2,659,800
D. 1,961,250
Page 9

Number 35

B owns 70% of W Company’s outstanding ordinary shares. W, in turn, owns 20% investment in C
Corporation. During 2023, B earned a net income of P3,206,000 from its own operations while W
suffered a loss of P600,000 excluding its share in the earnings of affiliates, if any. C reported a net
income of P435,000. W declared dividends of P250,000 from its accumulated profits in previous years.

The consolidated net income for the year 2023 is

A. 2,846,900
B. 2,611,000
C. 2,671,900
D. 2,693,000

Number 36

TUV Company acquired 70% of HIJ Inc. on October 1, 2023 and an additional 10% on March 31,
2024. Total annual amortization of P190,000 relates to the first acquisition of an undervalued excess.
HIJ Inc. reports the following at December 31, 2024: (Dividend was declared at the end of 2024)

Sales P3,000,000
Cost of Goods Sold 1,000,000
Expenses 500,000
Dividend Declared 750,000

TUV Company reports a net income of P4,500,000. Assuming the profit is earned evenly throughout
the year.

How much is the controlling interest in the consolidated net income for 2024?
A. 4,915,250
B. 5,210,000
C. 4,940,000
D. 5,515,250

Number 37

The accounts of the partnership of E, R and M at the end of its fiscal year on September 30, 2023 are
as follows:

Cash P 360,000 Loan from M P 240,000

Other assets 3,120,000 E, capital (30%) 1,080,000
Loan to R 120,000 R, capital (50%) 720,000
Liabilities 1,200,000 M, capital (20%) 360,000

Partner M received P216,000 on the first distribution of cash and liquidation expenses of P48,000 were
expected to be incurred up to December 31, 2023.

What was the cash realized from the initial sale of assets?
A. 1,608,000
B. 1,968,000
C. 1,560,000
D. 1,920,000
Page 10

Number 38

TD decided to withdraw from his partnership with SM and MR. Before his withdrawal, the capital
balance of TD was P406,000, while P448,000 for SM and P539,000 for MR. Also, the partnership’s
total assets amounted to P3,150,000, but the partners agreed that a fixed asset was under depreciated
by P105,000. TD, SM and MR share profits and losses in the ratio of 2:4:4, respectively.

If TD was paid by the partnership an amount of P372,400 upon his retirement, how much is the
remaining partnership net assets after TD’s withdrawal?
A. 915,600
B. 1,279,600
C. 1,125,600
D. 1,384,600

Number 39

JJ, a partner in the JM partnership is entitled to 40% of the profits and losses. During 2023, JJ
contributed land to the partnership that cost him P3,000,000, but had a current value of P3,600,000.
Also, during 2023, JJ had drawings of P4,800,000. The balance of JJ’s capital accounts was
P7,200,000 at the beginning of the year and P9,000,000 at the end of the year.
Compute the partnership’s earnings (loss) for 2023
A. (4,500,000)
B. (3,000,000)
C. 9,000,000
D. 7,500,000

Number 40

JM and PK, having capital balances of P2,940,000 and P1,575,000 respectively, decided to admit CY
into their partnership. CY is to invest sufficient amounts in order to have a 25% interest in the
partnership. If JM and PK share profit in a proportion of 3:1, respectively, and PK’s capital balance
after CY’s investment was P1,769,250.
How much was invested by CY?
A. 2,546,250
B. 2,541,000
C. 3,522,750
D. 1,764,000

Number 41

G and H are partners who share profits and losses in the ratio of 6:4 respectively. On May 1, 2023,
their respective capital accounts were as follows: G, P540,000; H, P450,000. On that date, F was
admitted as a partner with a 1/3 interest in capital and profits for an investment of P360,000. The new
partnership began with a total capital of P1,350,000.
Immediately after F’s admission, G’s capital account balance should be
A. 450,000
B. 486,000
C. 510,000
D. 540,000
Page 11

Number 42

The EFG Corporation manufactures cement. For October, there were no beginning materials and in
process inventory accounts. Finished goods inventory at the end of last month is half of the units
completed in October. EFG uses a Just in Time system and backflush costing with three trigger points
for making entries to record their manufacturing process. EFG’s October standard costs per sack of
cement are direct materials, P150 and conversion costs, P120. Materials purchased during the month
of October amount to P3,300,000 while conversion costs incurred in October amount to P2,640,000.
During the current month, there were 21,000 sacks of cement completed and 20,000 sacks of cement
were sold.

