AFAR FINAL PB OCT 2021.pdf

ADVANCED FINANCIAL ACCOUNTING & REPORTING OCT 2021 BATCH
FINAL PRE-BOARD EXAMINATION
INSTRUCTIONS: Select the correct answer for each of the following questions. Mark only one answer for
each item by Shading the corresponding letter of your choice on the answer sheet provided. STRICTLY NO
ERASURES ALLOWED. Use Pencil No. 2 only.
1. Gim, San, and Yoon have been partners throughout 2021. Their average balances and their balances at
the end of the year before closing the nominal accounts are as follows:
Partner Average Balances Balances, 12/31/2021
Gim P 97,500 P 70,000
San 7,300 11,800
Yoon 4,250 1,700 *
*debit balance
The income for 2021 is P103,500 before charging partners’ salary allowances and before payment of
interest on average balances at the agreed rate of 4% per annum. Annual salary allocations are
P12,500 to Gim, P8,750 to San, and P6,250 to Yoon. The balance of the profits is to be allocated at the
rate of 60% to Gim, 10% to San, and 30% to Yoon.
The partners agreed that after credits and allocations have been made as indicated in the preceding
paragraph, the balances in the partners’ accounts will be proportionate to their residual profit-sharing
ratios. None of the partners is to invests additional cash nor withdraw cash. The partners agree to just
settle among themselves outside of the partnership.
The settlement among partners will involve:
A. Payment of Gim to Yoon of P 19,222.80.
B. Payment of San to Yoon of P 9,645.80.
C. Payment of Yoon to Gim of P 9,645.80.
D. Payment of Yoon to San of P 9,645.80.
2. The HERMOSILLA Construction Company was the lowest bidder on an office building construction
contract. The contract bid was P 70 million, with an estimated cost to complete the project of P 60 million.
The contract period was 34 months starting January 2019. The company uses the cost-to-cost method of
estimating earnings. Because of changes requested by the customer, the contract price was adjusted
downward to P 65 million on January 1, 2020.
A record of construction activities for the years 2019-2022 follows: (in millions)
2019 2020 2021 2022
Actual cost-current year P 25 P 33 P 4.1 -
Progress billings 21 31 13 -
Cash receipts 18 30 10 P 7
Estimated costs to complete 35 4 - -
Compute the gross profit (loss) realized in 2020.
A. P 4.167 million
B. P 2.806 million
C. P (1.360) million
D. P 3.317 million
T
Th
he
e P
Pr
ro
of
fe
es
ss
si
io
on
na
al
l C
CP
PA
A R
Re
ev
vi
ie
ew
w S
Sc
ch
ho
oo
ol
l
Davao
3/F GCAM Bldg. Monteverde St. Davao City
 0917-1332365
Baguio
2nd
Flr. #12 CURAMED Bldg. Marcos Highway, Baguio City
 0906-0775156 / 09618683385
Main: 3F C. Villaroman Bldg. 873 P. Campa St. cor Espana, Sampaloc, Manila
 (02) 8735 8901 / 0917-1332365
email add: crc_ace@yahoo.com

CRC-ACE/AFAR: Final Pre-board Examination (Oct 2021 batch) Page 2
3. Partners D, E, F, and G, share profits 40%, 30%, 15%, and 15%, respectively. Their partnership
agreement provides that in the event of the death of a partner, the firm shall continue until the end of the
fiscal period. Profits shall be considered to have been earned proportionately during this period, and the
deceased partner’s capital shall be adjusted by the proper share of the profit or loss until the date of
death. From that date until the date of settlement with the estate there shall be added interest at 6%
computed on the adjusted capital. The remaining partners shall continue to share profits in the old ratio.
Payment to the estate shall be made within one year from the date of the partners’ death.
Partner G died on November 16. On December 31, the end of the six-month period, account balances on
the partnership books before the income summary account is closed are as follows:
Cash P 15,000 Notes payable P 30,000
Accounts receivable 140,000 Accounts payable 141,000
Inventories 190,000 D, capital 84,000
Machinery and equipment, net 90,000 E, capital 75,000
Store furniture and fixtures, net 33,000 F, capital 48,000
G, capital 45,000
_________ Income summary (7/1-12/31) 45,000
P 468,000 P 468,000
The income summary account is closed on December 31. On this date, F decides to retire. D and E agree
to pay the balance in F’s capital account after distributions of profit, less 20%, and issue a partnership 60-
day, 6% note to F in settlement.
How much be the amount due to G’s estate on December 31?
A. P 45,000
B. P 51,750
C. P 50,052.50
D. P 50,438
4. Roux, Tyler, and Colt agree to liquidate their consulting practice as soon as possible after the close of
business on July 31, 2021. The trial balance on that date shows the following account balances.
Cash P 130,000 Accounts payable P 60,000
Accounts receivable 120,000 Loan to Roux 40,000
Furniture and fixtures 350,000 Roux, capital 200,000
Tyler, capital 150,000
Colt, capital 150,000
P 600,000 P 600,000
The partners share profits and losses 50%, 20%, and 30% to Roux, Tyler, and Colt, respectively, after
Colt is allowed a monthly salary of P 40,000.
August transactions and events are as follows:
1. The accounts payable are paid.
2. Accounts receivable of P 80,000 are collected in full. Colt accepts accounts receivable with a
face value and fair value of P 30,000 in partial satisfaction of his capital balance. The remaining
accounts receivable are written off as uncollectible.
3. Furniture with a book value of P 250,000 is sold for P 150,000.
4. Furniture with a book value of P 40,000 and an agreed upon fair value of P 10,000 is taken by
Tyler in partial settlement of his capital balance. The remaining furniture and fixtures are donated
to Goodwill Industries.
5. Liquidation expenses of P 30,000 are paid.
6. Available cash is distributed to partners on August 31.
How much of Tyler’s equity was recovered from the partnership liquidation?
A. P 25,000
B. P 94,000
C. P 51,000
D. none

