COST ACCOUNTING

Problem 1. Snow White Co. applies factory overhead on the basis of direct labor hours. The
current year operations yields the following comparison of budgeted and actual data:

Actual Budgeted
Direct labor hours 275,000 300,000
Factory overhead costs P340,000 P360,000

By how much will Cost of goods sold change if the over/under application is to be considered
immaterial?
A. P10,000 decrease
B. P10,000 increase
C. P20,000 increase
D. P20,000 decrease

Budgeted OH/ DLH = 360,000/300,000 = 1.2

Applied OH = 1.2/DLH * 275,000 DLH = 330,000
Actual OH 340,000
Applied OH 330,000
Underapplied OH 10,000 – add to cgs

Problem 2. The overhead of WerPa Company is applied based on direct labor cost. The work in
process on December 31 represents Job#222 which has been charged with direct labor cost of
P700 and Job#258 which has been charged with applied overhead of P600. Summary of work-
in-process inventory account is as follows:
Work-in-Process
Finished
January 1 P 6,250 P 29,000
goods
Direct materials 12,500
Direct labor 10,000
Applied
7,500
overhead`

How much was the cost of direct materials charged to Job #222 and Job #258?
A. P5,950
B. P7,250
C. P2,625
D. P4,625

WIP, end = 6,250+12,500+10,000+7,500-29,000 = 7,250

Budgeted OH/DL = 7,500/10,000 = 0.75
WIP,end 7,250
DL 700+(600/.75) (1,500)
OH (700*.75)+600 (1,125)
DM 4,625

Problem 3. Consider the following data from the records of Standard Co.:
Units produced 20,000
Manufacturing cost incurred (per unit): Cost incurred to rework (per unit):
Direct materials P5 Direct materials P2
Direct labor 7 Direct labor 3
Overhead cost 6 Overhead cost 2
Defective units 500
units
Spoiled units 300
units
Sales value of spoiled
P10
goods

What would be the unit cost of good units, assuming both the defect and spoilage were both
attributable to exacting specifications?
A. P18
 B. P11
C. P18.30
D. P18.12

Original manuf cost incurred:

Material 20,000*5 100,000
Labor 20,000*7 140,000
Overhead 20,000*6 120,000 360,000
Cost of rework (2+3+2) * 500 3,500
Less: Sales value of spoiled goods (3,000)
Total cost of work in process 360,500
Divided by units produced (20,000 – 300) 19,700
Unit cost of good units 18.3

Problem 4. Clean&Green Company produces transparent soaps, Glycerin soaps as joint

products and liquid soaps as a by-product. The bottled liquid soaps can be sold for P2 per liter.
Liquid soaps require packaging costs of P0.10 per liter and sales commissions at 10% of sales
price. The net revenue of the by-product is treated as a reduction from the joint costs. Joint
products are assigned joint costs based on the amount liters produced.
Transparent soaps 320,000 liters
Glycering soaps 160,000 liters
Liquid soaps 1,600 liters
Joint costs P80,000

What is the net income that the company can realize from the liquid soaps?
A. 3,200
B. 3,040
C. 2,880
D. 2,720

What is the cost assigned to transparent soaps?

A. P51,200
B. P51,412
C. P51,520
D. P53,332

Selling price of liquid soap 2

-
Packaging cost 0.10
-
Commission (2*.1) 0.20
1.70
1,60
*liters produced 0
2,72
Net revenue 0

Joint cost after by-prod = 80,000 - 2,720 =

77,280

Product Weight Joint cost

Transparent 320,000 320,000/480,000 51,520
Glycering 160,000 160,000/480,000 25,760
Total 480,000 77,280
Problem 5. Script Company manufactures three products in a joint process which costs
P25,000. Each product can be sold at split-off or processed further and then sold. 10,000 units
of each product are manufactured. The following information is available for the three products:

Sales Value Separable

Produc at Split-off Processing Sales Value
t Costs after Split-off at
Completion
ABC P21.00 P15.75 P36.75
NOP 17.50 7.00 29.75
TUV 26.25 10.50 33.25

To maximize profits, which products should Script process further?

A. Product ABC only
B. Product NOP only
C. Product TUV only
D. All Products

SV at split off SV after split off

ABC 21 26.75-15.75= 11
NOP 17.5 29.75-7= 22.75 Process further
TUV 26.25 33.25-10.5= 22.75

Problem 6. Greyhoundz Company manufactures products XO and YE from a joint process that
also yields a by-product, ZU. Revenue from sales of ZU is treated as a reduction of joint costs.
Additional information were as follows:
Products
XO YE ZU Total
Units produced 90,000 90,000 45,000 225,000
Joint costs ? ? ? P1,179,000
Sales value at
split-off P1,350,000 P675,000 P45,000 P2,070,000

Joint costs were allocated using the sales value at split-off approach.

The joint costs allocated to product YE were:

A. P378,000
B. P453,600
C. P675,000
D. P756,000

JC to be allocated = 1,179,000 – 45,000 = 1,134,000

JC allocated to YE = 1,134,000 *675,000/(675,000+1,350,000) = 378,000

Problem 7. Cosmopolitan Inc. adds materials at the start of the process. The following
information is available for the month of December 2017:

Work-in-process, 12/1/2017
700
(35% complete as to conversion cost)
Units completed in December 1,900
Work-in-process, 12/31/2017
800
(30% incomplete as to conversion cost)

What are the equivalent units of production for the month of December 2012?
FIFO Weighted Average
Materials Conversion Materials Conversion
a. 2,700 2,915 3,400 3,160
b. 2,000 1,895 2,700 2,140
 c. 2,700 2,595 3,400 2,840
d. 2,000 2,215 2,700 2,460

Weighted Average Method:

Work EUP Work EUP
Units Done Materials Done Conversion
Units completed in 100
December 1,900 % 1,900 100% 1,900
Work-in-process, 100
12/31/2017 800 % 800 70% 560
Total units accounted for 2,700 2,700 2,460

Materials Conversion
EUP, Weighted Average 2,700 2,460
Less: Work done last month on (700*100% (700*35%
Work-in-process, beg ) 700 ) 245

EUP, FIFO 2,000 2,215

Problem 8. Mojito Inc. uses process costing to account for the production of its beers. Units of
product are started in the Fermentation Department and then transferred to the Filtration
Department. In both departments, units are inspected at the 70% stage of conversion. In the
Fermentation process, materials are added at the start of processing while in the Filtration
process, all materials are added after inspection point. The normal loss cannot exceed 5% of
the units started or received from prior department. Production data are as follows:
Fermentation Filtration
Beginning Inventory/ Stage of 8,000 / 90% 10,000
completion
Ending inventory / Additional work 10,000 / 10% 16,000
required
Transferred out ? 32,000
Lost units 4,000 6,000

How many units are started in the Fermentation Department during the month?
a. 44,000
b. 36,000
c. 50,000
d. 46,000

How much are the equivalent units of production of the Fermentation department using FIFO
method?
FIFO
Materials Conversion
a. 58,000 55,800
b. 50,000 40,800
c. 50,000 48,600
d. 58,000 47,700

Transferred in, Filtration = Transferred Out, Filtration + End Inv. + Lost Units – Beg. Inv.
= 32000 + 16000 + 6,000 – 10000
=44,000
Transferred in, Filtration = Transferred Out, Fermentation
Started, Fermentation = Transferred out, Fermentation – Beg. Inv. + End Inv. + Lost units
=44000 - 8,000 + 10,000 + 4,000
=50,000
 Normal loss = 44,000 * 5% = 2,200
Abnormal loss = 4,000 – 2,200 = 1,800