What is the balance of the Finished Goods inventory account at the start of November?
A. 270,000
B. 3,375,000
C. 2,835,000
D. 3,105,000

Number 43

Consider the following data from the records of MDS Co.:

Units produced 20,000

Manufacturing cost incurred (per unit): Cost incurred to rework (per unit):
Direct materials P10 Direct materials P4
Direct labor 14 Direct labor 6
Overhead cost 12 Overhead cost 4
Defective units 500
Spoiled units 300
Sales value of spoiled
P20
goods

What would be the unit cost of good units, assuming both the defect and spoilage were
attributable to exacting specifications?
A. 36.00
B. 22.00
C. 36.60
D. 36.24

Number 44

IJK Co. uses a predetermined overhead rate based on direct labor hours to apply manufacturing
overhead to jobs. For the month of October, IJK's estimated manufacturing overhead cost was
P1,200,000 based on an estimated activity level of 400,000 direct labor hours. Actual overhead
amounted to P1,300,000 with actual direct labor hours totaling 440,000 for the month.

How much was the overapplied or underapplied overhead?

A. 100,000 overapplied
B. 20,000 overapplied
C. 100,000 underapplied
D. 20,000 underapplied
Page 12

Number 45

The following information pertains to BCD Corporation manufacturing operations:

Decrease in Direct Materials Inventory P 72,000
Direct Labor Payroll 5,625,000
Decrease in Work-in-Process Inventory 96,000
Direct Labor rate per hour 62.50
Increase in finished goods Inventory 60,000
FOH rate per hour 50.00
Direct Materials purchases 6,000,000

How much will be debited to the Finished Goods Inventory?

A. 16,197,000
B. 16,293,000
C. 15,957,000
D. 16,053,000

Number 46

XYZ Corporation has provided the following data from its activity-based costing system:
Activity Cost Pool Total Cost Total Activity
Assembly P3,066,250 55,000 machine-hours
Processing orders P 230,850 1,500 orders
Inspection P 730,550 1,900 inspection-hours
Data concerning one of the company’s products, Product 007, appear below:
Selling price per unit P568.50
Direct materials cost per unit P240.70
Direct labor cost per unit P58.10
Annual unit production and sales 360
Annual machine-hours 1,040
Annual orders 60
Annual inspection-hours 30
According to the activity-based costing system, the product margin for Product 007 is
A. 18,343
B. 29,878
C. 27,577
D. 97,092

Number 47

Which of the following liabilities is classified as unsecured liability without priority?

A. Utilities payable
B. Salaries payable
C. Income tax payable
D. Liquidation expense
Page 13
Number 48

TUV Manufacturing Company adds materials at the start of production. Normal lost units are not to
exceed 2% of the units started in the current period. The following information is available for March:
Units in process, beginning (30% incomplete) 70,000 units
Started this period 840,000 units
Units in process, end (90% to complete) 140,000 units
Lost units 21,000 units
Costs last month Current period cost
Materials P255,500 P2,551,920
Conversion P231,600 P3,375,540
Compute the total cost of transferred-out units under FIFO costing
A. 5,882,000
B. 5,914,760
C. 5,427,660
D. 5,783,300

Number 49

On January 1, 2023, DMCI Inc. accepted a long-term construction contract to build a condominium
with a total contract price of P60,000,000. For the two years ended December 31, 2023 and 2024, the
following data were provided by DMCI Inc.:
12/31/2023 12/31/2024
General administration cost which is not reimbursable
P4,000,000 P6,000,000
under the contract for the year
Site labor costs including site supervision for the year 7,000,000 10,000,000
Selling cots for the year 8,000,000 2,000,000
Cost of direct materials used in construction for the year 5,000,000 6,800,000
Estimated cost to complete the condominium at year end 8,000,000 7,200,000
DMCI Inc. billed its client 30% during 2023 and 40% during 2024.
Under IFRS 15, what is the balance of the Construction in Progress in excess of Progress Billings
/ (Progress Billings in excess of Construction in Progress) to be presented in the DMCI’s
December 31, 2024 Statement of Financial Position?
A. 18,000,000 contract asset
B. 10,800,000 contract asset
C. 6,000,000 contract asset
D. 13,200,000 contract liability