5. Audiophile Corporation manufactures brass musical instruments for use by high school students. The
company uses a normal costing system, in which manufacturing overhead is applied on the basis of
direct-labor hours. The company’s budget for 2021 included the following predictions.
Budgeted total manufacturing overhead 411,600
Budgeted total direct-labor hours 19,600
During march of 2021, the firm worked on the following two productions jobs:
Job number 181, consisting of 76 trombones.
Job number C40, consisting of 110 cornets.
The events of March are described as follows:
(a) One thousand square feet of rolled brass sheet metal was purchased for P 5,000 on account.
(b) Four hundred pounds of brass tubing was purchased on account for P 4,000.
(c) The following requisitions were filed on March 5.
Requisition number 112 (for job T81): 250 squares feet of brass sheet metal, at P 5 per square
foot.
Requisition number 113 (for job C40): 1,000 pounds of brass tubing, at P 10 per pound.
Requisition number 114: 10 gallons of valve lubricant, at P 10 per gallon.
All brass used in production is treated as direct material. Valve lubricant is an indirect material.
(d) An analysis of labor time cards revealed the following labor usage for March.
Direct labor: Job number T81, 800 hours at P 20 per hour.
Direct labor: Job number C40, 900 hours at P 20 per hour.
Indirect labor: General factory clean-up, P 4,000.
Indirect labor: Factory supervisory salaries, P 9,000.
(e) Depreciation of the factory building and equipment during March amounted to P 12,000.
(f) Rent paid in cash for warehouse space used during March was 1,200.
(g) Utility costs incurred during March amounted to P2,100. The invoices for these costs were received,
but the bills were not paid in March.
(h) March property taxes on the factory were paid in cash, P2,400.
(i) The insurance cost covering factory operations for the month of March was P3,100. The insurance
policy had been prepaid.
(j) The costs of salaries and fringe benefits for sales and administrative personnel paid in cash during
March amounted to P 8,000.
(k) Depreciation on administrative office equipment and space amounted to P 4,000.
(l) Other selling and administrative office equipment and space amounted to P 4,000.
(m) Job number T81 was completed during March.
(n) Half of the trombones in job number T81 were sold on account during March for P700 each.
Calculate the cost of finished goods ending inventory in March.
A. P 34,050
B. P 17,025
C. P 46,900
D. P 23,450
6. ACE Manufacturing Company uses weighted-average process costing to account for the costs of its
single product. Productions begins in the Fabrication Department, where units of raw materials are
molded into various connecting parts. After fabrication is complete, the units are transferred to the
Assembly Department. No material is added in Assembly Department. After assembly is complete, the
units are transferred to the Packaging Department, where the units are packaged for shipment. When this
process is finished the units are complete, and they are transferred to the Shipping Department.
On December 31, 2011, the following inventory is on hand:
1. No unused raw material or packing material.
2. Fabrication Department: 6,000 units, 25% complete as to direct material and 40% complete as to
direct labor.
3. Assembly Department: 10,000 units, 75% complete as to direct labor.
4. Packaging Department: 3,000 units, 60% complete as to packing material and 75% complete as
to direct labor.
5. Shipping Department: 8,000 units.
Calculate the number of equivalent units of direct material in all inventories.
A. 1,500
B. 11,500
C. 14,500
D. 22,500

7. The trial balance of the CDE Partnership on April 30, 2021, is presented below. The profit and loss
percentages are shown in the trial balance.
DebitCredit
Cash P 15,000
Accounts receivable, net 85,000
Inventory 82,000
Plant assets, net 120,000
Accounts payable P 90,000
Devon, loan 15,000
Charlie, capital (60%) 80,000
Devon, capital (20%) 57,000
Ellie, capital (20%) 60,000
Total P302,000 P302,000
The partnership is being liquidated. Liquidation activities are as follows:
May June July
Accounts receivable collected P40,000 P28,000 P 13,000
Noncash assets sold:
Book value 44,000 35,000 123,000
Selling price 50,000 30,000 80,000
Accounts payable paid 65,000 25,000
Liquidation expenses:
Paid during month 3,500 3,000 2,500
Anticipated for remainder
Of liquidation process 6,000 4,000
Cash is distributed at the end of each month, and the liquidation is completed by July 31, 2021. No
interest accrues on Devon’s loan during the liquidation.
How much cash was received by Devon in May?
A. P 12,000
B. P 5,500
C. P 11,500
D. P 0
DebitCredit
Cash P 15,000
Inventory 82,000
Devon, loan 15,000
Total P302,000 P302,000
May June July
Book value 44,000 35,000 123,000
Selling price 50,000 30,000 80,000

How much must be the total cash received by Ellie in June?
A. P25,250
B. P31,750
C. P33,333
D. P 9,750
DebitCredit
Cash P 15,000
Inventory 82,000
Devon, loan 15,000
Total P302,000 P302,000
May June July
Book value 44,000 35,000 123,000
Selling price 50,000 30,000 80,000
How much cash was received by Charlie in July?
A. P47,000
B. P23,750
C. P44,600
D. P22,950
10. SUN Corporation recently acquired the German Builders Company. German has incomplete accounting
records. On one particular project, only the information below is given. Because the information is
incomplete, you are asked the following questions assuming the percentage of completion method is used
and an output measure is used to estimate the percentage completed, and revenue is recorded using the
costs actually incurred.
2019 2020 2021
Costs incurred during year P2,000,000 P2,500,000 ?
Estimated cost to complete 4,500,000 1,900,000 -0-
Contract revenue 2,500,000 ? ?
Gross profit on contract ? 100,000 P(200,000)
Contract price P7,000,000
How much is the total cost of the contract?
A. P6,930,000
B. P6,600,000
C. P6,900,000
D. P6,800,000

