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AFAR- Final-B45 - AFAR Reviewer

Coverage: Assets, Liabilities, and Equity
BS Accountancy (San Beda University)

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ReSA - THE REVIEW SCHOOL OF ACCOUNTANCY

CPA Review Batch 45  May 2023 CPALE  23 April 2023  03:00 PM – 06:00 PM

ADVANCED FINANCIAL ACCOUNTING and REPORTING FINAL PRE-BOARD EXAMINATION

INSTRUCTIONS: Select the correct answer for each of the questions. Mark only one answer
for each item by shading the box corresponding to the letter of your choice on the
answer sheet provided. STRICTLY NO ERASURES ALLOWED. Use pencil no. 2 only.

1. A company enters into bankruptcy proceedings on April 30. Its balance sheet on that
date is as follows:
Cash P 25,000 Accounts payable P 70,000
Merchandise 60,000 Loan payable 150,000
Plant and equipment, net 100,000 Stockholders’ equity (35,000)
Total P185,000 Total P185,000
None of the liabilities are secured. The following transactions occur between April
30 and August 31:
• Merchandise with a book value of P45,000 was sold for P30,000.
• Plant and equipment with a book value of P40,000 was sold for P25,000.
• Wages and administrative expenses of P10,000 were accrued.
• An initial payment of 30 cents per dollar of indebtedness was paid to the
unsecured creditors.
The statement of realization and liquidation would show total: (a)“assets to be
realized” and (b) “liabilities not liquidated”:
a. (a) P160,000; (b) P164,000 c. (a) P160,000; (b) P154,000
b. (a) P185,000; (b) P164,000 d. (a) P185,000; (b) P154,000
2. Comely Company manufactures three products, R, S, and T, in a joint process. For
every 10 kilos of raw material input, the output is 5 kilos of R, 3 kilos of S and
2 kilos of T.
During August, 50,000 kilos of raw material costing P120,000 were processed and
completed, with joint conversion costs of P200,000. Conversion costs shall be
allocated to the production on the basis of market values.
To make the product salable, however, further processing which does not require
additional material was done at the following costs: R, P30,000; S, P20,000 and T,
P30,000. Unit selling prices are R, P10; S, P12; and T, P15.

The unit cost of product R is:

a. P 7.12 c. P10.00
b. P 8.00 d. P25.32
3. Clark Textiles Company manufactures various wood products that yield sawdust as a
by-product. The only costs associated with the sawdust are selling costs of P6 per
ton sold. The company accounts for sales of sawdust by deducting sawdust’s net
realizable value from the major product’s cost of goods sold. Sawdust sales in 2010
were 12,000 tons at P40 each. If Clark Textiles changes its method of accounting for
sawdust sales to show the net realizable value as other revenue (presented at the
bottom of the income statement), how would its gross margin and net income be
affected?
Gross Profit Net Income
a. None None
b. P408,000 decrease P408,000 decrease
c. P408,000 increase None
d. P408,000 decrease None
4. DJ Builders Construction contractors had a 3-year construction contract in 20x2 for
P900,000. The company uses the percentage-of-completion method for financial
statement purposes. Income to be recognized each year is based on the ratio of cost
incurred to total estimated cost to complete the contract. Data on this contract
follows:
Accounts receivable – construction contract billings……… P 30,000
Construction in progress………………………………………………………………………………… P 93,750
Less: Amounts billed…………………………………………………………………………………………… 84,375
10% retention……………………………………………………………………………………………………………… 9,375

Net income recognized in 20x2 (before tax)………………………………… 15,000

DJ Builders Contractors maintains a separate bank account for each construction
contract. Bank deposits to this contract amounted to P50,000.
What was the estimated total income before tax on this contract?
a. P45,000 c. P135,000
b. P94,000 d. P144,000