Number 50

AA Inc. granted a franchise to BB Inc. to operate its registered business of barbershop. The contract
was signed on January 1, 2023 with initial franchise fee of P1,000,000 payable in P400,000 cash and
the balance in five equal semi-annual installments every June 30 and December 31. The non-interest
bearing promissory note has implicit rate of 10% (PV Factor = 4.32948). The contract provides that
BB Inc. shall pay a continuing franchise fee equal to 5% of the revenue from the barber shop. BB Inc.
reported a revenue in the amount of P200,000 during 2023. At the end of the year, AA Inc. has
satisfied the performance obligation required under the franchise contract.
Under IFRS 15, what is the total revenue to be recognized by AA Inc. for the year ended
December 31, 2023?
A. 1,010,000
B. 910,240
C. 864,894
D. 976,791
Page 14

Numbers 51 and 52

On January 1, 2023, AVENTADOR Corp. granted a franchise to Mr. X with an initial franchise fee of
P5,000,000. The terms of the payment were P750,000 was considered as down payment and the
balance was shouldered by a non-interest bearing note payable in five equal annual installments
starting at the end of the year, December 31, 2023. The prevailing rate for similar note was 10%. (PV
factor for 5 periods 3.79079). By December 31, 2023, the franchise generated gross sales amounted to
P2,500,000. The franchise agreement will expire on December 31, 2027.

As part of the franchise agreement the following were also agreed upon:
a) AVENTADOR Corp. will allow Mr. X to access upon contract signing its trade-name until the
expiration of the contract and will have a stand-alone selling price of P500,000
b) AVENTADOR Corp. will install and deliver the store equipment and will have a stand-alone
selling price of P300,000
c) AVENTADOR Corp. will deliver 10,000 units of merchandise and will have a stand-alone selling
price of P200,000
d) Continuing fee of 15% based on gross sales

As of December 31, 2023, AVENTADOR Corp. had install and delivered the equipment, but only
3,500 units of merchandise were delivered.

51. Under IFRS 15, what is the revenue from initial franchise fees at December 31, 2023?
A. 1,866,921
B. 3,972,172
C. 3,222,172
D. 1,191,652

52. Under IFRS 15, what is the total revenue at December 31, 2023?
A. 2,241,921
B. 1,566,652
C. 2,564,138
D. 4,669,389

Numbers 53 and 54

Triple V Co. entered into a long term construction contract for 3 years. Contract price agreed was
P7,500,000. The following data were ascertained for the contract:
2023 2024 2025
Cost incurred for the year P1,995,000 P5,305,500 P49,500
Estimated cost at completion 5,700,000 7,850,000 ?

53. Under IFRS 15, what is the construction-in-progress as of 2024?

A. 6,950,500
B. 4,325,500
C. 6,320,500
D. 4,955,500

54. Under IFRS 15, What is the construction cost of sales for the year 2024?
A. 5,305,500
B. 5,330,000
C. 7,995,000
D. 4,700,000
Page 15

Numbers 55 and 56

On January 1, 2023, X Inc. entered into a contract to build a large office building for Y Inc. for a total
contract price of P20,000,000. Y Inc. will make annual payments to X Inc. but the amount of these
payments cannot exceed the direct costs incurred by X Inc.

The construction contract provided Y Inc. with a final inspection right to ensure compliance with the
contract terms prior to accepting the completed project.

The following data were provided by X. Inc. for the years ended December 31, 2023, 2024 and 2025:

NOTE: (Round percentages of completion 2 decimal places, ex. .12345 = 12.35%)

2023 2024 2025

Costs incurred each year 5,800,000 10,400,000 2,400,000
Estimated cost to complete at year-end 12,600,000 1,600,000 -
Progress billings each year 1,600,000 8,000,000 10,400,000
Progress payment received each year 1,100,000 8,400,000 10,500,000

The costs incurred for each year are inclusive of the following actual marketing expense and general
administrative costs which are not reimbursable under the construction contracts:

2023 2024 2025

Marketing expense 280,000 800,000 480,000
General administrative costs 120,000 600,000 320,000