11. SUN Corporation recently acquired the German Builders Company. German has incomplete accounting
records. On one particular project, only the information below is given. Because the information is
incomplete, you are asked the following questions assuming the percentage of completion method is used
and an output measure is used to estimate the percentage completed, and revenue is recorded using the
costs actually incurred.
2019 2020 2021
Costs incurred during year P2,000,000 P2,500,000 ?
Estimated cost to complete 4,500,000 1,900,000 -0-
Contract revenue 2,500,000 ? ?
Gross profit on contract ? 100,000 P(200,000)
Contract price P7,000,000
What would be the gross profit for 2020 if the cost to cost percentage of completion method were used?
Ignore the revenue amount for 2019 and gross profit amount for 2020?
A. P268,029
B. P422,600
C. P100,000
D. P(77,600)
12. On July 1, the CRC-ACE Company, organized a sales outlet in Cebu City. Following are the home office-
branch transactions for the month of July:
July 1 The home office transferred P250,000 to its Cebu branch.
2 Merchandise costing the home office P30 per unit was shipped to the branch at an invoice price
of P40 per unit. Ten thousand units were shipped on July 2; a second order was to be filled by
local suppliers.
2 Shipping costs on the above were paid as follows:
By the home office P15,000
By the branch 5,000
5 Additional merchandise was acquired by the branch from regional distributors, 5,000 units at
P31.00.
6 Display equipment was purchased by the home office, cost P360,000, and was delivered to the
branch. Plant assets accounts were kept by the home office.
10 Branch sales for the period July 3-10; on account, 8,000 units at P50.
18 Branch collections on account, P320,000.
25 Branch sales for the period July 11-24; on account, 5,000 units at P50.
29 Cash remittance by branch to home office, P100,000.
30 Month summary of branch cash expenses:
Advertising P 4,000
Sales commission 65,000
Miscellaneous 1,000
31 Depreciation recorded by the home office for July included P15,000 that related to the display
equipment used by the branch. Insurance on this equipment was amortized by the home office
in the amount of P2,500.
31 Inventories of merchandise at the branch on July 31 included the following:
From the home office 1,500 units @ P40
From local suppliers 500 units @ P31
Determine the correct balance of reciprocal account after recording branch net income or loss.
A. P 648,500
B. P 582,500
C. P 665,500
D. P 599,500
13. Illinois Potteries makes a variety of pottery products that it sells to retailers such as Home Depot. The
company uses a job-order costing system in which predetermined overhead rate in the Molding
Department is based on machine-hours, and the rate in the Painting Department is based on direct labor
cost. At the beginning of the year, the company’s management made the following estimates:
Department
Molding Painting
Direct labor hours 12,000 60,000
Machine hours 70,000 8,000
Direct materials cost P510,000 P650,000
Direct labor cost P130,000 P420,000
Manufacturing overhead cost P602,000 P735,000

Job 205 was started on August 1 and completed on August 10. The company’s cost records show the
following information concerning the job:
Department
Molding Painting
Direct labor hours 30 85
Machine hours 110 20
Materials placed into production P470 P332
Direct labor cost P290 P680
If the job contained 50 units, what would be the unit product cost?
A. P18.92
B. P23.80
C. P42.72
D. P78.16
14. The following information pertains to the production process of GSM Blue Manufacturing Company for
March, 2021:
a) Opening inventory, 100% materials, 50% converted 4,000 units
Put in process during the period 20,000 units
Units completed and transferred 21,000 units
In process end, 100% materials, 60% converted ?
b) Costs prior period:
Materials P1,992
Direct labor 1,074
Factory overhead 846
c) Cost this period:
Materials P12,000
Direct labor 9,984
Factory overhead (100% of direct labor)
The total cost of the work in process at the end is:
Average FIFO
A. P3,577 P3,500
B. P3,477 P3,528
C. P3,528 P3,477
D. P3,500 P3,577
15. A company that manufactures a single product uses backflush costing. At the beginning of the period,
there were no inventories. During the period, 40,000 units were produced, of which 39,000 were sold. The
standard unit direct materials and conversion costs for the period were P30 and P18, respectively. The
actual unit direct materials and conversion costs for the period were P29 and P20, respectively.
Furthermore, any under- or overapplied conversion cost is not prorated between cost of goods sold and
finished goods but materials price variances are recognized. Materials efficiency variances should be
disregarded. The following additional information is also available for the period:
Direct materials purchased (actual cost of materials
Sufficient to produce 42,000 units P 1,218,000
Direct materials used (standard cost) 1,200,000
Conversion costs incurred (actual cost) 800,000
Assume the company’s backflush accounting system records the purchase of direct materials and the
completion and sale of finished goods. The entry to record finished goods is
A. Finished goods control P 1,920,000
Raw and in-process inventory control P1,200,000
Conversion costs applied 720,000
B. Finished goods control P 1,960,000
Raw and in-process inventory control P 1,160,000
Conversion costs applied 800,000
C. Finished goods control P 2,000,000
Accounts payable control P 1,200,000
Conversion costs control 800,000
D. No entry.

16. On December 1, 2020, Amazon Incorporated, Inc. entered into a 120-day forward contract to purchase
100,000 U.S. dollars. Amazon Incorporated’s fiscal year ends on December 31. The direct exchange
rates are as follows:
Forward Rate
Date Spot Rate for March 31
December 1, 2020 P 40.00 P 40.50
December 31, 2020 41.00 41.50
January 30, 2021 40.60 40.30
March 31, 2021 40.10
Assume that the forward contract was to hedge the purchase of furniture for 100,000 U.S. dollars on
December 1, 2020, with payment due on March 31, 2021, how much must be the transaction gain or loss
on the income statement of 2021?
A. P 0
B. P 100,000
C. P 50,000
D. P 90,000
17. On December 1, 2020, Amazon Incorporated, Inc. entered into a 120-day forward contract to purchase
100,000 U.S. dollars. Amazon Incorporated’s fiscal year ends on December 31. The direct exchange
rates are as follows:
Forward Rate
Date Spot Rate for March 31
December 1, 2020 P 40.00 P 40.50
December 31, 2020 41.00 41.50
January 30, 2021 40.60 40.30
March 31, 2021 40.10
Assume that the forward contract was to hedge the agreement made on December 1, 2020, to purchase
furniture on January 30, with payment due on March 31, 2021, how much is the transaction gain or loss
from this forward contract in 2020?
A. P 0
B. P 100,000
C. P 10,000
D. P 90,000
18. Sophie and Chloe formed a joint venture to purchase and sell a special type of merchandise. The
venturers agreed to contribute cash of P168,750 each to be used in purchasing the merchandise, and to
share profits and losses equally. They also agreed that each shall record his own joint venture
transactions in their respective records.
Upon termination of the joint venture, the following data are available:
How much cash is to be received by Sophie in the final settlement?
A. P296,437.50
B. P312,468.75
C. P316,968.75
D. P318,093.75
Sophie Chloe
Joint venture P146,250 cr P131,625 cr
Inventory taken 4,500 14,062.50
Expenses paid out of JV
cash
6,750 12,375