Fermentation Work Work Conversio

Department: Done Materials Done n

Beginning WIP 8,000 0% - 10% 800

Started and Completed
this month 36,000 100% 36,000 100% 36,000

Ending WIP 10,000 100% 10,000 90% 9,000

Normal Loss 2,200 100% 2,200 70% 1,540

Abnormal Loss 1,800 100% 1,800 70% 1,260

Total Units Accounted
For 58,000 50,000 48,600

Problem 9. The following information is available for Daiquiri Company for April:
Started this month 80,000 units
Beginning WIP
(60% unconverted) 7,500 units
Normal spoilage (discrete) 1,100 units
Ending WIP
(70% done) 13,000 units
Transferred out 72,500 units

Beginning Work in Process Costs:

Material P 10,400
Conversion 13,800
Current Costs:
Material P120,000
Conversion 350,000

All materials are added at the start of production and the inspection point is at the end of the
process. (Use 2 decimal places)

What is the cost assigned to ending inventory using the more accurate method representing the
physical flow of units?
a. P55,939
b. P56,420
c. P58,994
d. P59,722

What is the total cost assigned to goods transferred out using weighted average?

a. P409,216
b. P423,400
c. P429,824
d. P435,080

Beginning WIP 7,500

Started this month 80000
Total units to account for 87500

Started and completed this month = Transferred out - Beginning WIP

= 72,500-7500
= 65000
Work Done Materials Work Done Conversion
FIFO Method:
Beginning WIP 7,500 0% - 60% 4,500
Started and Completed this month 65,000 100% 65,000 100% 65,000
Ending WIP 13,000 100% 13,000 70% 9,100
Normal Loss 1,100 100% 1,100 100% 1,100
Abnormal Loss 900 100% 900 100% 900
Total Units Accounted For 87,500 80,000 80,600
cost/eup Materials= 120,000/80,000 = 1.5
cost/eup Conversion= 350,000/80,600 = 4.34
Cost of ending WIP= (13,000*1.5) + (9100*4.34) = 58,994

Materials Conversion
EUP, FIFO 80,000 80,600
Add: Work done last month on beg.
WIP 7,500*100% 7,500 7,500*40% 3,000
EUP, WA 87,500 83,600

cost/eup Materials=(120,000+10,400)/87,500=1.49

cost/eup Conv =(350,000+13,800)/83,600=4.35

Cost of transferred out: Materials 72,500*1.49 = 108,025

Conversion 72,500 *4.35 = 315,375
Normal loss 1100* (1.49+4.35)= 6424
429,824

SPECIAL REVENUE RECOGNITION AND IFRS 15

Problem 10. Baby Inc. is a franchisor and it charges initial franchise fee composed of the rights
to trade name, 56,000; Staff training services, 74,000; special machinery 40,000. A
downpayment of 50,000 should be paid upon signing the contract, another 50,000 after three
months, and the balance payable in three equal installments every end of the year.
On May 3, 2017, Mr. German signed an agreement with Baby Inc. to be a franchisee, paying a
downpayment of 50,000. The franchise commenced operation on November 1, 2017. The
specialized equipment was delivered at the close of the current year. On December 1, 2018,
Baby Inc. provided training for the staff of Mr. German.

The unearned revenue from franchise fee that Baby Inc. should recognize in its statement of
financial position for the year ended 2017?
a. 70,000
b. 74,000
c. 114,000
d. 0

What decrease in liability should the franchisor record upon receipt of the 50,000 downpayment
three months after the contract signing?
a. 0
b. 50,000
c. 56,000
d. 170,000

12/31/17 unearned rev = staff training = 74,000

Problem 11. X Contruction Inc. entered into a contract of constructing a building with a price of
2,000,000. On April 30, 2017. A performance bonus of 150,000 will be rewarded to the company
if they will finish the building within a year. The bonus will be reduced by 15,000 for every 2
weeks that the completion is delayed. Based on past experiences, X Inc. estimates the following
completion outcomes:

Completed by: Probability

April 30, 2018 70%
May 14, 2018 15%
May 28, 2018 10%
June 25, 2018 5%

The transaction price that X Inc. should record for this contract is:
a. 2,150,000
b. 2,142,500
c. 2,141,750
d. 2,000,000

Contract price = 2,000,000 + (150,000*70%) + (135,000*15%) +(120,000*10%) + (90,000*5%)

= 2,141,750

Problem 12. On July 1, 2015, NR Construction Corp. contracted to build an office building for
FM, Inc. for a total contract price of P121,875.
2015 2016 2017
Contract cost incurred P 9,375 P 65,625 P56,250
Estimated costs to complete the contract 84,375 50,000 -
Billings to FM, Inc. 12,750 74,750 34,375

How much is the gross profit realized in 2015 and 2016 using the percentage of completion
method?
a. 0; (3,125)
b. 2812.5; (3,125)
c. 2812.5; (5,938)
d. 0; (5,938)

How much is the Construction in Progress account balance at December 31, 2016, using the
percentage of completion method? How much is the Construction in Progress, net of
Progress Billings at December 31, 2016, using the zero-profit method? How much is the
realized gross profit/ (loss), using percentage of completion method in 2017?
a. P71,875 ; P2,875 ; P(9,375)
b. P71,875 ; (P15,625) ; P(9,375)
c. P74,687.50 ; P2,875 ; P(6,250)
d. P71,875 ; (P15,625) ; P(6,250)

2010 2011 2012

Contract Price 121,875 121,875 121,875

Cost incurred this year 9,375 65,625 56,250

Cost incurred last year 0 9,375 75,000
Total cost incurred 9,375 75,000 131,250
Est Cost to Complete 84,375 50,000 0
Total Cost 93,750 125,000 131,250
Gross Profit 28,125 -3,125 -9,375
9,375/93,75
% of Completion 0 100% 100%
Realized GP 2812.5 -3,125 -9,375
Realized GP last year 0 2812.5 -3,125
Realized GP this year 2812.5 -5,938 -6,250

CIP 12/31/11 = 9,375 + 65,625 + 2812.5 - 5,938 = 71,874.5 = 71,875

Zero-profit Method:
CIP 9,375 + 65,625 - 3,125 71,875
PB 12,750 +74,750 87,500
(15,625
CIP, net )

Problem 13. BuildIt has two construction jobs, which commenced during 2017:

Project 101 Project 202

Contract Price P2,100,000 P 750,000
Cost incurred during 2014 600,000 700,000
Estimated cost to complete 300,000 175,000
Contract billings during 625,000 725,000
2014
Collections 600,000 700,000
Expenses 50,000 25,000

What is the realized gross profit on Job 101 to be recognized on the current year using the
percentage of completion method?
a. 600,000
b. 800,000
c. 1,200,000
d. 1,500,000

Compute the net income (loss) that BuilIt would report in its 2017 Statement of Comprehensive
Income.
Zero-Profit Percentage of Completion
A. P(150,000) P750,000
B. P(150,000) P600,000
C. P(100,000) P675,000
D. P(200,000) P600,000

Percentage of Completion Method 101 202 Total

Contract Price 2,100,000 750,000

Cost incurred this year 600,000 700,000

Est Cost to Complete 300,000 175,000
Total Cost 900,000 875,000
Gross Profit 1,200,000 -125,000
600,000/900,00
% of Completion 0 100%
Realized GP 800,000 -125,000
Realized GP last year 0 0
Realized GP this year 800000 -125,000
Expenses 50000 25000
Net income 750000 -150000 600,000