55. Under IFRS 15, what is the net income to be reported by X Inc. for the year ended December
31, 2024?
A. 3,000,000
B. 1,600,000
C. 1,497,900
D. 97,900

56. Under IFRS 15, what is the excess construction in progress or (excess billings) as of
December 31, 2024?
A. 8,400,000
B. 6,600,000
C. 8,602,220
D. 6,802,220

Number 57

On November 10, 2023 Nicekicks Inc. consigned to Shoe Palace, 10 sneakers costing P6,000 each.
Nicekicks Inc. paid the freight in the amount of P6,000.
At the end of the year, Shoe Palace sold 6 sneakers to customers with a selling price of P12,000. It
reported also selling expenses in the amount of P5,000 and remitted the net proceeds to Nicekicks Inc.
The parties agreed on a 20% commission from the sales.
What is the total cost of the unsold sneakers?
A. 24,000
B. 26,400
C. 20,640
D. 29,760
Page 16

Numbers 58 and 59

The accountant of Poor Corp. prepared a statement of affairs. Total assets which there are no claims or
liens are expected to produce P2,100,000. Total unsecured claims of all classes totalled to P3,150,000.
The following data are claims deemed outstanding:
a) Accrued salaries. P45,000.
b) Unsecured note for P30,000. on which P1,800 of interest has accrued
c) A note for P90,000 secured by P120,000 receivable, estimated to be 60% collectible
d) Unpaid income taxes of P105,000.

58. What is the percentage recovery of unsecured liability with priority?

A. 65%
B. 60%
C. 80%
D. 100%

59. What is the amount realized by partially secured creditors?

A. 31,800
B. 58,500
C. 74,700
D. 83,700

Numbers 60, 61 and 62

The Home Office had two branches, Anton and Andi. At the end of the year, December 31, 2023, the
reciprocal account in Anton Branch was P256,600. However, there were transactions discovered to
have errors.

 The home office shipped merchandise costing P87,000 to Anton branch, but was record by the
branch in the amount of P78,000
 Anton collected Andi’s customer accounts worth P25,000, but Andi charged its reciprocal account
in the amount of P52,000 and the home office recorded the correct transaction.
 The Anton branch bought P56,500 worth of equipment with useful life 4 years on June 1, 2023,
for use of the home office and it was the policy of the company that the equipment will be recorded
by the branch, but Anton recorded it as P56,050. It was indicated also in the policy that the straight
line method of depreciation will be used.
 The home office and Anton branch did not record any depreciation for the said equipment.

60. What is the unadjusted balance of the Investment in Anton account?

A. 290,600
B. 273,840
C. 265,600
D. 247,600

61. What is the net adjustment in the Home Office Current account?
A. 760 CR
B. 1,937 CR
C. 9,000 DR
D. 17,240 DR

62. What is the adjusted balance of the reciprocal accounts?

A. 258,537
B. 257,360
C. 239,360
D. 247,600
Page 17

Number 63

Which of the following transactions will result to credit in home office account in the book of the
Branch A?
A. Reported net loss of the Branch A
B. Payment by Branch A of home office's liability
C. Return by Branch A to home office of merchandise
D. Collection by Branch A of Branch B's receivables

Numbers 64, 65, and 66

The following data were provided by the accountants of the Home Office and Branch for the year
ended December 31, 2024:

Home Office Book Branch Book

Net sales to outside customer 1,000,000 800,000

Beginning Inventory 300,000 140,000
Net purchases from outside supplier 800,000 250,000
Shipment to branch 400,000
Shipment from Home Office 500,000
Ending Inventory 100,000 200,000
Operating expenses 200,000 100,000

 The current corporate income tax rate is 30%.