19. Lawrence, Inc. is a 90%-owned subsidiary of Arthur Corp. Summarized income statements for the
affiliated companies for the year ended December 31, 2021 follow:
Arthur Lawrence
Sales P1,500,000 P 500,000
Cost of sales ( 750,000) ( 200,000)
Operating expenses ( 550,000) ( 200,000)
Operating income P 200,000 P 100,000
Dividend Income 10,000 -
Net income P 210,000 P 100,000
Inventory, 12/31/08 P 220,000 P 160,000
During 2021, Arthur sold merchandise to Lawrence for P300,000; and Lawrence sold to Arthur,
merchandise for P30,000. The beginning inventory of Arthur were all acquired from outside vendors;
while the beginning inventory of Lawrence contained P30,000 of goods acquired from Arthur. Twenty
percent (20%) of the current year’s intercompany sales remained in the respective ending inventories of
the affiliated companies.
Arthur and Lawrence have uniform margin on all of its sales.
Calculate the consolidated cost of goods sold for 2021.
A. P665,000
B. P638,600
C. P680,000
D. P695,000
20. On January 1, 2019, Subsidiary Company purchased a delivery truck with an expected useful life of 5
years and scrap value of P8,000. On January 1, 2021, Subsidiary Company sold the truck to Parent
Company and recorded the following entry:
Debit Credit
Cash 50,000
Accumulated
depreciation
18,000
Truck 53,000
Gain on sale of truck 15,000
Parent holds 60% of Subsidiary's voting shares. Subsidiary reported net income of P55,000, and Parent
reported separate net income of P98,000 for 2021.
In preparing the consolidated financial statements for 2020, depreciation expense will be:
A. debited for P15,000 in the elimination entries
B. credited for P15,000 in the elimination entries
C. debited for P5,000 in the elimination entries
D. credited for P5,000 in the elimination entries
21. Riverdale Company incurred P80,000 direct labor cost in 2014 and had the following selected account
balances at the beginning and end of 2017: Finished goods January 1, P56,000; Work in process January
1, P24,000; Materials January 1, P34,000; Finished goods December 31, P90,000; Work in process
December 31, P28,000; Materials December 31, P48,000.
The total cost of goods sold and actual factory overhead during the year are P280,000 and P70,000,
respectively.
Determine the total material purchases during the year.
A. P182,000
B. P162,000
C. P148,000
D. P144,000

22. During 2021, IBM Company purchased materials costing P152,600. Materials requisitioned for jobs cost
P98,000, and indirect materials costing P42,000 were charged to Factory Overhead. Factory payrolls
were P212,000 with payroll taxes deducted of P60,000. Indirect labor of P71,000 included in the payrolls
was charged to Factory Overhead. All other labor was direct labor charged to the jobs. Factory overhead
was applied to the jobs at the rate of P8 per machine hour. During the year, the company operated at
45,000 machine hours and incurred factory overhead costs of P259,000 (in addition to the indirect
materials and indirect labor previously stated). Deprecation of P47,000 was included in the P259,000 of
factory overhead costs.
Product costing P465,000 were completed during the year, and the cost of goods sold was P480,000. At
the beginning of the year, IBM had the following balances:
Materials P27,000; Work in Process P48,000; Finished Goods P34,000
Determine the cost of work in process ending inventory for 2021.
A. P134,000
B. P182,000
C. P167,000
D. P194,000
23. P Corporation used debentures with a par value of P610,000 to acquire 100 percent of the net assets of
S Company on January 1, 2021 and S Company is dissolved. On that date, the fair value of the bonds
issued by P Corp. was P564,000, and the following balance sheet data were reported by S Co.:
Balance Sheet Item Historical cost Fair value
Cash and Receivables P 55,000 P 50,000
Inventory 105,000 200,000
Land 60,000 100,000
Plant and Equipment 400,000 300,000
Less: Accumulated Depreciation ( 150,000)
Goodwill 10,000
Total assets P 480,000
Accounts Payable P 50,000 P 50,000
Common Stock 100,000
Additional Paid-in Capital 60,000
Retained Earnings 270,000
Total Liabilities and Equities P480,000
P Corporation incurred an out of pocket expenses of P20,000. How much goodwill is to be recognized on
the books of P as a result of the business combination?
A. P0
B. P10,000
C. P20,000
D. P30,000
24. KBS Company holds 90 percent of the common stock of TVN Company. In 2021, KBS reports sales of
P800,000 and cost sales of P600,000. For this same period, TVN has sales of P300,000 and cost of
sales of P180,000. During 2021, KBS sold merchandise to TVN for P100,000. The subsidiary still
possesses 40 percent of this inventory at the end of 2021. KBS had established the transfer price based
on its normal markup.
What are consolidated sales and cost of sales?
A. P1,000,000 and P690,000
B. P1,000,000 and P705,000
C. P1,000,000 and P740,000
D. P 970,000 and P696,000