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ADVANCED FINANCIAL ACCOUNTING & REPORTING

ReSA Batch 45 – May 2023 CPALE Batch
23 April 2023  03:00 PM to 06:00 PM AFAR Final Pre-Board
5. On 25 June 20x9 Cambridge Co received an order from a new customer, Circus Exam
Co. for
products with a sales value of P900,000. Circus Co enclosed a deposit with the order
of P90,000.
On 30 June 20x9 Cambridge Co had not completed credit checks on Circus Co and had
not despatched any goods. Cambridge Co is considering the following possible entries
for this transaction in its financial statements for the year ended 30 June 20x9.
(i) Create a trade receivable for P810,000.
(ii) Include P90,000 in revenue for the year.
(iii) Recognise P90,000 as a contract liability.
(iv) Include P900,000 in revenue for the year.
(v) Do not include anything in revenue for the year
According to IFRS 15 Revenue from Contracts with Customers, how should Cambridge Co
record this transaction in its financial statements for the year ended 30 June 20x9?
a. (i) and (iv) only c. (ii) and (v) only
b. (ii) and (iv) only d. (iii) and (v) only
6. Boot Co has a 66 per cent holding in Shoe Co and a 25 per cent holding in Sandal Co.
Boot Co sold goods with a value of P15,000 to each of Shoe Co and Sandal Co. Boot
Co had revenue of P88,000 and the other two companies P20,000 each in the year.
What is consolidated revenue?
a. P83,000 c. P93,000
b. P86,200 d. P98,000
7. Trench Co holds a 90 per cent equity investment in Hill Co and has done for a number
of years. In the year ended 31 December 20x6, Hill Co sold goods to Trench Co for
P450,000, charging a mark-up of 25 per cent. At the year end, a quarter of these
goods were still in Trench’s warehouse. In the individual financial statements of
Trench Co, cost of sales is reported as P1,950,000 and in the individual financial
statements of Hill Co, it is reported as P1,340,000.
What is consolidated cost of sales in the year ended 31 December 20x6?
a. P2,817,500 c. P2,868,125
b. P2,862,500 d. P3,020,000
8. Talbot Co purchased 80 per cent of the equity share capital of Perkins Co on 1
January 20x2. On 31 December 20x2 Perkins Co sold an item of non- depreciable plant
with a net carrying amount of P120,000 to Talbot Co for P150,000. The profit for the
year in the financial statements of Perkins Co at 31 December 20x2 was P2,000,000.
The tax rate is 30 per cent.
What is the non-controlling interest in consolidated profit?
a. P394,000 c. P1,970,000
b. P395,800 d. P1,979,000
9. Jenny Co Acquired 80 per cent of the equity share capital of Smith Co on 1 October
20x3. The consideration given was P2,000,000 in cash and 400,000 equity shares of
Jenny Co. On 1 October 20x3 the market value of each Jenny Co’s shares was P3 and
the fair value of Smith Co’s net tangible assets was P2,000,000. The non-controlling
interest was measured at the proportionate share of the acquirer’s net assets. Due
to poor trading conditions the goodwill arising on the acquisition of Smith Co,
goodwill was determined to be impaired by 25 per cent by the reporting date of 31
March 20x4.
What is the amount of goodwill reported in Jenny Co’s consolidated accounts at 31
March 20x4?
a. Nil c. P900,000
b. P300,000 d. P1,200,000
10. NN Company consigns sign pens to retailers, debiting Accounts Receivable for the
retail sales price of the sign pens consigned and crediting Sales. All costs relating
to the consigned sign pens are debited to expenses of the current accounting period.
Net remittances of the consignees are credited to Accounts Receivable
In December, 800 sign pens costing P60 each and retailing for P100 a unit were
consigned to SS Store. Freight cost of P800 was debited to Freight Expense by the
consignor. On December 31, SS Store remitted P35,505 to NN Company in full settlement
of the balance due. Accounts Receivable was credited for this amount. The consignee
deducted a commission of P10 on each sign pens sold and P45 for delivery expense.
The number of sign pens sold by SS Store is:
a. 355 c. 400
b. 395 d. None of the above

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ADVANCED FINANCIAL ACCOUNTING & REPORTING

ReSA Batch 45 – May 2023 CPALE Batch
23 April 2023  03:00 PM to 06:00 PM AFAR Final Pre-Board
11. Kuchen Manufacturing uses backflush costing to Exam
account for an electronic meter it
makes. During August 2011, the firm produced 16,000 meters of which it sold 15,800.
The standard cost for each meter is:
Direct material P 20
Conversion costs 44
Total P 64
Assume that the company had no inventory on August 1. The following event took place
in August:
1. Purchased P320,000 of direct materials.
2. Incurred P708,000 of conversion costs.
3. Applied P704,000 of conversion costs to Raw and In Process Inventory.
4. Finished 16,000 meters.
5. Sold 15,800 meters for P100 each.
(1) The amount of ending finished goods: (2) The amount of cost of goods sold after
the adjustments of over-under applied conversion cost amounted to:
a. (1) P12,800; (2) P1,011,200 c. (1) P12,800; (2) P1,015,200
b. (1) P12,775; (2) P1,011,200 d. (1) P12,850; (2) P1,015,200
12. A chemical company manufactures joint products Pep and Vim, and a by-product. Zest.
Costs are assigned to the joint products by the market value method, which considers
further processing costs in subsequent operations. For allocating joint costs to the
by-product, the market value or reversal cost method is used. The total manufacturing
costs for 10,000 units were P172,000 during the quarter. Production and cost data
follow:
Pep Vim Zest
Units produced 5,000 4,000 1,000
Sales price per unit P50 P40 P 5
Further processing cost per unit 10 5 -
Selling and administrative expense per unit 2
Operating profit per unit 1
I. The value of Zest to be deducted from the joint costs is:
a. P5,000 b. P3,000 c. P2,000 d. Zero
II. Compute the gross profit for Pep:
a. P 0 b. P70,000 c. P 80,000 d. P100,000
a. I – c; II – a c. I – c; II – d
b. I – d; II – d d. None of the above
13. Hartwell Company distributes the service department overhead costs to producing
departments and the following information for the month of January is presented as
follows:
Maintenance Utilities
Overhead costs incurred P18,700 P 9,000
Services provided to:
Maintenance department - 10%
Utilities department 20% -
Producing department A 40% 30%
Producing department B 40% 60%
Hartwell Company distributes service department overhead costs based on the
reciprocal method, what would be the formula to determine the total maintenance
costs?
a. M = P18,700 + .10U c. M = P18,700 + .30U +.40A + .40B
b. M = P 9,000 + .20U d. M = P27,700 + .40A + .40B
14. Meyer & Smith is a full-service technology company. They provide equipment, and
installation services as well as training. Customers can purchase any product or
service separately or as a bundled package. Container Corporation purchased computer
equipment, installation and training for a total cost of P120,000 on March 15, 2019.
Estimated standalone fair values of the equipment, installation, and training are
P75,000, P50,000, and P25,000 respectively. The transaction price allocated to
equipment, installation and training is
a. P75,000, P50,000, P25,000 respectively
b. P40,000, P40,000, P40,000 respectively
c. P120,000 for the entire bundle.
d. P60,000, P40,000 and P20,000 respectively.
15. Summary adjusted trial balance for the home office and branch of TJ Corporation at
December 31, 20x4 are as follows:

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ADVANCED FINANCIAL ACCOUNTING & REPORTING

ReSA Batch 45 – May 2023 CPALE Batch
23 April 2023  03:00 PM to 06:00 PM AFAR Final Pre-Board
Debits: Home Office Branch Exam
Other assets . . . . . . . . . . . . . P 530,000 P 165,000
Inventories, January 1, 20x4 . . . . . 50,000 45,000
Branch . . . . . . . . . . . . . . . . 200,000 -
Purchases . . . . . . . . . . . . . . . 500,000 -
Shipments from home office . . . . . . - 240,000
Expenses . . . . . . . . . . . . . . . 120,000 50,000
Dividends . . . . . . . . . . . . . . . ___100,000 ____ _ -
Total debits . . . . . . . . . . . . . . P1,500,000 P 500,000
Credits:
Other liabilities . . . . . . . . . P 90,000 P 25,000
Capital stock . . . . . . . . . . . . 500,000 -
Retained earnings . . . . . . . . . . 100,000 -
Home office . . . . . . . . . . . . . - 175,000
Unrealized profit in branch inventory 10,000 -
Sales . . . . . . . . . . . . . . . 537,500 300,000
Shipments to branch . . . . . . . . . 200,000 -
Branch profit . . . . . . . . . . . . ____62,500 _________
Total credits . . . . . . . . . . . . . P1,500,000 P 500,000
Additional information:
a. The home office ships merchandise to its branch at 120% of home office cost.
b. Inventories at December 31, 20x4 are P70,000 for the home office and P60,000
for the branch. The branch inventory is at transfer prices.
Compute the combined:
Net Income Cost of Goods Sold
a. P 370,000 P 480,000
b. P 200,000 P 480,000
c. P 132,500 P 467,500
d. P 200,000 P 467,500
16. Charito Corporation retails merchandise through its home office store and through a
branch store in a distant city. Separate ledgers are maintained by the home office
and the branch. The branch store purchases merchandise from the home office (at 120%
of home office cost), as well as from outside suppliers. Selected information from
the December 31, 20x4 trial balances of the home office and branch is as follows:
Home Office Branch
Sales . . . . . . . . . . . . . . . . . . P 120,000 P 60,000
Shipments to branch . . . . . . . . . . . 16,000 -
Purchases . . . . . . . . . . . . . . . . 70,000 11,000
Inventory, January 1, 20x4 . . . . . . . . 40,000 30,000
Shipments from home office . . . . . . . . - 19,200
Expenses . . . . . . . . . . . . . . . . . 28,000 12,000
Unrealized profit in branch inventory . . 7,200 -
Additional information:
a. The entire difference between the shipment account is due to the practice of
billing the branch at cost plus 20%.
b. The December 31, 20x4 inventories are P40,000 and P20,000 for the home office
and the branch, respectively. (The branch purchased 16% of its ending inventory
from outside suppliers.)
c. Branch beginning and ending inventories include merchandise acquired from the
home office as well as from outside suppliers. Merchandise acquired from home
office is inventoried at 120% of home office cost.
Compute the:
Overvaluation of Adjusted
Cost of Goods Sold Branch Net Income
a. P 4,400 P 50,200
b. P 2,800 P 10,600
c. P 7,200 P 15,000
d. P 4,400 P 12,200

17. Pasig Garment Company operates a branch in Cabanatuan City. At the end of the year,
the Branch account in the books of the home office at Manila shows a balance of
P150,000. The following information are ascertained:
1. The home office has billed the branch the amount of P37,500 for the
merchandise, which was in transit on December 31.
2. A home office accounts receivable for P10,500 was collected by the branch.
Said collection was not reported to the home office by the branch.