 For the year ended December 31, 2023, the Home Office bills its branch with a mark-up of 40%
based on cost.
 Half of the beginning inventory of the branch was acquired from outside suppliers.
 The ending inventory of the branch is broken down as follows:

 60% from outside suppliers

 26% from 2024 shipment from home office
 14% from 2023 shipment from home office

64. What is the cost of goods sold of the branch in the combined statements for the year ended
December 31, 2024?
A. 588,400
B. 690,000
C. 594,600
D. 589,600

65. What is the combined net income to be presented by the Home Office in the Statement of
Comprehensive Income for the year ended December 31, 2024?
A. 217,000
B. 218,120
C. 204,120
D. 219,800

66. What is the balance of the unrealized profit in branch inventory on December 31, 2024?
A. 16,000
B. 17,300
C. 15,600
D. 18,400
Page 18

Number 67

PFRS 15 provides that where a contract with a customer has multiple performance obligations, an
entity will allocate the transaction price to the performance obligations in the contract by reference to
their relative standalone selling prices However, if a standalone selling price is not directly observable,
the entity will need to estimate it. PFRS 15 suggests the following various methods to estimate the
standalone selling price of each performance obligation, except
A. Net Realizable Value Approach
B. Adjusted Market Assessment Approach
C. Expected Cost Plus A Margin Approach
D. Residual Approach

Number 68

PFRS 15 provides that an entity recognizes revenue from contract with customer over time if any of
the following criteria is met, except
A. The customer simultaneously receives and consumes all of the benefits provided by the entity as
the entity performs
B. The entity’s performance creates or enhances an asset that the customer controls as the asset is
created
C. The entity has transferred physical possession of the asset
D. The entity’s performance does not create an asset with an alternative use to the entity and the
entity has an enforceable right to payment for performance completed to date

Number 69

PFRS 15 provides that revenue from contract with customer involving the transfer of an asset to the
customer will be recognized upon
A. Transfer of control over the asset
B. Delivery of the asset
C. Transfer of possession over the asset
D. Transfer of risk and rewards of ownership over the asset

Number 70

Applying the provisions of PFRS 15, how shall a construction firm recognize its revenue from long-
term construction contract with its client?
A. Recognition of revenue at a specific point in time
B. Recognition of revenue over a period of time
C. Either A or B
D. Neither A nor B

-End of Examination-
CPA REVIEW SCHOOL OF THE PHILIPPINES
Manila

ADVANCED FINANCIAL ACCOUNTING AND REPORTING

Final Preboard Examination

SOLUTIONS

1. B

$ 100,000
- 20,000
80,000
- 40,000
40,000
P 55
P 2,200,000

2. C

$40,000 x (P59 – P55) = (P160,000)

NOTE: Forex loss since there was an increase in exchange rate therefore increase also in
accounts payable

3. D
4. A

Beg 55,500
NI 12,500
Div - 3,500
End 64,500

@closing 3,225,000
@historical 2,664,000
650,000
- 161,000
Adj 72,000
40%
OCI 28,800 DR
Hedge from loan (50-48) x 12,000 24,000 CR
4,800 DR

5. B

Investment in assoc (non-monetary) 100,000 x 0.016 = 1,600 EURO

NOTE: Non-monetary remeasured using transaction/historical rate

Page 2

Investment in assoc 1,600 EURO x 4.01 = QR6,416

NOTE: Asset translated using the closing rate

6. D

Investment in debt sec. held at amortized cost (monetary) 50,000 x 0.018 = 900 EURO

NOTE: Monetary remeasured using closing rate

Investment in debt sec. held at amortized cost 900 EURO x 4.01 = QR3,609

NOTE: Asset translated using the closing rate

7. C

900,000 when donation was received

8. C

900,000 when purchase was made

9. B

Gross patient service rendered 800,000

Charity care (32,000)
Gross patient service revenue 768,000

10. C

Cost 800,000
sh in NI 1,000,000
sh in OCI 250,000
div - 100,000
Bal 1,950,000

11. A

Cost 300,000
sh in NL - 300,000
bal '23 - unabsorbed loss -600,000
sh in NI 120,000
bal '24 120,000 unabsorbed loss -
sh in NI 1,200,000
div - 200,000
bal '25 1,120,000 unabsorbed loss -
Page 3

12. B

13. A

Beg 400,000
Trans cost 20,000
End 420,000

NOTE: No impairment loss because the recoverable amount was greater than the carrying
amount of the investment
14. C

Sh in NI 50,000
Impairment - 30,000
P/L 20,000

NOTE: There was impairment because the recoverable amount, 430,000 was less than the
carrying amount of the investment (420,000 + 50,000 - 10,000) 460,000