25. SBX Restaurant sold a fast food restaurant franchise to NKE Corporation. The sale agreement signed on
January 2, 2021 called for a P70,000 down payment plus two P15,000 annual payments representing the
value of initial franchise services rendered by SBX. The present value factor of two annual payments
appropriately discounted at 10% is 1.7355. In addition, the agreement required the franchisee to pay 5%
of its gross revenues to the franchisor; this was deemed sufficient to cover the cost and provide a
reasonable profit margin on continuing franchise services to be performed by SBX. The restaurant
opened early in 2021 and its sales for the year amounted to P600,000.
SBX Restaurant’s 2021 total revenue from the franchise will be:
A. P 0
B. P 30,000
C. P 56,033
D. P126,033
26. On January 1, 2021, Mrs. Reed entered into a franchise agreement with KK to market their products. The
agreement provides for an initial fee of P15,500,000 payable as follows: P6,500,000 to be paid upon
signing of the contract and the balance in five equal annual payments every end of the year starting
December 31, 2021. Mrs. Reed signs a non-interest bearing notes for the balance. His credit rating
indicates that he can borrow money at 15% interest for a loan of this type. The present value of an annuity
of P1 at 15% for 5 periods is 3.352. The agreement further provides that the franchisee must pay a
continuing franchise fee equal to 3% of the monthly gross sales. On August 31, the franchiser completed
the initial services required in the contract at a cost of P7,290,120 and incurred indirect cost of P475,000.
The franchisee commenced business operations on November 30, 2021. The gross sales reported to the
franchisor were P1,800,000 for December, 2021. The first installment payment was made in due date.
Assume the collectability of the note is not reasonably assured, the net income for the year ended,
December 31, 2021 is
A. P 4,121,288
B. P 5,026,268
C. P 5,243,480
D. P 4,551,268
27. Sterling had the following information:
▪ Purchased merchandises from a foreign supplier on January 20, 2021 for the Philippine peso
equivalent of P60,000 and paid the invoice on April 20, 2021 at the Philippine peso equivalent of
P 68,000
▪ On September 1, 2021, borrowed the Philippines peso equivalent of P300,000 evidence by a
note that is payable in the lender’s local currency on September 1, 2022. On December 31,
2021, the Philippine peso equivalent of the principal amount was P320,000.
In Sterling’s 2021 Income statement, what amount should be included as a foreign exchange
loss?
A. P4,000
B. P20,000
C. P22,000
D. P28,000
28. On December 1, 2021, Supreme Corp. entered into a 120-day forward contract to purchase 250,000 US
dollars for speculative purposes, Supreme Corp. fiscal year ends on December 31. The exchange rates
are as follows:
Date Spot rate Forward rate (3/31/10)
December 1, 2021 P 45.00 P 45.50
December 31, 2021 46.00 46.50
January 30, 2022 45.60 45.30
March 31, 2022 45.10
How much is the foreign exchange gain or loss to be reported from this forward contract in
2022?
A. P 250,000
B. P 350,000

C. P 300,000
D. P 225,000
29. On January 1, 2020, SMDC Corp.. entered into a contract to build a large office building for ABS Inc. for a
total contract price of P5,000,000. ABS Inc. will make annual payments to SMDC Corp.. but the amount of
these payments cannot exceed the direct costs incurred by SMDC Corp.. The construction contract
provides ABS Inc. with a final inspection right to ensure compliance with the contract terms prior to
accepting the completed project. It has been the accounting policy of SMDC Corp.. to use percentage-of-
completion method to compute its construction revenue and gross profit. On January 1, 2022, SMDC
Corp.. implemented an accounting charge from percentage-of-completion method to zero profit or cost
recovery method. The following data were provided by the accountant of ABS Inc for the year ended
December 31, 2020, 2021 and 2022:
2020 2021 2022
Cost incurred each year 1,450,000 2,600,000 600,000
Estimated cost to complete at year end 3,150,000 400,000
Progress billings each year 400,000 2,000,000 2,600,000
Progress payment received each year 275,000 2,100,000 2,625,000
The above costs incurred for each year are inclusive at actual marketing expense and general
administrative costs which are not reimbursable under the construction contracts and provided by the
accountant as follows:
2020 2021 2022
Marketing expense 70,000 200,000 120,000
General administrative cost 30,000 150,000 80,000
The corporate income tax for the years ended is 30%. What is the net income to be reported by SMDC
Corp., for the year ended December 31, 2021?
A. P100,000
B. P150,000
C. P250,000
D. P280,000
30. DMCI Company entered into a long term construction contract for 3 years. Contract price agreed was
P8,300,000. The outcome of the contract was estimated reliably. The following data were ascertained for
the contract:
2020 2021 2022
Percentage of completion 30% 82.5% ?
Estimated costs to complete P 3,920,000 P 1,680,000 ?
What is the construction-in-progress as of 2021?
A. 4,130,000
B. 4,940,000
C. 6,620,000
D. 6,847,500
31. The DPWH received capital outlay allotment and Notice of Cash Allocation, net of tax remittance advice,
from the DBM in the amount of P10,000,000 and P8,000,000. Respectively. Upon approval of the project
proposal for the improvement of the administration building, purchase order for materials was issued in
the amount of P4,000,000. At the date of delivery, construction materials were inspected and paid in full.
Materials of P3,500,000 were issued and used in the construction. Payroll for labor cost in the amount of
P1,500,000 less 10% withholding tax was submitted to the administration, and cash advance was granted
to special disbursing office for the eventual payment of payroll. Withholding tax payable was remitted to
the Bureau of Internal Revenue and upon approval of the accomplishment report by the head of the
DPWH, the capital expenditures were taken in the books of DPWH.
Which of the following journal entries in the Regular Agency Books of DPWH is correct?
A. To record receipt of the allotment for capital outlay
Allotment receivable from DBM 10,000,000
Subsidy income from national government 10,000,000