Zero-Profit Method
101 202
Realized GP this year 0 -125,000
Expenses 50000 25000
Net income -50000 -150000 -200,000
Problem 14. On January 2, 2017, SD Company signed an agreement to operate as a franchisee
of TQ Products, inc., for an initial franchise fee of P937,500 for 7 years. Of this amount,
P175,000 was paid when the agreement was signed and the balance payable in four annual
payments beginning on December 31, 2017. SD signed a non-interest bearing note for the
balance. SD’s rating indicates that he can borrow money at 16% for the loan of this type.
Assume that substantial services amounting to P283,500 had already been rendered by TQ
Products and that additional indirect franchise cost of P25,500 was also incurred. PV factor is
2.80

If the collection of the note is reasonably assured, the total revenue for the year 2017 is:
b.
a. 451,025
b. 365,625
c. 280,225
d. 260,400

IFF 175,000+190,625-85,400 280,225

Interest revenue 85,400
Total revenue 365,625

Problem 15. RAGE AGAINST THE MACHINE charges an initial franchise fee of P75,000 for the
right to operate as a franchise of Speed Racer. Of this amount, P25,000 is collected
immediately. The remainder is collected in four equal annual installment payments of P12,500
each. These installments have a present value of P39,623. There is reasonable expectation that
the down payment may be refunded and substantial future services are yet to be performed by
RAGE AGAINST THE MACHINE.

The journal entry to record the franchise fee would be:

A. Cash 25,000
Notes Receivable 50,000
Unearned Interest Income 10,377
Franchise Revenue 64,623

B. Cash 25,000
Notes Receivable 50,000
Unearned Interest Income 10,377
Unearned Franchise Revenue 64,623

C. Cash 25,000
Notes Receivable 50,000
Unearned Interest Income 10,377
Unearned Franchise Revenue 39,623
Franchise Revenue 39,623

D. Cash 25,000
Notes Receivable 50,000
Unearned Interest Income 10,377
Unearned Franchise Revenue 39,623
Franchise Revenue 25,000

Problem 16. On January 1, 2017, Federrer Inc. signed an agreement authorizing Sculptured
Body works to operate as a franchisee over ten years period for initial franchise fee of P100,000
plus P20,000 interest income received annually when the agreement was signed. Sculptured
Body works commenced operations on August 1, 2017, at which date all the initial services
required of Federrer had been performed. The agreement also provides that Sculptured Body
works must pay annually to Federrer a continuing franchise fee equal to five percent of the
revenue from the franchise. Sculptured Body works sales revenue for 2017 was P800,000.

For the year ended December 31, 2013, how much should Federrer record as revenue from
franchise fees?
 A. P100,000
B. P160,000
C. P140,000
D. P500,000

IFF 100,000
CFF (800,000*5%) 40,000
Total revenue 140,000

HOME OFFICE AND BRANCH ACCOUNTING

Problem 17. The Meridian Corporation is maintaining a branch in Cebu. During the year, the
home office shipped goods to the branch at a cost of P120,000. The branch submitted to the
home office the following report summarizing its operations for the period ended December 31,
2017.
Sales (30% on account), P196,000 ; Expenses (50% of which still unpaid), P50,000 ;
Purchases, P25,000 ; Shipments from Home Office, P150,000 ; Inventory, 1/1/2017 (30% from
outsiders), P30,000 ; Inventory, 12/31/2017 (40% from Home Office), P90,000 ; Remittance to
Home Office, P60,000.

The branch Cost of Sales in so far as the home office is concerned and required balance of
the allowance for overvaluation account are:
a. P88,000 / P27,000
b. P88,000 /P7,200
c. P92,000 / P34,200
d. P83,000 /P27,000

How much is the branch true net income (net loss)?

a. 58,000
b. (14,000)
c. 38,000
d. 11,000

=20
Mark up rate from HO (150,000-120,000)/150,000 %

From outside From HO total

Purchases 25,000 25,000
Beg inv 9,000 21,000 21,000
Shipments from HO 150,000 150,000
Less: End inventory 54,000 36,000 36,000
CGS -20,000 135,000 160,000
mark up *80%
CGS at cost -20,000 108,000 88,000

36,0
End inv from HO 00
*mark up rate *20%
7,20
End bal of Allowance 0

196,00
Sales 0
(88,000
CGS at cost )
108,00
GP 0
(50,000
Expenses )
Net income 58,000
Problem 18. Examination of the reciprocal accounts between Manila Home office and Cebu
Branch shows the following:
I. P10,000 advertising expense of another branch was erroneously charged by the Home
Office to Cebu Branch.
II. Cebu recorded shipments of merchandise from Home Office amounting to P75,000 twice.
III. Home Office recorded cash transfer of P65,700 from Cebu Branch as coming from Davao
Branch.
IV. Transfer of equipment from Home Office amounting to P53,000 was not recorded by the
branch.
V. Cebu recorded a debit memo from Home Office of P5,540 as P5,450.

How much is the net adjustments to Cebu Branch Current Account and to the Home Office
Current Account?
Cebu Branch Home Office Account
Current Account
a. P75,700 Dr P20,910 Dr
b. P75,700 Cr P21,910 Dr
c. P75,700 Dr P21,910 Cr
d. P65,700 Cr P22,000 Cr

Cebu branch Account HO Account

Erroneous charge 10,000 cr
Double recording 75,000 dr
Erroneous cash transfer recording 65,700 cr
Omitted transfer 53,000 cr
Erroneous record of debit memo 90 cr
75,700 cr 21,910 dr

Problem 19. Pucca Inc. opened an agency in Marikina. The following are transactions for July
2017. Samples worth P10,000, advertising materials of P5,000 and checks for P50,000 were
sent to the agency. Agency sales amounted to P220,000 (cost P150,000). The collection for
agency amounted to P176,400 net of 2% discount. The agency’s working fund was replenished
for the following expenses incurred; rent for two months P10,000; delivery expenses P2,500 and
miscellaneous expenses of P2,000. Home office charges the following to the agency, after
analysis of accounts recorded on the books for the month of July; salaries and wages P15,000
and commission which is 5% of sales. The agency sample inventory at the end of the month
was 25% of the quantity shipped. The agency has used 20% of the advertising materials sent by
the home office.

The agency net income for the month of July is:

A. P17,400
B. P22,400
C. P23,650
D. P28,650

Sales 220,000
Discount (176,400/.98 *.02 -3,600
Cost -150,000
GP 66,400
Rent -5,000
Delivery exp -2,500
Misc expense -2,000
Salaries -15,000
Commission (220,000*.05 -11,000
samples (10,000*.75 -7,500
Adver materials (5,000*.2) -1,000
Net income 22,400
Problem 20. Pooh Corporation maintains a branch in Pampanga. Selected account balances
taken from the books of the Home office and its branch as of December 31, 2017 were as
follows:

Home Office Pampanga branch

Sales P1,200,000 P540,000
Inventory, January 1, 2017 80,000 122,100
Purchases 500,000
Shipments to branch 315,000
Shipments from Home Office 346,500
Inventory, December 31, 2017 350,000 157,500
Expenses 113,000 89,000

In 2016, the Home office billed its branch at 125% of cost which was higher by 5% than the
current year. All of the units in the beginning inventory of the branch were acquired from the
home office in 2016.