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ADVANCED FINANCIAL ACCOUNTING & REPORTING

ReSA Batch 45 – May 2023 CPALE Batch
23 April 2023  03:00 PM to 06:00 PM AFAR Final Pre-Board
3. Exam
Supplies of P4,500 was returned by the branch to the home office but the home
office has not yet reflected in its records the receipt of the supplies.
4. The branch made profit of P10,100 for the month of December but the home
office erroneously recorded it as P11,180.
5. The branch has not received the cash in the amount of P25,000 sent by home
office on December 31. This was charged to General Expense account.
All transactions are presumed to have been properly recorded.
(1) What is the balance of the Home Office account on the books of the branch as of
December 31, before adjustments? (2) What is the adjusted balance of the reciprocal
accounts?
a. (1) P117,420; (2) P106,920 c. (1) P117,420; (2) P179,920
b. (1) P123,000; (2) P 96,420 d. (1) P121,920; (2) P179,920
18. Wuson Company operates three producing departments – Cutting, Sewing and Finishing.
In February, Sewing Department transferred 6,200 units to Finishing Department, and
had 400 units in process at the end of the month. Sewing Department work-in-process
inventories as of January 31, were 1,200 units. These units were still (1/4) one-
fourth incomplete as of that date, with a cost of P13,312. The units started in
Sewing Department in February were received from the preceeding department at a cost
of P47,595.60.
During February, Sewing Department incurred the following costs:
Materials………………………………………………………. P11,772.00
Labor ………………………………………………………….. 15,660.00
Factory overhead ………………………………………….. 2,268.00
As of February 28, Sewing Department has done one quarter of the work required to
complete the process inventories.
Compute the cost of the:
Units Work-in-process Units Work-in-process
transferred February 28 transferred February 28
a. P86,532.00 P3,525.60 c. P71,750.00 P3,525.60
b. 84,882.00 4,075.60 d. 86,532.00 4,075.60
19. On January 1, 20x4, Park Corporation and Strand Corporation and their condensed
balance sheet are as follows:
Park Strand
Corp. Corp.
Current Assets . . . . . . . . . . . . . . . .P. 70,000 P 20,000
Non-current Assets . . . . . . . . . . . . . . . 90,000 40,000
Total Assets . . . . . . . . . . . . . . . . .P.160,000 P 60,000

Current Liabilities . . . . . . . . . . . . . .P . 30,000 P 10,000

Long-term Debt . . . . . . . . . . . . . . . . . 50,000 -
Stockholders’ Equity . . . . . . . . . . . . . . 80,000 50,000
Total Liabilities and Equities . . . . . . . .P.160,000 P 60,000
On January 2, 20x4, Park Corporation borrowed P60,000 and used the proceeds to
obtain 80% of the outstanding common shares of Strand Corporation. The P60,000 debt
is payable in 10 equal annual principal payments, plus interest, beginning December
31, 20x4. The excess fair value of the investment over the underlying book value of
the acquired net assets is allocated to inventory (60%) and to goodwill (40%).
On a consolidated balance sheet as of January 2, 20x4, what should be the amount
for each of the following? (1) Current assets should be; (2) Non-current asset using
proportionate basis (partial) in computing goodwill should be; (3) Stockholders’
equity using full fair value (full/gross-up goodwill) of determine non-controlling
interest should be:
a. (1) P105,000; (2) P138,000; (3) P95,000
b. (1) P105,000; (2) P138,000; (3) P93,000
c. (1) P102,000; (2) P140,000; (3) P95,000
d. (1) P102,000; (2) P140,000; (3) P93,000
20. An organization of high school seniors performs a volunteer service for patients
at a nearby nursing home. The nursing home would not otherwise provide these
services, such as wheeling patients in the park and reading to them. At the minimum
wage rate, these services would amount to P21,320, but their actual value is
estimated to be P27,400. In the nursing home’s statement of revenues and expenses,
what amount should be reported in public support?
a. P27,400 c. P 6,080
b. P21,320 d. P 0

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ADVANCED FINANCIAL ACCOUNTING & REPORTING

ReSA Batch 45 – May 2023 CPALE Batch
23 April 2023  03:00 PM to 06:00 PM AFAR Final Pre-Board
21. On January 1, 20x4, RR Corporation acquired 80 percent of SS Corporation’s Exam
P10 par
common stock for P956,000. On this date, the fair value of the non-controlling
interest was P239,000, and the carrying amount of SS’s net assets was P1,000,000.
The fair values of SS’s identifiable assets and liabilities were the same as their
carrying amounts except for plant assets (net) with a remaining life of 20 years,
which were P100,000 in excess of the carrying amount. For the year ended December
31, 20x4, SS had net income of P190,000 and paid cash dividends totaling P125,000.
(1) In the January 1, 20x4, consolidated balance sheet, the amount of goodwill
reported should be:
a. P -0- c. P95,000
b. P76,000. d. P156,000
(2) In the December 31, 20x4, consolidated balance sheet, the amount of non-
controlling interest reported should be:
a. P200,000 c. P251,000
b. P239,000 d. P252,000
a. (1) – a; (2) – c c. (1) – c; (2) – c
b. (1) – c; (2) – b d. None of the above
22. On January 2, 20x4, PP Company acquired 75 percent of KK Company’s outstanding
common stock. Selected balance sheet data at December 31, 20x4, are as follows