B. To record obligation of materials purchased
Construction in materials inventory 4,000,000
Accounts payable 4,000,000
C.
To record the receipt of notice of cash allocation, net tax
remittance advice
Cash - MDS, Regular 8,000,000
Subsidy income from national government 8,000,000
D.
To record payment of construction materials, net of 10%
withholding tax
Due to BIR 400,000
Cash - Collecting officer 3,600,000
32. Which of the following statements is wrong?
A. On the balance sheet date, the account Forward Contract Receivable which is the receivable from
the bank is credited to recognize foreign exchange loss the decrease in the forward rate under a
derivative instrument which is a forward contract to purchase foreign currency.
B. A Philippine Company sold and delivered merchandise on account to a customer in another country
in 2016, the transaction is denominated in the country’s local currency to be settled in 2017, the
said transaction is not automatically a hedge item even if the bid spot rate is decreasing.
C. On the settlement date, in the books of XYZ Company a Philippine Company with importing
transaction which is also a hedge item and a forward contract to buy foreign currency which is also
a hedging instrument the amount of each debited is measured in pesos but denominated in a
foreign currency.
D. Assuming CG Company a Philippine Company acquired an “at the money” foreign currency call
option contract, under a fair value hedge, if the spot rate decreases from transaction date to year-
end then the intrinsic value at year-end is also equal to the gain on derivates as to the effective
portion which affects current earnings or profit and loss.
33. On January 1, 2021, Entity A acquired 80% of the outstanding common stocks of Entity B at a price of
P 800,000. Entity A also incurred and paid acquisition related costs amounting to P 20,000 and indirect
acquisition costs of P10,000. On acquisition date, the net assets of Entity B is reported at P 1,300,000.
Upon the valuation of an independent appraiser, it was determined that an equipment of Entity B is
overvalued by P200,000 while its inventory is undervalued by P 100,000. It is the company policy of
Entity A to initially measure the Non-controlling Interest in net Assets at fair value. On January 1, 2021,
the internal audit department of Entity A appraised the Non-controlling Interest in Net Assets at
P 250,000. The policy is to value the Non-controlling interest at the minimum.
What is the gain on bargain purchase to be recognized by Entity A arising from acquisition of Entity B in
its Consolidated Income Statement for the year ended December 31, 2021?
A. 160,000
B. 200,000
C. 150,000
D. 180,000
34. On January 1, 2021, SBS Incorporated and JTBC Incorporated organized MBC Company under the
provisions of Revised Corporation Code of the Philippines also known as R.A. No. 11232. SBS
Incorporated and JTBC Incorporated invested P2,000,000 and P3,000,000, respectively, for 40% and
60% capital interest in common stocks of MBC Company. MBC company is established for the purpose
of manufacturing a very sensitive microchip which is the most important component of the electronic
products of the organizing entities. The decisions on relevant activities MBC Company will require
unanimous consent of SBS Incorporated and JTBC Incorporated. The organizing entities agreed that
they will rights to the assets and obligations for the liabilities, related to MBC Company.
How JTBC Incorporated accounted its investment in MBC Company?
A. It shall be treated as a business combination under PFRS 3 to be accounted for using Acquisition
Method.
B. It shall be treated as a joint operation under PFRS 11 to be accounted for using the contractual
provisions of the joint arrangement.

C. It shall be treated as Investment in Associate under PAS 28 to be accounted for using Equity
Method.
D. It shall be treated as a joint venture under PFRS 11 to be accounted for using Equity Method as
provided by PAS 28.
35. On January 1, 2020, Entity A and Entity B established a joint venture named Entity C by investing
P2,000,000 each for 50% interest. The relevant financial data concerning the operation of the joint
venture is presented below for the five years of operation:
Net Income Dividend Declaration
2020 P 500,000 P 300,000
2021 (P5,000,000) -
2022 (P7,000,000) P1,000,000
2023 (P10,000,000) -
2024 (P12,000,000) P1,500,000
What is the investment income to be reported by Entity B for the period ended December 31, 2024?
A. 750,000
B. 6,000,000
C. 3,600,000
D. 4,800,000
36. On October 31, 2020 ETORO Corp. bought inventory from foreign supplier costing $125,000 and the
payment is due on January 31, 2021. The company also paid P25,000 to acquire an at-the-money call
option for $125,000 and the option price was P10.50. Relevant data are given below:
Date 10/31/2020 11/30/2020 12/31/2020 01/31/2021
Selling spot rate ? 10.52 10.81 10.85
Fair value option ? 35,750 42,500 ?
Under split accounting, what is the forex gain(loss) in the ineffective portion for the year ended December
31, 2020?
A. 8,250 gain
B. 21,250 loss
C. 25,000 loss
D. 29,500 loss
37. On October 31, 2020 ETORO Corp. bought inventory from foreign supplier costing $125,000 and the
payment is due on January 31, 2021. The company also paid P25,000 to acquire an at-the-money call
option for $125,000 and the option price was P10.50. Relevant data are given below:
Date 10/31/2020 11/30/2020 12/31/2020 01/31/2021
Selling spot rate ? 10.52 10.81 10.85
Fair value option ? 35,750 42,500 ?
What is the net impact in profit or loss as a result of the hedging activity for the year ended December 31,
2021?
A. 3,750 net loss
B. 8,250 net gain
C. 25,000 net loss
D. 32,000 net loss
38. On December 31, 2021, the Investment in Branch account in the home office’s books has a balance of
P369,000. In analyzing the transactions involving the home office and the branch for December, the
recipient of the transaction either was not yet notified or erroneously recorded the said transaction.
A) A P17,000 remittance initiated on December 2021 was recorded twice in 2021.
B) A merchandise shipment of P21,000 on December 29, 2021 was recorded and P12,000 on the
same year.
C) Advertising expense incurred amount to P9,000. ¼ of the incurred amount was allocated on
December 21, 2021. Upon notification it was recorded in the amount of P22,500 on December
26, 2021.