15. B
16. C
17. C

18. A

NOTE: authority to disburse means receipt of notice of cash allocation

19. D

NOTE: Choice A, memo entry only in RAPAL; choice B, the 1M is not revenue and other
receipts, but it is unused notice of cash allocation; choice C, the 39M is only authorization
to incur obligation, therefore allotment only

20. D
21. D
22. D
23. B (Reference IAS 29 par 14-15)
24. D
25. C
26. D

27. C

Direct Labor (500 x 42hrs) 21,000

MOH (250 x 5) + (500 x 3) 2,750

28. B
Page 4
29. B

30. B

Consolidated receivables (3,412,500 + 1,148,000 - 84,000) = 4,476,500

31. D

2,030,000 - 1,190,000 = 840,000 unrealized gain

840,000/8 years = 105,000 x 5/12 = 43,750 realized gain
840,000 - 43,750 = 796,250 x 30% = 238,875 decrease

32. B

1,246,000/125% x 25% = 249,200 x 45% = 112,140 x 65% = 72,891

33. D

1,055,700/90% =1,173,000 - 1,148,000 = 25,000/5 years = 5,000

1,148,000 + 25,000 - 5,000 + 147,000 - 90,000 [5,000 shares x P18]=1,225,000 x 10% = 122,500

34. C

HQ 329,500 + (360,000 x 30%) = 437,500 - 493,750 = 56,250/30% = 187,500 total gain

668,000 + 416,250 + 329,500 + 360,000 + 187,500 = 1,961,250 + 698,550

35. D

(600,000) + [435,000 x 20%] + 3,206,000 = 2,693,000

36. A

NI 1,500,000 - 190,000 = 1,310,000 x 3/12 = 327,500 x 70% = 229,250

1,310,000 x 9/12 = 982,500 x 80% = 786,000
229,250 + 786,000 + 4,500,000 - (750,000 x 80%) = 4,915,250

37. A

M 360,000 + 240,000 = 600,000 - 216,000 = 384,000/20% = (1,920,000)

(1,920,000) x 30% = 576,000 share of E in the loss [1,080,000 - 576,000] 504,000 received by C
(1,920,000) x 50% = 960,000 share of R in the loss (R will not receive cash)

Total cash distributed to partners P216,000 + 504,000 = 720,000 + 1,200,000 (outsiders)

1,920,000 + 48,000 (cash withheld) - 360,000 (cash beginning) = 1,608,000
Page 5

38. A

406,000 - [105,000 x 20%] 385,000 - 372,400 = 12,600 bonus to remaining

448,000 + 539,000 + 12,600 - [105,000 x 80%] = 915,600

39. D

7,200,000 + 3,600,000 - 4,800,000 = 6,000,000

6,000,000 - 9,000,000 = 3M share in net income ÷ 40% = 7,500,000

40. B

PK 1,575,000 - 1,769,250 = 194,250 x 4 = 777,000 bonus to old

2,940,000 + 1,575,000 + 777,000 = 5,292,000 TAC of old partners
5,292,000/75% = 7,056,000 x 25% = 1,764,000 + 777,000 = 2,541,000
41. B

540,000 + 450,000 + 360,000 = 1,350,000 TCC of all partners

TAC 1,350,000 x ⅓ = 450,000 TAC of new partner
360,000 - 450,000 = 90,000 bonus to new
90,000 x 60% = 54,000 shares of G
G 540,000 - 54,000 = 486,000

42. D

1,000 x 270 = {270,000 + [(21,000 x 270)/2]} = 3,105,000

43. C

20,000 x 36 = ({720,000 + [500 x 14] - [300 x 20]} ÷ 19,700) = 36.60

44. B

1,200,000/400,000 = 3 x 440,000 = 1,320,000 (applied) - 1,300,000 (actual)

45. B

6,000,000 + 72,000 = 6,072,000 + 5,625,000 + [50 x (5,625,000/62.50)]

16,197,000 + 96,000 = 16,293,000

46. A

3,066,250/55,000 = 55.75 per machine hour x 1,040 = 57,980

230,850/1,500 = 153.90 per order x 60 = 9,234
730,550/1,900 = 384.50 per inspection hour x 30 = 11,535
Page 6