PP KK
Total Assets . . . . . . . . . . P420,000 P180,000
Liabilities . . . . . . . . . . P120,000 P 60,000
Common Stock . . . . . . . . . . 100,000 50,000
Retained Earnings . . . . . . . 200,000 70,000
P420,000 P180,000
In PP’s December 31, 20x4, consolidated balance sheet:
(1) What amount should be reported as non-controlling interest in net assets?
a. P-0- c. P45,000
b. P30,000 d. P105,000
(2) What amount should PP report as common stock outstanding?
a. P50,000 c. P137,500
b. P100,000 d. P150,000
a. (1) – a; (2) – c c. (1) – b; (2) – b
b. (1) – c; (2) – b d. None of the above
23. A hospital has the following account balances:
Revenue from newsstand P 50,000
Amount charged to patients 800,000
Interest income 30,000
Salary expense – nurses 100,000
Bad debts 10,000
Undesignated gifts 80,000
Contractual adjustments 110,000
What is the hospital’s net patient service revenue?
a. P880,000 c. P690,000
b. P800,000 d. P680,000
24. A not-for-profit organization receives two gifts. One is P80,000 and is restricted
for paying salaries of teachers who help children learn to read. The other is
P110,000, which is restricted for purchasing playground equipment. The organization
spends both amounts properly at the end of this year. The organization records no
depreciation this period, and it has elected to view the equipment as having a time
restriction. On the statement of activities, what is reported for unrestricted net
assets?
a. An increase of P80,000 and a decrease of P80,000.
b. An increase of P190,000 and a decrease of P190,000.
c. An increase of P190,000 and a decrease of P80,000.
d. An increase of P80,000 and no decrease.
25. A voluntary health and welfare organization receives a gift of new furniture having
a fair value of P2,100. The group then gives the furniture to needy families
following the Ondoy flood. How should the organization record receipt and
distribution of this donation?
a. Make no entry.
b. Recognize public support of P2,100 and community assistance expense of P2,100.
c. Recognize revenue of P2,100.
d. Recognize revenue of P2,100 and community expenditures of P2,100.

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ADVANCED FINANCIAL ACCOUNTING & REPORTING

ReSA Batch 45 – May 2023 CPALE Batch
23 April 2023  03:00 PM to 06:00 PM AFAR Final Pre-Board
26. Simpson Company manufactures electric drills Exam
to the exacting specifications of
various customers. During April 20x8, Job 403 for the production of 1,100 drills
was completed at the following costs per unit:
Direct materials…………………………..……P 10
Direct labor……………………………………… 8
Applied factory overhead…………… 12
P 30
Final inspection of Job 403 disclosed 50 defective units and 100 spoiled units. The
defective drills were reworked at a total cost of P500 and the spoiled drills were
sold for P1,500. What would be the unit cost of the good units produced on Job 403?
a. P33 c. P30
b. P32 d. P29
27. Following are the cost data available:
I. For Job Order No. 369, Escalera Company incurred the following costs for the
manufacture of 200 units of a novelty gadget:
Original cost accumulation:
Direct materials……………………………………………………………………… P 13,200
Direct labor………………………………………………………………………………… 16,000
Factory overhead (150% of direct labor)………… 24,000
Total…………………………………………………………………………………………………… P 53,200

Direct costs of ten reworked units:

Direct materials……………………………………………………………………… P 2,000
Direct labor………………………………………………………………………………… 3,200
Total…………………………………………………………………………………………………… P 5,200
The rework cost was attributable to exacting specifications required by the job
and was charged to the specific order. The units cost of Job Order No. 369 is:
a. P266 c. P292
b. P280 d. P316

II. Bagley Company has two service departments and two producing departments.
Square footage of space occupied by each department follows:
Custodial Services 1,000 ft.
General Administration 3,000 ft.
Producing Department A 8,000 ft.
Producing Department B 8,000 ft.
Total 20,000ft.
The department costs of Custodial Services are allocated on a basis of square
footage of space. If these costs are budgeted at P38,000 during a given
period, the amount of cost allocated to General Administration under the
direct method would be
a. P15,200 c. P6,000
b. P 7,125 d. P 0

a. I – c; II – c c. I – d; II – d
b. I – b; II – d d. None of the above

28. Chain Co. owned all of the voting common stock of Shannon Corp. The corporations'
balance sheets dated December 31, 20x4, include the following balances for land:
for Chain-P416,000 and for Shannon-P256,000. On the original date of acquisition,
the book value of Shannon's land was equal to its fair value. On April 4, 20x5,
Chain sold to Shannon a parcel of land with a book value of P65,000. The selling
price was P83,000. There were no other transactions which affected the companies'
land accounts during 20x5. What is the consolidated balance for land on the 20x5
balance sheet?
a. P 672,000 c. P 737,000
b. P 690,000 d. P 755,000
29. A parent owns 80% of its subsidiary. At the beginning of 20x4, the subsidiary
sells new equipment carried on its books at P40,000 to the parent for P65,000. The
equipment has a 5-year remaining life at the time of sale, and straight-line
depreciation is appropriate. It is now the end of 20x4. The parent and subsidiary
report the following balances related to the equipment:

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ADVANCED FINANCIAL ACCOUNTING & REPORTING

ReSA Batch 45 – May 2023 CPALE Batch
23 April 2023  03:00 PM to 06:00 PM AFAR Final Pre-Board
Parent Subsidiary Exam
Equipment…………………………………………………………… 65,000
Accumulated depreciation…………………… 13,000
Gain on sale of equipment………………… 25,000
What should be reported on the consolidated statements for 20x4, with respect to
this equipment?
a. Equipment, P65,000; Accumulated depreciation, P8,000; Gain, P0
b. Equipment, P40,000; Accumulated depreciation, P13,000; Gain, P0
c. Equipment, P60,000; Accumulated depreciation, P8,000; Gain, P5,000
d. Equipment, P40,000; Accumulated depreciation, P8,000; Gain, P0
30. The following selected data were taken from the books of the Bixby Box Company.
The company uses job costing to account for manufacturing costs. The data relate
to June operations.
(A) Materials and supplies were requisitioned from the stores clerk as follows:
Job 405, material X, P7,000.
Job 406, material X, P3,000; material Y, P6,000.
Job 407, material X, P7,000; material Y, P3,200.
For general factory use: materials A, B, and C, P2,300.
(B) Time tickets for the month were chargeable as follows:
Requisition No. Amount
Job No. 405 P11,000 3,000 hours
Job No. 406 P14,000 3,600 hours
Job No. 407 P 8,000 1,900 hours
Indirect labor P 3,700
(C) Other information:
Factory paychecks for P35,200 were issued during the month.
Various factory overhead charges of P19,400 were incurred on account.
Depreciation of factory equipment for the month was P5,400.
Factory overhead was applied to jobs at the rate of P3.50 per direct labor hour.
Job orders completed during the month: Job 405 and Job 406.
Selling and administrative costs were P2,100.
(1) If Job 406 were sold on account for P41,500 how much gross profit would be
recognized? (2) The balance in the factory overhead account would represent the
fact that overhead:
a. (1) P5,900; (2) P1,050 overapplied
b. (1) P 5,900; (2) P1,050 underapplied
c. (1) P18,500; (2) P1,050 underapplied
d. (1) P18,500; (2) P1,000 underapplied
31. Zeta Company is preparing its annual profit plan. As part of its analysis of the
profitability of individual products, the controller estimates the amount of
overhead that should be allocated to the individual product lines from the
information given as follows:
Wall Specialty
Mirrors Windows
Units produced……………………………………………………………………………………… 25 25
Materials move per product line………………………………………… 5 15
Direct labor hours per unit…………………………………………………… 200 200
Budgeted materials handling costs…………………………………… P 50,000
(1) Under a costing system that allocates overhead on the basis of direct labor
hours, the materials handling costs allocated to one unit of wall mirrors; (2) The
materials handling costs allocated to one unit of wall mirrors under Activity-Based
Costing (ABC) would be:
a. (1) P2,000; (2) P500
b. (1) P 500; (2) P1,000
c. (1) P1,000; (2) P1,500
d. (1) P1,000; (2) P500
32. Andrews And Block are partners in an engineering consulting firm sharing profits
and losses 40% and 60%, respectively, and their capital balances are P110,000 and
P150,000, respectively. The recorded net assets of the company are as follows:
Book Value Fair Value
Working capital P240,000 P220,000
Net property and equipment 80,000 108,000
Noncurrent liabilities 60,000 60,000

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ADVANCED FINANCIAL ACCOUNTING & REPORTING

ReSA Batch 45 – May 2023 CPALE Batch
23 April 2023  03:00 PM to 06:00 PM AFAR Final Pre-Board
Exam
In addition to the recorded assets, the partners feel that the company has goodwill
valued at P40,000 because the company enjoys a strong client base and has earnings
that are consistently above industry averages.
Carver is interested in merging his environmental consulting company with Andrews
and Block. Carver’s net assets to be conveyed to the partnership include the
following:
Book Value Fair Value
Working capital P 50,000 P 40,000
Net property and equipment 60,000 50,000
In addition to the above recorded net assets, Carver feels that his business
contacts and expertise will add value to the existing partnership. Carver has valued
these intangibles at P20,000.
If Carver were to acquire a 30% interest in the new partnership, how much additional
cash would have to contribute to the partnership?
a. P20,000 c. P42,000
b. P22,000 d. None of the above
33. The best Co. bills merchandise shipments in its Cavite City branch at 125% of cost.
The branch, in turn, sells the merchandise it receives from the home office at 25%
above the billing price. On August 1, 20x4, all of the branch’s merchandise stock
was destroyed by fire. The branch records that were recovered showed the following:
Inventory, January 1, 20x4 (at billed price)................. P 165,000
Shipments received from home office,
January to July (at billed price)....................... 110,000
Purchases, at cost, from outside sources,
all re-sold at a 20% mark-up............................ 7,500
Sales....................................................... 169,000
Sales returns and allowances................................ 3,750
The Best Co. will file an insurance claim. How much is the estimated cost of the
merchandise destroyed by the fire?
a. P120,000 c. P140,000
b. P130,000 d. P150,000
34. On January 1, 20x9 SME A and B each acquired 30 per cent of the ordinary shares
that carry voting rights at a general meeting of shareholders of entity Z for
P300,000. Entities A and B immediately agreed to share control over entity Z. For
the year ended December 31, 20x9 entity Z recognized a profit of P400,000.
On January 2, 20x9 entity Z also declared a dividend of P100,000 for the year 20x8.
On December 30, 20x9 entity Z declared and paid a dividend of P150,000 for the year
20x9. At December 31, 20x9 the fair value of each venturers’ investment in entity
Z is P400,000. However, there is no published price quotation for entity Z.
SME A and B must each recognize dividend income for the year 20x9 amounted to:
Cost Fair Value Cost Fair Value
Model Model Model Model
a. P 45,000 P75,000 c. 75,000 P75,000
b. P 75,000 P45,000 d. None
Items 35 and 36 are based on the following information:
In 20x3, four friends form a partnership to invest in real estate. All are equal
partners. At January 1, 20x5, the books of the partnership show cash of P23,000 and
real estate with a cost of P400,000 and fair market value of P650,000. The partnership
has no liabilities. The partnership books are maintained on a cost basis, and neither
goodwill nor bonus is recorded when a new partner is admitted.
On January 1, 20x5, a new partner joins the partnership, making a cash investment equal
to one fourth of the fair market value of partnership assets. During 20x5, each
partner invested P10,000 in new funds and the partnership invested P370,000 in real
estate. Also during 20x5, real estate costing P100,000 was sold for P150,000. The
January 1, 20x5 fair market value of the real estate sold was P125,000. Interest
earned on the partnership savings account for 20x5 was P500.
35. (1) How much must the new partner invest in the partnership at January 1, 20x5? (2)
The share in the partnership’s 20x5 income to the four original partners (as a
group):
a. (1) P168,250; (2) P45,400 c. (1) P105,750; (2) P45,400
b. (1) P168,250; (2) P25,000 d. (1) P100,000; (2) P20,000