D) Inventory costing P8,000 was returned on December 19, 2021. The billing was at cost, it was
still in transit by the end of the year.
Compute the amount of the Home Office Current account debited in the preparation of the combined
Statement of Financial Position as of December 31, 2021:
A. 371,250
B. 366,750
C. 378,000
D. 389,250
39. Charlie, Troy and Joseph formed a partnership by combining their separate business with the following
statements of financial position:
Charlie Troy Joseph
Cash 90,000 5,000 60,000
Accounts Receivable 45,000 20,000 75,000
Allowance for doubtful accounts 3,000 2,000 5,000
Land 80,000
Building 100,000
Accumulated depreciation building 50,000
Mortgage payable 60,000
They agreed that the mortgage payable shall be absorbed by the partnership and that the following
assets should be revalued at their respective market values.
• Building at 70%
• Land at 120%
• Accounts receivable at 90%
They also agreed that their capital balances should be equal to the amount of the partner with the
highest capital balance after adjustments, and profit and loss should be divided equally. Any partners
whose capital balances after adjustments are lower than the partner with the highest capital contribution
after adjustments shall give additional cash contributions.
Which partner has the highest capital contribution after adjustments?
A. Troy
B. Joseph
C. Charlie
D. All of the above
Charlie Troy Joseph
Cash 90,000 5,000 60,000
Land 80,000
Building 100,000
• Building at 70%
• Land at 120%
What is the total additional contribution of the partners with lower capital balances?
A. 2,000
B. 2,500
C. 3,000
D. 4,500

Charlie Troy Joseph
Cash 90,000 5,000 60,000
Land 80,000
Building 100,000
• Building at 70%
• Land at 120%
What is the total partnership capital?
A. 387,000
B. 389,500
C. 390,000
D. 391,500
42. Prada Corporation purchased 95 percent of the shares of Silicon Company on January 2020. On that
date, the book value of Silicon’s net assets approximated fair value. As a result of the purchase, Prada
recognized P 600,000 goodwill.
During 2020, Silicon sold inventory to Prada. On December 31, 2020, Silicon had unrealized profits on its
books of P 100,000. By December 31, 2021, all of the inventory left on Prada’s books had been sold to
outside parties. During 2021, Prada sold inventory to Silicon and had P 150,000 of unrealized profits left
on its books at the end of 2021. For 2021, Prada reported operating income of P 5,000,000, and Silicon
reported net income of P 3,600,000.
What is the consolidated income attributable to shareholders of parent for 2021?
A. 8,550,000
B. 8,330,000
C. 8,330,500
D. 8,365,000
43. HELLIGERS Company has the following information for July:
Units started 100,000 units
Beginning Work in Process: (35% complete) 20,000 units
Normal spoilage (discrete) 3,500 units
Abnormal spoilage 5,000 units
Ending Work in Process: (70% complete) 14,500 units
Transferred out 97,000 units
Beginning Work in Process Costs:
Material P 15,000
Conversion 10,000
All materials are added at the start of the production process. Helligers Company inspects goods at 75
percent completion as to conversion.
What are equivalent units of production for conversion costs, assuming FIFO?
A. 108,900
B. 103,900
C. 108,650
D. 106,525
44. On January 1, 2021, NPO Foundation, a nonstick nonprofit organization, received a P1,000,000 cash
donation from a benefactor who stipulated that the principal fund shall be invested in a regular

endowment fund while the income from the fund shall be used for the research project of the foundation
regarding mental depression. During 2021, the said regular endowment fund earned income of P50,000.
For the year ended, 2022, NPO Foundation spent P20,000 of the last year income of the regular
endowment fund for the research relating to mental depression. Which of the following statements
regarding the financial statements of NPO Foundation is incorrect?
A. The 2021 Statement of Cash Flows of NPO Foundation will report net cash inflows
B. The 2021 Statement of Activities of NPO Foundation will report net increase in unrestricted net
assets by P 30,000.
C. The 2021 Statement of Cash Flows of NPO Foundation will report net cash outflows for operating
activities in the amount of P 20,000.
D. The 2021 Statement of Activities of NPO Foundation will report net decrease is temporarily
restricted net assets by P20,000.
45. SME, a national government agency unit incurs an obligation for the purchase of a garbage truck for
P 4,500,000 on March 15, 2018. The dump truck is to be delivered on March 31, 2018 and the motor firm
has agreed for a 30-day, interest free delayed payment i.e. payable on April 30, 2018. Assume a 12% tax
on the purchased covered by TRA.
On March 15, 2018, the entry to be recorded by SME will be:
A. Equipment 4,500,000
B. Equipment 4,500,000
SI from NG 540,000
C. Equipment 4,500,000
Due to BIR 540,000
D. RAOD & ORS
46. The Sta. Isabel Association, a private non-profit organization, received a contribution of P 50,000 in 2020
restricted for membership training in providing emergency aid during calamity situations. None of the
contribution was spent in 2020. In 2021, P 35,000 of the contribution was used to finance a training
seminar as to the role its members may take in helping people in flood disaster situations.
The net effect on the statement of activities for the year ended December 31, 2021 for Sta. Isabel would
be:
A. P 35,000 increase in unrestricted net assets
B. P 15,000 increase in temporarily restricted net assets
C. P 35,000 increase in temporarily restricted net assets
D. P 35,000 decrease in temporarily restricted net assets
47. Which of the following statement is TRUE?
A. The intercompany profit in inventory transfer between affiliates is computed by multiplying the
inventory held by the buying affiliate which was acquired from the selling affiliate by the gross profit
rate based on sales of the buying affiliate.
B. The income and expenses of a subsidiary are included in the consolidated financial statements
from the acquisition date.
C. Recognition of the realized profit in beginning inventory requires a working paper debt to cost of
goods sold.
D. The non-controlling interest in profit is affected by the bargain purchase or gain on acquisition
48. Which of the following statements is TRUE?