How much is the ending inventory of the branch in so far as the Home Office is
concerned?
a. 131,250
b. 157,500
c. 183,750
d. 189,000

Shipments in transit = (315,000*1.2) – 346,500 = 31,500

Inventory at markup price = 31,500+157,500 = 189,000
Inventory at cost = 189,000/1.2 = 157,500

What amount is the adjustment to be made to the Allowance account in relation to the
goods sold in 2017?
a. 58,150
b. 55,920
c. 78,100
d. 82,170

Branch at
Branch with mark-up cost Allowance
Purchases
122,100/1.2
Beg inv 122,100 5 97,680 24,420
Shipments from/to 378,000 378,000/1.2 288,750 89,250
End inventory -189,000 189,000/1.2 -157,500 -31,500
CGS 311,100 0 228,930 82,170

BUSINESS COMBINATION AND CONSOLIDATED FINACIAL STATEMENTS

Problem 21. The following are the balance sheets of Pol and Sol Company as of December 31,
2016.
Pol Sol
Cash P 250,000 P 50,000
Receivables 175,000 37,500
Inventories 200,000 62,500
Land 187,500 250,000
Building (net) 800,000 250,000
Equipment (net) 625,000 600,000
Total Assets P 2,237,500 P 1,250,000

Accounts Payable P 462,500 P 150,000

Ordinary Shares 1,250,000 500,000
Share Premium 125,000 350,000
Retained Earnings 400,000 250,000
Total Liabilities and Equity P 2,237,500 P 1,250,000

Pol decided to acquire 17,000 outstanding shares of Sol on January 1, 2017. Pol will issue
25,500 ordinary shares with market value of P30 per share in exchange for the 17,000
outstanding shares of Sol. Pol and Sol’s ordinary shares both have a par value of P25 per
share. The book values reflect fair values except for building of Pol, which has a net realizable
value of P1,050,000 and inventories and land of Sol which have a net realizable value of
P87,500 and P325,000, respectively. Pol also paid costs of registering and issuing securities
amounting to P30,000 and direct costs of combination amounting to P62,500.

What is the consolidated Retained Earnings right after the acquisition of control?
a. 337,500
b. 587,500
c. 592,500
d. 655,000

How much is the consolidated shareholders’ equity after the combination?

a. P2,627,500
b. P2,882,500
c. P2,702,500
d. P2,927,500

Sol’s outstanding shares = 500,000/25 = 20,000

% bought = 17,000/20,000 = 85%

Acquisition cost 25,500*30 765,000

NCI 1,200,000*15% 180,000
Less: FV of net assets acquired
Book value 1,100,000
Adjustments to fv 100,000 1,200,000
Gain on bargain price (255,000)

RE of Pol before acquisition 400,000

Gain on BP 255,000
Direct cost (62,500)
RE, consolidated after acquisition 592,500
Pol’s equity before acquisition 1,775,000
Additional shares issued 765,000
Gain on BP 255,000

Cost of registering securities (30,000)

Direct cost (62,500)
NCI 180,000
Conso Equity after acquisition 2,882,500

Problem 22. The M Company holds a 70% interest in the H Company. At the current year end
M holds inventory purchased from H for P270,000 at cost plus 20%. The group’s consolidated
statement of financial position has been drafted without any adjustments in relation to this
holding of inventory.

What adjustments should be made to the draft consolidated statement of financial position
figures for non-controlling interest and retained earnings?
Non-controlling interest Retained earnings
a. No change Reduce by P45,000
b. No change Reduce by P54,000
c. Reduce by P16,200 Reduce by P37,800
d. Reduce by P13,500 Reduce by P31,500
Consolidated RE NCI
270,000/1.2 *.2 *70% 31,500 270,000/1.2 *.2 *30% 13,500

Problem 23. On July 1, 2016 the M Company acquired 100% of the N Company for a
consideration transferred of P160M. At the acquisition date the carrying amount of N’s net asset
was P100M. At the acquisition date a provisional fair value of P120M was attributed to the net
assets. An additional valuation received on May 31, 2017 increased this provisional fair value to
P135M and on July 30, 2017 this fair value was finalized at P140M.

What amount should M present for goodwill in its statement of financial position at December
31, 2016?
a. P25M
 b. P20M
c. P40M
d. P60M

Consideration transferred 160M

May 31, 2012 provisional fv (135M)
Goodwill 25M

Problem 24. The N Company acquired 80% of the L Company for a consideration transferred of
P100M. The consideration was estimated to include a control premium of P24M. L’s net asset’s
were P85M at the acquisition date.

Statement A : Goodwill should be measured at P32M if the non-controlling interest is measured

at its share of L’s net assets.
Statement B : Goodwill should be measured at P34M if the non-controlling interest is measured
at fair value.

Are the following statements true or false?

a. Both statements are false
b. Only statement B is true
c. Only statement A is true
d. Both statements are true

If NCI is measured at it’s share of NA:

Consideration transferred 100M
NCI 85M*20% 17M
Less: FV NA (85M)
Goodwill 32M

If NCI is measured at fv:

Consideration transferred 100M
NCI (100M-24M)/.8 *.2 19M
Less: FV NA (85M)
Goodwill 34M

Problem 25. Bacolod Company acquired 55% of the outstanding common stock of Silay
Company on August 1, 2017 at a total cost of P5,005,000. At acquisition date, Silay’s common
stock and retained earnings amounted to P200,000 and P4,800,000, respectively. All of Silay’s
assets and liabilities had fair values equal to book values as of the acquisition date except for
patents which had a fair value of P1,800,000 and a book value of P400,000. The patents have a
remaining life of five years. For 2017, Silay had the following earnings and dividends:
Jan – Jul Aug – Dec
Net income P500,000 P1,100,000
Dividends paid P300,000 P1,200,000

Compute the net income attributable to the non-controlling interest?

a. P667,500
b. P442,500
c. P594,000
d. P369,000

NI (Aug-Dec) 1,100,000*45% 495,000

Patent undervaluation amort 1,400,000/5 *45% *5/12 (52,500)
NI-NCI 442,500

Problem 26. COLDPLAY Corporation acquired a 70% interest in Whistle Corporation on January
1, 2017, when Whistle’s book values were equal to their fair values. During 2014, COLDPLAY
sold merchandise that cost P75,000 to Whistle for P110,000. On December 31, 2017, seventy
five percent of the merchandise acquired from COLDPLAY remained in Whistle’s inventory.
Separate incomes (investment income not included) of COLDPLAY and Whistle are as follows:
COLDPLA Whistle
Y
Sales Revenue P 150,000 P 200,000
Cost of Goods Sold 90,000 70,000 FOREIGN
Operating Expenses 12,000 15,000 EXCHANGE
Separate incomes P 48,000 P 115,000

The consolidated income statement for COLDPLAY Corporation and subsidiary

for the year ended December 31, 2014 will show consolidated cost of sales of?