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ADVANCED FINANCIAL ACCOUNTING & REPORTING

ReSA Batch 45 – May 2023 CPALE Batch
23 April 2023  03:00 PM to 06:00 PM AFAR Final Pre-Board
36. In January 20x6, the partners sell all Exam
partnership real estate for P925,000 and
dissolve the partnership. How much will the new partner (NP), and the original
partners as a group (OP), each receive?
a. NP, P183,350; OP, P757,400 c. NP, P183,350; OP, P508,400
b. NP, P189,350; OP, P508,400 d. NP, P189,350; OP, P757,400

37. Agency 007 received a request for replenishment of petty cash fund for the following
expenses:
Office supplies P 500
Transportation fares 100
Repair of aircon 200
JRS mail 160
The entry for this transaction would be:
a. No entry
b. Memorandum entry to the RAODMOOE
c. Office supplies expense………………………………………………………… 500
Travelling expense……………………………………………………………………… 100
Repairs and maintenance………………………………………………………… 200
Other maintenance and operating expenses…………… 160
Cash – National Treasury, MDS……………………… 960
d. Office supplies expense………………………………………………………… 500
Travelling expense……………………………………………………………………… 100
Repairs and maintenance………………………………………………………… 200
Other maintenance and operating expenses…………… 160
Petty Cash Fund…………………………………………………………… 960
38. Pistahan Corporation is a manufacturing company engaged in the production of a
single special product known as “Marvel”. Production costs are accumulated with the
use of a job-order-cost system.
The following information is available as of June 1, 20x8:
Work-in process................................................P 10,710
Direct materials inventory.......................................48,600
In analyzing the job-order cost sheets, the records disclosed that the compositions
of the work-in-process inventory on June 1, 20x8 were as follows:
Direct materials used..........................................P 3,960
Direct labor (900 hours)....................................... 4,500
Factory overhead applied....................................... 2,250
P 10,710
The following manufacturing activity occurred during the month of June 20x8:
Purchased direct materials costing P 60,000
Direct labor worked 9,900 hours at P 5 per hour
Factory overhead of P 2.50 per direct labor hour was applied to production.
At the end of June 20x8, the following information was gathered in connection with
the inventories:
Inventory of work-in-process:
Direct materials used.......................................P 12,960
Direct labor (1,500 hours)................................... 7,500
Factory overhead applied.................................... 3,750
P 24,210
Inventory of direct materials..................................P 51,000
Compute the cost of goods manufactured:
a. P 142,560 c. P 131,850
b. P 118,350 d. P 108,600
39. (1) Wuson Company operates three producing departments – Cutting, Sewing and
Finishing. In February, Sewing Department transferred 6,200 units to Finishing
Department, and had 400 units in process at the end of the month. Sewing Department
work-in-process inventories as of January 31 were 1,200 units. These units were
still (1/4) one-fourth incomplete as of that date, with a cost of P13, 312. The
units started in Sewing Department in February were received from the preceding
department at accost of P47,595.60.

During February, Sewing Department incurred the following costs:

Materials………………………………………………………………………… P11,772.00
Labor…………………………………………………………………………………… 15,660.00
Factory overhead……………………………………………………… 2,268.00

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ADVANCED FINANCIAL ACCOUNTING & REPORTING

ReSA Batch 45 – May 2023 CPALE Batch
23 April 2023  03:00 PM to 06:00 PM AFAR Final Pre-Board
As of February 28, Sewing Department has done Exam
one quarter of the work required to
complete the process inventories. Compute the cost of the:
Units Work-in-process Units Work-in-process
transferred February 28 transferred February 28
a. P86,532.00 P3,525.60 c. P71,750.00 P3,525.60
b. 84,882.00 4,075.60 d. 86,532.00 4,075.60

(2) Tornado Electronics uses a weighted average process costing system for its
production process in which all material is added at the beginning of production.
Company management has specified that the normal loss cannot exceed 7 percent
of the units started in a period. Normal lost happens during the production
while abnormal lost was discovered at the end. March processing information
follows:
Beginning inventory (10% complete – conversion) ………… 7,000 units
Started during March……………………………………………………………………………… 60,000 units
Completed during March………………………………………………………………………… 52,000 units
Ending inventory (60% complete – conversion) ……………… 10,000 units
The equivalent units of production for materials and conversion cost:

FIFO Average FIFO Average

Materials Conv. Materials Conv. Materials Conv. Materials Conv.
Cost Cost Cost Cost
a. 60,000 62,300 67,000 63,000 c. 55,000 57,300 62,000 58,000
b. 55,800 58,100 62,800 58,800 d. 62,800 58,800 55,800 58,100
a. (1) – a; (2) - a c. (1) – c; (2) – b
b. (1) – b; (2) – b d. (1) – d; (2) – b
40. The Moon Company acquired a 70% interest in The Swan Company for P1,420,000 when
the fair value of Swan's identifiable assets and liabilities was P1,200,000. Moon
acquired a 65% interest in The Homer Company for P300,000 when the fair value of
Homer's identifiable assets and liabilities was P640,000. Moon measures non-
controlling interests at the relevant share of the identifiable net assets at the
acquisition date. Neither Swan nor Homer had any contingent liabilities at the
acquisition date and the above fair values were the same as the carrying amounts
in their financial statements. Annual impairment reviews have not resulted in any
impairment losses being recognized.