Sales 360 x P568.50 = 204,660

Prime cost 360 x P298.80 = (107,568)
OH (ABC) (78,749)
Gross margin 18,343

47. A

48. B

FIFO Actual/Physical Materials CC

Units
Units trans-out (beg) 70,000 0 21,000
(started) 679,000 679,000 679,000
In process, end 140,000 140,000 14,000
Normal 16,800 0 0
Abnormal 4,200 4,200 4,200
Units as accounted (FIFO) 910,000 823,200 718,200

2,551,920/823,200 = 3.10 material cost per unit

3,375,540/718,200 = 4.70 conversion cost per unit
255,500 + 231,600 + [21,000 x P4.70] + [679,000 x 7.80] = 5,882,000

49. C
12/31/2023 12/31/2024
Site labor costs including site supervision for the year 7,000,000 10,000,000
Cost of direct materials used in construction for the year 5,000,000 6,800,000
Actual cost incurred each year 12,000,000 16,800,000

12/31/2023 12/31/2024
Actual cost incurred to date 12,000,000 28,800,000
Estimated cost to complete the condominium at year end 8,000,000 7,200,000
Total estimated cost 20,000,000 36,000,000

12/31/2023 12/31/2024
Actual cost incurred to date 12,000,000 28,800,000
Total estimated cost ÷ 20,000,000 ÷ 36,000,000
Percentage of completion 60% 80%

Contract price 60,000,000

Total estimated cost 2024 (36,000,000)
Estimated gross profit 24,000,000
Percentage of completion 2024 x 80%
Gross profit to date as of 2024 19,200,000

Actual cost incurred to date 2024 28,800,000

Gross profit to date as of 2024 19,200,000
Construction in progress as of 2024 48,000,000
Progress billings as of 2024
(42,000,000)
(60,000,000 x 70%)
Excess CIP over billings 6,000,000
Page 7
50. D

Date Collect Interest (5%) Principal Balance

01/01/2023 519,538
06/30/2023 120,000 25,977 94,023 425,515
12/31/2023 120,000 21,276 98,724 326,791

Down payment 400,000

PVof Note (120,000 x 4.32948) 519,538
Initial Franchise Fee 919,538
Interest income in 2023
47,253
(25,977 + 21,276)
Contingent fee (200,000 x 5%) 10,000
Total revenue in 2023 946,791

51. A

Down payment 750,000

PV of Note (4,250,000 ÷ 5) x 3.79079 3,222,172
Initial franchise fee 3,972,172

IFF allocated to performance obligation (trade-name) (3,972,172 x 500/1,000) 1,986,086

IFF allocated to performance obligation (install and deliver store equipment)
(3,972,172 x 300/1,000) 1,191,652
IFF allocated to performance obligation (10,000 units of merchandise)
(3,972,172 x 200/1,000) 794,434

IFF allocated to performance obligation (install and deliver store equipment) 1,191,652
IFF allocated to performance obligation (trade-name) (1,986,086 x 1/5) 397,217
IFF allocated to performance obligation (10,000 units of merchandise)
(794,434 x 3,500/10,000) 278,052
Revenue from initial franchise fees 1,866,921

52. C

Revenue from initial franchise fees 1,866,921

Continuing franchise fees (2,500,000 x 15%) 375,000
Interest income (3,222,172 x 10%) 322,217
Total revenue for the year end 12/31/2022 2,564,138
Page 8

53. A
2024
Contract price 7,500,000
Total estimated cost (7,850,000)
Estimated gross profit/(loss) (350,000)
x 100%
Gross profit/(loss) to date as of 2024 (350,000)

Actual cost incurred to date 2024

7,300,500
(1,995,000 + 5,305,500)
Gross profit/(loss) to date as of 2024 (350,000)
Construction-in-progress as of 2024 6,950,500

NOTE: Since in 2024 there was an estimated loss then it must be recognized immediately
100%

54. B

2023 2024
Actual cost incurred to date
1,995,000 7,300,500
2024: (1,995,000 + 5,305,500)
Total estimated cost ÷ 5,700,000 ÷ 7,850,000
Percentage of completion 35% 93%

2023 2024
Contract price 7,500,000 7,500,000
Total estimated cost (5,700,000) (7,850,000)
Estimated gross profit/(loss) 1,800,000 (350,000)
Percentage of completion x 35% x 100%
Gross profit/(loss) to date 630,000 (350,000)
Prior gross profit/(loss) - (630,000)
Gross profit/(loss) for the year 630,000 (980,000)