A. 50,000
B. P 76,250
C. P133,750
D. P160,000

CGS – Coldplay 90,000

CGS- Whistle 70,000
Intercompany sales (110,000)
UPEI (110,000-75,000)*75% 26,250
Conso CGS 76,250
TRANSACTIONS

Problem 27. The Giant Company acquired the Dwarf Company, a foreign subsidiary, on
September 10, 2017. The fair value of the assets of B was the same as their carrying amount
except for land where the fair value was $50,000 greater than carrying amount. This fair value
adjustment has not been recognized in the separate financial statements of B. Consolidated
financial statements are prepared at year end December 31, 2012 requiring translation of all
foreign operations’ results into the presentation currency of pesos. The following rates of
exchange have been identified:

September 10, 2017 $1.62 : P1

December 31, 2017 $1.56 : P1
Average rate for the year ended December 31, 2017 $1.60 : P1
Average rate for the period from September 10 to December 31, 2017 $1.58 : P1

What fair value adjustment is required to the carrying amount of land in the consolidated
statement of financial position?
a. P30,864
b. P31,250
c. P32,051
d. P31,646

50,000/1.56 = 32,051

Problem 28. On November 1, 2017, Galaxy Philippines took delivery from a Thailand firm of
inventory costing 225,000 baht. Payment is due on January 30, 2018. Concurrently, Galaxy
Philippines paid P2,025 cash to acquire a 90-day at-the-money call option for 225,000 Thailand
baht. The spot rate at the inception date is P1.20, and P1.22 at the balance sheet date. The fair
value of the option is P4,950 at the end of the reporting period.

The foreign exchange gain or loss on option contract (hedging instrument) due to change in
intrinsic value on December 31, 2017 if changes in the time value will be excluded from the
assessment of hedge effectiveness should be:

c. P1,575 loss ; P4,500 gain

d. P2,925 gain ; P1,575 loss
e. P4,500 loss ; P2,925 gain
f. P4,500 gain ; P1,575 gain
The foreign exchange gain or loss on the hedging activity on December 31, 2017 if changes in
the time value will be included from the assessment of hedge effectiveness should be:
a. P2,925 gain
b. P4,500 loss
c. P1,575 loss
d. P7,425 gain

Intrinsic value 12/31/17 225,000*(1.22-1.20) 4500

Intrinsic value at inception 0
Gain 4,500

FV option 12/31/17 4,950

Intrinsic value 12/31/17 (4,500)
Time value 12/31/17 450
Time value at inception (2,025)
Loss (1,575)

Gain or loss on hedging instrument:

FV option contract 12/31/17 4,950
FV option contract at inception 2,025 2,925 gain
Gain or loss on hedged item:
225,000*(1.22-1.20) 4,500 loss
Gain/loss on hedging activity 1,575 loss

Problem 29. The following are taken from the records of Will Imports Company, a foreign
subsidiary in New Zealand.
NZ dollar
Total Assets 12/31/17 146,000
Total Liabilities12/31/17 45,000
Common Stock 12/31/17 60,000
Retained Earnings 01/01/17 29,000
Net Income 2017 15,000
Dividends Declared 12/31/17 3,000

Exchange rates:
Current rate P10
Historical rate 11
Weighted Average Rate 12

The peso balance of retained earnings on December 31, 2016 is P325,000.

What amount of Cumulative Translation Adjustment is to be reported in the Consolidated

Statement of Financial Position on December 31, 2017?

A. P122,000 debit
B. P119,000 credit
C. P125,000 debit
D. P125,000 credit

Total assets 146,000*10 1,460,000

Total liabilities 45,000*10 (450,000)
Total Equity:
Common Stock 60,000*11 660,000
Retained Earnings 325,000
Net Income 15,000*12 180,000
Dividends Declared 3,000*10 30,000 (1,135,000)
Translation Adjustment (loss) 125,000

Problem 30. EX B Company acquired a heavy equipment for $14,100 from a supplier in Detroit,
USA on December 1, 2017. Payment in US dollars was due on March 31, 2018. On the same
date, to hedge this foreign currency exposure, EX B entered into a futures contract to purchase
$14,100 from Citibank for delivery on March 31, 2018. Direct exchange rates for dollars on
different dates were as follows:
Spot Rates
Bid Offer
December 1, 2017 41.6 41.4
December 31, 2017 42.5 42.3
March 31, 2018 43.4 43.7

Forward Rates
Dec. 1 Dec. 31 March 31
30-day futures 42.3 41.8 43.2
60-day futures 41.8 42.2 42.6
90-day futures 40.6 42.5 43.4
120-day futures 42.2 42.8 42.9

What is the reported value of the liability to the vendor at December 31, 2017? ; What was the
net impact in EX B Company’s income in 2017 as a result of this hedging activity?

A. P596,430 ; P8,460 net gain

B. P599,250 ; P8,460 net loss
C. P596,430 ; P8,460 net loss
D. P599,250 ; P8,460 net gain

Liability to vendor 12/31/13 = 42.3*14,100 = 596,430

Forex gain or loss on hedged item:
14,100 * (42.3-41.4) 12,690 loss
Gain/Loss on hedging instrument:
14,100 * (42.5-42.2) 4,320 gain 8,460 loss

Problem 31. WeExport company sold merchandise for 90,000 pounds from a vendor in London
on November 01, 2017. Payment in British pounds was due on January 30, 2018. Exchange
rate for pound on different dates are as follows:
Nov. 1 Dec. 31 Jan. 31
Spot rate P71.4 P72.7 P71.9
30 day futures 72.3 72.5 73.2
60 day futures 71.8 72.2 72.6
90 day futures 70.6 72.6 73.4

How much is the amount of Sales to be recorded by O company in its Income Statement for
the year 2017?
a. 6,426,000
b. 6,507,000
c. 6,543,000
d. 6,525,000

90,000*71.4 = 6,426,000

Problem 32. On November 1, Mocha Company purchased equipment from Arkansas, USA
Company. On the same date, it issued a 90-day, 12% promissory note denominated in foreign
currency for $78,000, at a selling rate of 1FC to P42.60. On the reporting date, the selling sport
rate is 1FC to P43.10. On the note’s due date, the spot rate is 1FC to P43.40.

How much is the foreign currency exchange gain/loss on the settlement date?
a. 23,400
b. 23,634
c. 23,868
d. 24,102

78,000 + (78,000*12%*2/12)= $79,560

$79,560 * (43.40-43.10)= 23,868 net forex loss
Problem 33. Dell Company entered into a futures contract to sell $8,340,000 to Export bank for
delivery on January 31, 2018 to speculate in the foreign currency.

Exchange rates (in Peso) on different dates were as follows:

Nov. 2 Dec. 31 Jan. 31
Spot rate .02387 .02457 .02494
30-day futures .02364 .02475 .02278
60-day futures .02392 .02481 .02437
90-day futures .02463 .02403 .02304

What is the amount of gain/loss that Dell will be reporting on its income statement in 2018?
a. 3,085.8 loss
b. 1,584.6 loss
c. 3,085.8 gain
d. 1,584.6 gain

8,340,000 * (.02494-.02475) = 1,584.60 loss

CORPORATE LIQUIDATION

Problem 34. The following data are provided by Corona Corp. which is undergoing liquidation
process:
i. P650,000 of liabilities are secured. 390,000 is secured by assets amounting to P370,000
with a FMV of P410,000; 40% is secured by assets amounting to P300,000 with a FMV
of P225,000.
ii. Total liabilities to unsecured creditors amounts to 290,000.
iii. Total assets amounts to P990,000 and has a total fair market value P795,000.
iv. Accrued income taxes amounts to P35,000. Accrued salaries totaled P28,000.