A. When a subsidiary has borrowed cash from the parent company, the related receivable and
payable are eliminated in their own set of books in preparing a consolidated statement of financial
position.
B. In purchase type business combination, the stockholders’ equity section of a consolidated
statement of financial position for a parent and its partially owned subsidiary consists of the parent’s
stockholders’ equity accounts only.
C. Parent company owns 75% of Subsidiary company. During 2016, Parent sold goods with a 30%
gross profit to Subsidiary, Subsidiary sold all of these goods in 2016. For 2016 consolidated
financial statements, sales and cost of goods sold should be reduced by 75% of the intercompany
sales.
D. Amortization of excess affects the computation of non-controlling interest in net assets and the non-
controlling interest in profit.
49. A franchisor signed a contract with a franchisee on September 1, 2016. The franchisor receives a partial
payment of the initial franchise fee it changes to its franchisee and the balance of the franchise fee is
due in the next several years. The franchisor does not recognize revenue from franchise fee in 2016
when-
A. The period of refund has elapsed, collection of the note is certain, the franchisor has a fair measure
of services already period performed, but substantial services remain to be performed.
B. The refundability period has expired and no future services are required by the franchisor but
collection of the note is highly uncertain.
C. The down payment is refundable and substantial future services remain to be performed by the
franchisor.
D. The down payment is nonrefundable, collection of the note is reasonably assured, and the
franchisor has performed substantially all of the services required by the initial fee.
50. Which of the following statements is wrong regarding long-term construction contracts?
A. The amount of expected warranty cost is part of the estimated cost at completion.
B. If upon completion of the project the balance of Progress Billings is greater than the balance of
Construction in Progress, the excess is due to customer which is a liability.
C. General administrative costs may be part of contract costs but would usually be expensed.
D. The latest estimated of anticipated cost of materials, labor and subcontracting costs and indirect
cost required to complete a project should be used to determine the progress toward completion.
51. A franchise agreement grants the franchisor an option to purchase the franchisee’s business. It is
probable that the option will be exercised. When recording the initial fee, the franchisor should
A. Record the entire initial franchise fee as a deferred credit which will reduce the franchisor’s
investment in the purchased outlet when the option is exercised.
B. Record the entire initial franchise fee as unearned revenue which will reduce the amount of cash
paid when the option is exercised.
C. Record the portion of the initial franchise fee which is attributable to the bargain purchase option as
a reduction of the future amounts receivable from the franchisee.
D. None of these.
52. Two parties enter into a joint arrangement which is structured through an incorporated entity in which
each party has a 50% ownership interest. The purpose of the arrangement is to manufacture materials
required by the parties for their own, individual manufacturing processes. The arrangement ensures that
the parties operate the facility that produces the materials to their quantity and quality specifications.
The contractual arrangement between the parties specifies the following aspects of the arrangement:
➢ Under the terms of the arrangement, the parties have agreed to purchase all the output
produced by the entity in a ratio of 50:50.
➢ The entity is not permitted to sell any of the output to third parties, unless this is approved by the
two parties to the arrangement. Because the purpose of the arrangement is to provide the
parties with output they require, such sales to third parties are expected to be uncommon and
insignificant in volume and value.
➢ The price of the output sold to the parties is set by both parties at a level that is designed to
cover the costs of production and administrative expenses incurred by the entity. On the basis
of this operating model, the arrangement is intended to operate at a break-even level.
Under PFRS 11, what is the proper accounting classification of this joint arrangement?

A. Joint Operation
B. Joint Venture
C. Jointly Controlled Asset
D. Jointly Controlled Entity
53. Which of the following statements concerning the formation of partnership business is correct?
A. Philippine Financial Reporting Standards (PFRS) allows recognition of goodwill arising from the
formation of partnership.
B. The juridical personality of the partnership arises from the issuance of certification of registration.
C. The parties may become partners only upon contribution of money or property but not of industry
or service.
D. The capital to be credited to each partner upon formation may not be the amount actually
contributed by each partner.
54. In the absence of agreement as to distribution of loss, how shall the partnership loss be distributed to the
partners?
A. The loss shall be distributed equally to all partners including the industrial partner.
B. The industrial partner shall be exempted from partnership loss while the capitalist partners shall
share equally.
C. The industrial partner shall be exempted from partnership loss while the capitalist partners shall be
distributed on the basis of capital contribution ratio.
D. The industrial partner shall be exempted from partnership loss while the capitalist partners shall be
distributed in accordance with profit agreement ratio.
55. Under IFRS 15, an entity recognized revenue from contract with customers when or as the entity
satisfies the performance obligation. Any of the following criteria is considered satisfaction by an entity of
performance obligation over time, 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’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.
D. The entity has already transferred the control, title, and risk/rewards of ownership of the asset to
the customers upon delivery of the asset.
56. Under IFRS 15, how shall an entity recognize revenue from contracts with customers?
A. An entity shall recognize revenue when (or as) the entity satisfies a performance obligation by
transferring a promised good or service (i.e. an asset) to a customer.
B. An entity shall recognize revenue when it is probable that future economic benefits will flow to the
entity and it can be measured reliably.
C. An entity shall recognize revenue at the time of collection of cash.
D. An entity shall recognize revenue at the time of signing of contracts.
57. In the reconciliation of the investment in branch account and home office account, which of the following
reconciling items will require debit to the reciprocal account in Pasay branch’s books for adjustment?
A. Goods are in transit from Home Office to Branch at the end of the year
B. Collections by Home Office of Pasig branch’s receivable
C. Payment by Home Office of Pasay branch’s payable
D. Collection by Panay branch of Pasay branch’s receivable
58. Which of the following transactions will increase the normal balance of branch account in the home
office’s serrate statement of financial position?
A. Return of inventory from branch to home office
B. Payment by the branch of home office’s liability
C. Receipt by the home office of credit memo from the branch
D. Collection by the home office of branch’s receivable

59. What is the only reason for the difference between the equivalent unit of production computed under
average process costing and FIFO process costing?
A. Completed portion in beginning work in process inventory
B. Incomplete portion in beginning work in process inventory
C. Completed portion in ending work in process inventory
D. Incomplete portion in ending work in process inventory
60. This method of service department costs allocation is also called sequential method that allocates the
costs of some service departments to other service departments, but once a service department’s costs
have been allocated, no subsequent costs are allocated back to it.
A. Direct method
B. Reciprocal method
C. Step-down method
D. Bottom-top method
/cde

AFAR FINAL PB OCT 2021.pdf

Recommended

Recommended

More Related Content

What's hot

What's hot (20)

Similar to AFAR FINAL PB OCT 2021.pdf

Similar to AFAR FINAL PB OCT 2021.pdf (20)

Recently uploaded

Recently uploaded (20)

AFAR FINAL PB OCT 2021.pdf