Construction revenue as of 2024 (7,500,000 x 93%) 6,975,000

Construction revenue for the year 2023 (7,500,000 x 35%) (2,625,000)
Construction revenue for the year 2024 4,350,000

Construction revenue for the year 2024 4,350,000

Construction cost of sales for the year 2024 (5,330,000)
Gross profit/(loss) for the year 2024 (980,000)
Page 9
55. B

2023 2024
Actual cost incurred to date
2023: (5,800,000 – 280,000 – 120,000) 5,400,000 14,400,000
2024: [5,400,000 + (10,400,000 – 800,000 – 600,000)]
Estimated cost to complete at year end 12,600,000 1,600,000
Total estimated cost 18,000,000 16,000,000

2023 2024
Actual cost incurred to date 5,400,000 14,400,000
Total estimated cost ÷ 18,000,000 ÷ 16,000,000
Percentage of completion 30% 90%

2023 2024
Contract price 20,000,000 20,000,000
Total estimated cost (18,000,000) (16,000,000)
Estimated gross profit/(loss) 2,000,000 4,000,000
Percentage of completion x 30% x 90%
Gross profit/(loss) to date 600,000 3,600,000
Prior gross profit/(loss) - (600,000)
Gross profit/(loss) for the year 600,000 3,000,000
OPEX (400,000) (1,400,000)
Net income for the year 200,000 1,600,000

56. A

Actual cost incurred to date 2024 14,400,000

Gross profit to date as of 2024 3,600,000
Construction in progress as of 2024 18,000,000
Progress billings as of 2024
(9,600,000)
(1,600,000 + 8,000,000)
Excess CIP over billings 8,400,000

57. B

Cost of 10 sneaker (6,000 x 10) 60,000

Capitalized freight from consignor to consignee 6,000
Total cost of 10 sneakers 66,000
Unsold sneaker ratio x 4/10
Total cost of unsold sneakers 26,400

58. D
59. D
Page 10

NOTE: 100% because the net free assets can recover all claims with priority.

Total free assets 2,100,000

Claims with priority (salaries and taxes)
(45,000 + 105,000) (150,000)
Net free assets 1,950,000

Total unsecured creditors

(with and without priority) 3,150,000
Claims with priority (salaries and taxes)
(45,000 + 105,000) (150,000)
Total unsecured creditors without priority 3,000,000

Net free assets 1,950,000

Total unsecured creditors without priority ÷ 3,000,000
Estimated recovery percentage 65%

FMV of receivable (120,000 x 60%) 72,000

Recoverable balance of note
[(90,000 – 72,000) x 65%] 11,700
Estimated payment for partial secured note 83,700

60. C
61. A
62. B

Investment in Anton Home Office Current

Unadjusted balance 265,600 256,600
Branch error in recording shipment - 9,000
No recording of depreciation (8,240) (8,240)
Adjusted Balance 257,360 257,360

NOTE: The collection of Anton branch of the customer’s account of the Andi branch has
no effect in the reciprocal accounts of the Home Office and Anton branch because it is a
Andi branch error. Since it is the company’s policy to record the asset in Anton’s books
and the fact that Anton also bought the asset, therefore the error of Anton has no effect on
the reciprocal accounts.

63. D
Page 11
64. A

BI (70,000 / 140%) + 70,000 120,000

Purchases 250,000
Shipments from HO (cost)
(500,000 / 125%) 400,000
EI [(200,000 x 14%) / 140%] 20,000
[(200,000 x 26%) / 125%] 41,600
(200,000 x 60%) 120,000
(181,600)
COS 588,400

65. B

Total Sales 1,800,000

Total COS (600,000 (HO) + 588,400 (Branch)) (1,188,400)
GP 611,600
Opex (300,000)
Income before tax 311,600
x 70%
Net income 218,120

66. D

EI @BP (200,000 * 40%) 80,000

EI @cost
[(200,000 x 14%) / 140%] 20,000
[(200,000 x 26%) / 125%] 41,600
(61,600)
18,400

67. A
68. C
69. A
70. B

--END--