How much is the estimated deficiency to unsecured liabilities?

a. P145,000
b. P180,000
c. P208,000
d. P228,000

Free assets (795,000-410,000-225,000) 160,000

Excess of asset’s fmv over cv of liability it secures (410,000-390000) 20,000
Total free assets 180,000
Unsecured liabilities with priority (35,000+28,000) (63,000)
Net free assets 117,000

Liabilities to unsecured creditors without priority (290,000-63,000) 227,000

Excess of partially-secured liability cv over the asset fv 35,000
Total unsecured liabilities 262,000

Net free assets 117,000

Less: Total unsecured liabilities 262,000
Estimated deficiency to unsecured liabilities 145,000

Problem 35. Cattleya Company is in bankruptcy and is being liquidated. The trustee has
converted all assets into P120,000 cash and has prepared the following list of approved claims:
 Customer deposits (P1,000 from each of two customers that
ordered products that were never delivered) P
2,000
 Property taxes payable 4,000
 Accounts payable, unsecured 30,000
 Trustee’s fees and other costs of liquidation 16,000
 Mortgage payable, secured by property that was sold for P80,000, 60,000
 Note payable to bank, secured by all accounts receivable (P40,000) of
which P30,000 were collected and P10,000 were written off as uncollectible 40,000

How much will the bank receive on the note payable?

a. P30,000
b. P32,500
c. P32,000
d. P40,000

Cash balance 120,000

Mortgage payable, fully secured (60,000)
Note payable, partially secured (30,000)
Unsecured with Priority (2,000+4,000+16,000) (22,000)
Net Free Assets 8,000
Remaining liabilities (30,000+10,000) 40,000
8,000/40,000 = 0.2

Payment to note payable: partially secured portion 30,000

Unsecured portion (10,000*.2) 2,000
32,000

GOVERNMENT ACCOUNTING

Problem 36. The agency signed a construction contract with Mucho Builders Corp. for the
construction of Building, P5,000,000. The agency paid 20% of the contact price. After 6 months,
the agency received its first billing from A Builders Corp., 90% of the contact price. On the 7 th
month, the company paid the first billing less P1,000,000 withholding tax.

What will be the entry of the agency on its books upon receiving the first billing?
a. Building 4,500,000
Accounts Payable 4,500,000

b. Accounts Payable 4,500,000

Cash National Treasury MDS 3,500,000
Due to BIR 1,000,000

c. Construction in progress 4,500,000

Accounts Payable 4,500,000

d. Construction in progress 4,500,000

Advances to contractors 1,000,000
Accounts Payable 3,500,000

Problem 37. What is the entry to record the collection of P1,000,000 corporate income tax by
the BIR in its agency books?
a. Cash National Treasury MDS 1,000,000
Income tax – Corporation 1,000,000

b. Cash – Collecting officer 1,000,000

Income tax – Corporation 1,000,000

c. Cash in bank – LCCA 1,000,000

Income tax – Corporation 1,000,000

d. Income tax – Corporation 1,000,000

Cash – Disbursing officer 1,000,000
 Problem 38. The Notice of Cash Allocation for the regular operations of Department of Health
was issued and credited to their Regular MDS Account on July 12, 2017. Pursuant to the DMB
Circular Letter No. 2013-12, when is the last day of the NCA’s validity?
a. Last working day of August
b. Last working day of September
c. Last working day of October
d. Last working day of the year

Problem 39. On May 25, 2017, a private, not-for-profit global organization deposited a P5M
donation to the Bureau of Treasury to help the Philippine government clean the ruins left by the
eruption of Mayon Volcano. What is the journal entry in the accounting book of Bureau of
Treasury to record the receipt of this donation?
a. Debit Cash Collecting Officer P5M and Credit Income from Grants and Donations P5M
b. Debit Cash in Bank, Foreign Currency Savings Deposit P5M and credit Income
from Grants and Donations P5M
c. Debit Cash in Bank, Foreign Currency Savings Deposit P5M and credit Cash Collecting
Officer P5M
d. Debit Cash Collecting Officer P5M and Credit Cash-Treasury/Agency Deposit P5M

NOT FOR PROFIT ORGANIZATION

Problem 40. During the year ended December 31, 2017 a not for profit performing arts entity
received the following contributions and investment income:
o Cash donation of P1,350,000 to be permanently invested.
o Cash contribution of P600,000 to be spent only in accordance with the intentions of
the board of directors
o Cash dividends and interest of P75,000 to be used for the acquisition of theatre
equipment.

As a result of these cash receipts, the statement of cash flows for the year ended December
31, 2017, would report an increase of:
b. P2,025,000 from financing activities
c. P1,425,000 from financing activities and 600,000 from operating activities
d. P1,350,000 from financing activities and P675,000 from operating activities
e. P675,000 from financing activities and P1,350,000 from operating activities

Financing activities: 1,350,000 + 75,000

Operating activities: 600,000

Problem 41. Sandara Park, a private not-for-profit zoological society, received contributions
restricted for research totaling P40,000 in 2016. None of the contributions were spent on research
in 2016. In, 2017, P28,000 of the contributions were used to support the research activities of the
society. The net effect on the statement of activities for the year ended December 31, 2017, for
JKL Park would be a
a. P12,000 increase in temporarily restricted net assets.
b. P28,000 decrease in temporarily restricted net assets.
c. P28,000 increase in unrestricted net assets.
d. P28,000 decrease in unrestricted net assets.

Problem 42. Hope, Faith, and Love, a private not-for-profit voluntary health and welfare
organization, received the following contributions in 2017:
I. P80,000 from donors who stipulated that the money be held indefinitely.
II. P50,000 from donors who stipulated that the contributions be used for the acquisition of
equipment, none of which was acquired in 2017.
Which of the above events increased permanently restricted net assets for the year ending
December 31, 2017?
a. I only
b. II only
c. Both I and II
 d. Neither I nor II

Problem 43. CAREful Hospital, a private not-for profit hospital, earned P625,000 of cafeteria
and coffee shop revenues and spent P125,000 on medical equipment during the year ended
December 31, 2017. The P125,000 spent on equipment was part of a P187,500 contribution
received during December of 2016 from a doctor who stipulated that the donation be used for
medical equipment. Assume none of the cafeteria and coffee shop revenues were spent in
2017.

For the year ended December 31, 2017, what was the net increase in unrestricted net assets
from the events occurring during 2017?
A. P750,000
B. P500,000
C. P625,000
D. P687,500

Revenues 625,000
Reclassification-in unrestricted net assets 125,000
Purchase of medical equipment (125,000)
Net increase in unrestricted net assets 625,000

JOINT ARRANGEMENT

Problem 44. On June 1, 2016 SME J and SME K each acquired 35% of the equity of entities
L, M and N for P64,000, P58,000 and P37,000 respectively. SME J and SME K have joint
control over the strategic financial and operating decisions of entities L, M and N. Transaction
costs of 5% of the purchase price of the shares were incurred by SME J and SME K. On
December 31, 2016 entity L declared dividends of P9,000 for the year ended 2016 while entity
M declared a dividend of P15,000 for the year ended 2016.

The dividend declared by entity L and M were paid in 2017. On December 31, 2016 entity N
declared and paid a dividend of P24,000 for the year ended 2016. For the year ended
December 31, 2016, entities L and M recognized loss of P30,000 and P42,000, respectively.
However, entity N recognized a profit of P18,000 for that year. Using appropriate valuation
techniques the venturers determined the fair value of each of their investments in entities L, M
and N at December 31, 2016 as P60,000, P65,000 and P49,000 respectively.

Costs to sell are estimated at 9% of the fair value of the investments. Neither SME J nor SME
K prepares consolidated financial statements because they do not have any subsidiaries.
What is the profit (loss) of SME J to be presented in the Income Statement in entity N using the
fair value model?
a. P20,400
b. P18,550
c. P15,990
d. P14,140

Transaction cost (37,000)*5% (7,950)

Dividend income (24,000)*35% 8,400
Change in fair value (49,000-37,000) 12,000
Profit(loss) in Entity N 18,550

Problem 45. Banks J and K (the parties) agreed to combine their corporate, investment banking,
asset management and service activities by establishing a separate vehicle (Bank Q). Both
parties expect the arrangement to benefit them in different ways. (IFRS 11)

The assets and liabilities held in Bank Q are the assets and liabilities of Bank Q and not the
assets and liabilities of the parties. Banks J and K each have a 40% ownership interest in Bank
Q, with the remaining 20% being listed and widely held. The stockholders’ agreement between
Bank J and Bank K establishes a joint control of the activities of Bank Q.

Transactions for year 2017:

Investments: Bank J P6,250,000
Bank K P6,250,000

Revenues P1,250,000
Cost and Expenses P 750,000
Dividends paid – Bank Q P -

What is the interest of Bank J in the joint arrangement at December 31, 2017?

A. P6,250,000
B. P6,450,000
C. P6,050,000
D. P5,000,000

Initial investment 6,250,000

Share in profit (1,250,000-750,000)*40% 200,000
Interest on December 31, 2017 6,450,000

PARTNERSHIP

Problem 46. The partnership agreement of X, Y and Z provides for the division of net income as
follows:
I. Y, who manages the partnership is to receive a salary of P16,500 monthly.
II. Each partner is to be allowed interest at 15% on ending capital before share in profit
or loss.
III. Balance is to be divided 25:30:45.
During 2017, X invested an additional P96,000 in the partnership. Y made an additional
investment of P60,000 and withdrew P90,000, and Z withdrew P72,000. No other investments
or withdrawals were made during 2017. On January 1, 2017, the capital balances were X,
P280,000; Y, P300,000; and Z, P170,000. Total capital at year-end was P975,000.

How much is the share of each partner in the profit(loss) for the year?
X Y Z
a. P 56,400 P238,500 P14,700
b. 76,050 262,080 50,070
c 36,750 214,920 (20,670)
d. 22,125 219,150 (10,275)

Compute the capital balance of each partner at year-end:

X Y Z
a. P 36,750 P214,920 P(20,670)
b. 412,750 484,920 77,330
c. 316,750 514,920 149,330
d. 398,750 412,500 87,250

X Y Z Total
Beg. Balances 280,000 300,000 170,000 750,000
Additional Investment 96,000 60,000 156,000
Less: Withdrawal 0 90,000 72,000 162,000
End Bal before share in p(l) 376,000 270,000 98,000 744,000

Capital at Year end 975,000

Less: End Bal before p(l) 744,000
Total p(l) 231,000

Distribution of profit:
X Y Z Total
Salary 198,000 198,000
Interest (15%) 56,400 40,500 14,700 111,600
Excess 231,000-(198,000+111,600) -19,650 -23,580 -35,370 -78,600
Total share in p(l) 36,750 214,920 (20,670) 231,000
End Bal before share in p(l) 376,000 270,000 98,000 744,000
Capital balance at year end 412,750 484,920 77,330 975,000

Problem 47. The statement of financial position as of September 30, 2017, for the partnership of
D, E and F shows the following information: Assets, P360,000 ; D, loan, P20,000 ; D, capital,
P83,000 ; E, capital , P77,000 ; F, capital, P 180,000. It was agreed among the partners that
D retires from the partnership, and it was also further agreed that the assets should be adjusted
to their fair value of P345,000 as of September 30, 2017. Net loss prior to the retirement of D
amount to P70,000. The partnership is to pay D P62,000 cash for D's partnership interest,
which would include the payment of his loan. No goodwill is to be recorded. D, E and F share
profit 40%, 15% and 45% respectively.

D’s interest on the partnership before his retirement is:

a. 49,000
b. 55,000
c. 69,000
d. 75,000

After D's retirement, how much would F's capital balance be?
a. P66,000
b. P136,500
c. P147,000
d. P185,250

D E F Total
Capital Balance,
Sept 30,2012 83,000 77,000 180,000 340,000
Less: Downward
Revaluation 6,000 2,250 6,750 15,000
Less: Net loss 28,000 10,500 31,500 70,000
Cap Bal after
revaluation 49,000 64,250 141,750 255,000
Loan to the company 20,000 0 0 20,000
Interest on
partnership 69,000 64,250 141,750 275,000
(62,000
Settlement ) (62,000)
7,000*45/60=5,25
Bonus from D (7,000) 7,000*15/60 = 1,750 0) 0
Cap balance after
retirement of D 0 66,000 147,000 213,000

Problem 48. Partners A, B and C share profits and losses in the ratio of 5:3:2. At the end of a
very unprofitable year, they decided to liquidate the firm. The partner's capital account balances
at this time are as follows: A, P616,000 ; B, P697,200 ; C, P420,000. The liabilities accumulate
to P840,000, including a loan of P280,000 from A. The cash balance is P168,000. All the
partners are personally solvent. The partners plan to sell the assets in installment.
 If B received P100,800 from the first distribution of cash, how much did C receive at that
time?
a. P56,000
b. P33,600
c. P22,400
d. P61,600

If B received P100,800 from the first distribution of cash, what amount of cash was realized from
the initial sale of assets?
a. 448,000
b. 515,200
c. 548,800
d. 795,200

A B C
Cap Bal before liquidation 616,000 697,200 420,000
Loan 280,000 0 0
Total interest 896,000 697,200 420,000

A B C
Loss Absorption Potential
1,793,00
896,000/50% 0
697,200/30% 2,324,000
2,100,00
420,000/20% 0
Priority I(Excess of B over C) 0 -224,000 0
1,793,00 2,100,00
0 2,100,000 0
Priority II(Excess of B and CAover P) 0 -307,000 -307,000
1,793,00 1,793,00
0 1,793,000 0

A B C
Total payment 100,800
Priority I 224,000*30% (67,200)
Priority 2 33,600
33,600/30% *20% 22,400

Total Cash distributed to partners

(100,800+22,400) 123,200
Beg bal -168,000
Payment of liabilities (840,000-280,000) 560,000
Realized from sale of assets 515,200

Problem 49. As of May 1, 2017, FF and GG decided to form a partnership. Their balance sheets
on this date are:
FF GG
Cash P 45,000 P 114,000
Accounts Receivable 1,620,000 675,000
Merchandise Inventory - 606,000
Machineries & Equipment 450,000 810,000
P2,115,000 P2,205,000
============ ============
 Accounts Payable P 405,000 P 720,000
FF, Capital 1,710,000 -
GG, Capital - 1,485,000
P2,115,000 P2,205,000
============= =============
The partners agreed that the machinery and equipment of FF is under depreciated by P45, 000
and that of GG is over depreciated by 135,000. Allowance for doubtful accounts is to be setup
amounting to P360, 000 for FF and P110, 000 for GG. The partnership agreement provides for
a profit and loss ratio and capital interest of 60% to FF and 40% to GG.

During 2017, GG’s capital account increased by a net mount of 350,000. GG withdrew 420,000
and contributed land with a book value of 450,000 and a fair market value of 510,000.

How much cash must FF invest to bring the partner’s capital balances proportionate to their
profit and loss ratio?
a. P427,500
b. P555,000
c. P960,000
d. P307,500

How much is FF’s share in the profit(loss) for the period ended December 31?
a. 260,000
b. 390,000
c. 650,000
d. 480,000

FF GG Total
1,710,00 1,485,00
Book Balance 0 0
FV adjustments -45,000 135,000
ADA -360,000 -110,000
1,305,00 1,510,00 2,815,00
Cap. Bal. before cash investment 0 0 0

1,510,000/.4 *.6=2,265,000
2,265,000-1,305,000 = 960,000

Net adjustment in cap balance of GG 350,000

Add: withdrawal 420,000
(510,000
Less: additional investment )
Share of GG in profit or loss 260,000
Divided by % interest 40%
Total profit 650,000
Share of FF 650,000*60% 390,000

Problem 50. The statement of financial position of the partnership of P, J, and M, who share
profits and losses in the respective ratio of 5:3:2 follow: Cash, P120,000 ; Other assets,
P1,280,000 ; Liabilities, P200,000 P, Capital, P320, 000 ; J, Capital, P460, 000 ; M, Capital,
P420, 000. The partners agreed to liquidate the partnership by installments. Immediately, there
was a realization of P400, 000 cash from selling other assets with book value of P600, 000. Of
the cash available, the priority is the payment of the liabilities and the balance is to be
distributed to the partners.

How should the remaining cash be distributed to P, J and M?

 a. P200, 000; P120, 000 and P80, 000, respectively.
b. P160, 000; P96, 000 and P64, 000, respectively
c. P0; P124, 000 and P196, 000, respectively.
d. P0; P192, 000 and P128, 000, respectively.

Other
Cash assets Liabilities P,Capital J,Capital M,Capital
Balance before 1,280,00
liquidation 120,000 0 200,000 320,000 460,000 420,000
loss on realization of
asset 400,000 -600,000 -100,000 -60,000 -40,000
Payment of liabilities -200,000 -200,000
Balance before cash
distribution 320,000 680,000 0 220,000 400,000 380,000

P J M
Loss Absorption Potential
220,000/50% 440,000
1,333,33
400,000/30% 3
1,900,00
380,000/20% 0
Priority I(Excess of M over J) -566,667
1,333,33 1,333,33
440,000 3 3
Priority II(Excess of M and J over P) -893,333 -893,333
440,000 440,000 440,000
P J M
Priority I 566,667*20% 113,333
Priority 2 (320,000-113,333)
206667*3/5 124,000
206667*2/5 82,667
Total payment 0 124,000 196,000

Problem 51. Bruno, Jango and Gimo are partners sharing profits in the ratio of 3:3:2. On July
31, their capital balances are as follows: Bruno, P280,000 ; Jango, P200,000 ; Gimo,
P160,000
The partners agree to admit Aldo on the following agreement:
I. Aldo is to pay Bruno P200,000 for 1/2 interest of Bruno's interest.
II. Aldo is also to invest P160,000 in the partnership.
III. The total capital of the partnership is to be P960,000, of which Aldo's interest is to be
25%

How much is the share of Gimo in the revaluation, if there’s any?

a. 20,000
b. 40,000
c. 30,000
d. 60,000

What are the capital balances of the partners after the admission of Aldo?
 Bruno Jango Gimo
a. P 82,500 P82,500 P55,000
b. P140,000 200,000 160,000
c. P222,500 282,500 215,000
d. P200,000 160,000 140,000

Bruno Jango Gimo Aldo Total

200,00 160,00 640,00
Balance before admission 280,000 0 0 0
140,00
Purchase of Bruno's interest -140,000 0 0
160,00 160,00
Investment 0 0
200,00 160,00 300,00 800,00
Balance before revaluation 140,000 0 0 0 0
160,00
Revaluation 60,000 60,000 40,000 0 0
260,00 200,00 300,00 960,00
Balance after revaluation 200,000 0 0 0 0
Bonus from Aldo
300,000-(960,000*25%) -60,000
60,000*3/8 22,500 22,500
60,000*2/8 15,000
Capital balances after 282,50 215,00 240,00 960,00
admission 222,500 0 0 0 0

Problem 52. On August 1, 2017, the business accounts of Chris G and Paul DJ appear below:

Assets Chris G Paul DJ

Cash P 11,000 P 22,354
Accounts Receivable 84,536 217,890
Inventories 100,035 240,102
Land 603,000 428,267
Buildings 200,345 384,789
Other Assets 22,000 23,600

Liabilities and Capital

Accounts Payable P 178,940 P 243,650
Notes payable 200,000 345,000
Chris G., Capital 641,976
Paul DJ., Capital 728,352

Chris G and Paul DJ agreed to form a partnership contributing their respective assets and
liabilities subject to the following adjustments:

 Accounts Receivable of P20,000 and P35,000 are uncollectible in Chris G and Paul DJ’s
respective books.
 Inventories of P5,500 and P6,700 are worthless in Chris G and Paul DJ’s respective books.
 Other assets of P2,200 and P3,600 in Chris G and Paul DJ’s books are written off.

After five days Brian L was offered to join Chris G and Paul DJ and will contribute for a 20%
interest in the firm. They also agreed to divide profit and loss in the ratio of 40:40:20, same ratio
based on their capital credit as agreed upon formation. As a result of the said agreement, as a
personal transaction

How much shoud the cash settlement be between Chris G and Paul DG
A. P33,602
B. P34,388
C. P32,930
D. P32,272
How much should Brian L contribute to the partnership?
a. 259,466
b. 307,138
c. 324,332
d. 341,526

G DJ Total
641,97 728,35
Capital per books 6 2
Uncollectible AR -20,000 -35,000
Inventory write-off -5,500 -6,700
Write-off of other assets -2,200 -3,600
614,27 683,05 1,297,32
After adjustments 6 2 8
648,66 648,66
Required capital (1,297,328/2) 4 4
Cash settlement -34,388 34,388
1,297,328/80% = 1621660
1,621,660*20% = 324,332

Problem 53. On January 1, 2017, Katniss and Peeta who are partners have capital balances of
700,000 and 350,000, respectively. They share profits and losses in the ratio of 60:40. During
the first half of 2017, the partnership earned a profit of 420,000. On July 1, 2017, Gale is to be
admitted for a 25% interest in the partnership by direct purchase from the partners for 500,000.

How should the 500,000 cash be divided between Katniss and Peeta, respectively?
a. 321,000 and 179,000
b. 300,000 and 200,000
c. 302,500 and 197,500
d. 250,000 and 250,000
Katniss Peeta
700,00
Beg cap balance 0 350,000
252,00
Share in profit 0 168,000
952,00
Balance after share in profit 0 518,000
* percentage purchased 30% 30%
285,60
Interest purchased 0 155,400
Excess of Cash paid over interest puchased
500,000-(285,600+155,400)=59,000
Excess distribution 35,400 23,600
321,00
Total cash received 0 179,000

Problem 54. C, a partner of the District 14 law firm decided to withdraw from the partnership on
December 31, 2017. On that date, the capital balances of partners A, B, and C are 500,000,
400,000, and 300,000, respectively before their share in profit or loss. For the year ended 2017,
District 14 earned a profit of 360,000. The partners agreed that they will share in the partnership
losses equally. Upon retirement, C received 390,000 of the partnership funds for his interest.
How much is the capital balance of A after the retirement of C?
a. 605,000
b. 620,000
c. 635,000
d. 650,000
A B C
Capital balance before
profit/loss 500,000 400,000 300,000
pro-rate base on capital balance
share in profit 150,000 120,000 90,000 since the given ratio is for losses
Capital balance after
profit 650,000 520,000 390,000