Under PFRS 3 Business combinations, what figures in respect of goodwill and of gains
on bargain purchases should be included in Moon's consolidated statement of
financial position?
a. Goodwill: P580,000; Gains on the bargain purchases: P116,000
b. Goodwill: Nil or zero; Gains on the bargain purchases: P116,000
c. Goodwill: Nil or zero; Gains on the bargain purchases: Nil or zero
d. Goodwill: P580,000; Gains on the bargain purchases: Nil or zero
41. The joint venture accounts in the books of the venturers (participants) M, N and
O, show the balances below, upon termination of the joint venture and distribution
of the profits:
BOOKS of
M N O
Accounts with Dr Cr Dr Cr Dr Cr
M 900 900
N 750 750
O 1,650 1,650

Final settlement of the joint venture will require payments as follows;

a. M pays P900 to O and N pays P750 to O
b. O pays P900 to M and P750 to N
c. N pays P1,650 to M and O pays P900 to N
d. M pays P900 to N and N pays P750 to O

42. The partners of the M&N Partnership started liquidating their business on July 1,
20x9, at which time the partners were sharing profits and losses 40% to M and 60%
to N. The balance sheet of the partnership appeared as follows:

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ADVANCED FINANCIAL ACCOUNTING & REPORTING

ReSA Batch 45 – May 2023 CPALE Batch
23 April 2023  03:00 PM to 06:00 PM AFAR Final Pre-Board
Assets Liabilities & Exam
Capital
Cash P 8,800 Accounts payable P 32,400
Receivable 22,400 M, capital P31,000
Inventory 39,400 M, drawing __5,400 25,600
Equipment P65,200 N, capital P33,200
Accumulated N, drawing ___200 33,000
Depreciation 30,800 34,400 N, loan 14,000
Total P105,000 Total P105,000
During the month of July, the partners collected P600 of the receivables with no
loss. The partners also sold during the month the entire inventory on which they
realized a total of P32,400.
How much of the cash was paid to M’s capital on July 31, 20x9?
a. P25,600 c. P320
b. P 5,400 d. P 0
43. An entity purchases plant from a foreign supplier for 3 million baht on January 31,
20x9, when the exchange rate was 2 baht = P1. At the entity’s year-end of March
31, 20x9, the amount has not been paid. The closing rate was 1.5 baht = P1. The
entity’s functional currency is the peso.
Which of the following statements is correct?
a. Cost of plant, P2 million, exchange loss P0.5 million, trade payable
P1.5 million.
b. Cost of plant P1.5 million, exchange loss P0.6 million, trade payable
P2 million.
c. Cost of plant P1.5 million, exchange loss P0.5 million, trade payable
P2 million.
d. Cost of plant P2 million, exchange loss P0.5 million, trade payable P2
million.
44. An entity acquired all the share capital of a foreign entity at a consideration of
9 million baht on June 30, 20x9. The fair value of the net assets of the foreign
entity at that date was 6 million baht. The functional currency of the entity is
the peso. The financial year-end of the entity is December 31, 20x9. The exchange
rates at June 30, 2019, and December 31, 20x9, were 1.5 baht = P1 and 2 baht = P1
respectively.
What figure for goodwill should be included in the financial statements for the
year ended December 31, 20x9?
a. P2 million c. P1.5 million
b. 3 million baht d. P3 million
45. An entity acquired 60% of the share capital of a foreign entity on June 30, 20x9.
The fair value of the net assets of the foreign entity at that date was 6 million
baht. This value was 1.2 million higher than the carrying amount of the net assets
of the foreign entity. The excess was due to the increase in value of non-depreciable
land. The functional currency of the entity is the peso. The financial year-end of
the entity is December 31, 20x9. The exchange rates at June 30, 20x9, and December
31, 20x9, were .5 baht = P1 and 2 baht = P1, respectively.
What figure for the fair value adjustments should be included in the group financial
statements for the year ended December 31, 20x9?
a. P600,000 c. P2 million
b. P800,000 d. P3 million
46. Property was purchased on December 31, 2019 for 20 million baht. The general price
index in the country was 60.1 on that date. On December 31, 2021, the general price
index had risen to 240.4. If the entity operates in a hyperinflationary economy,
what would be the carrying amount in the financial statements of the property after
restatement?
a. 20 million baht c. 80 million baht
b. 1,200.2 million baht d. 4.808 million baht
47. Lawrence Company ordered parts costing FC 100,000 from a foreign supplier on May
12 when the spot rate was P.20 per FC. A one-month forward contract was signed on
that date to purchase FC 100,000 at a forward rate P0.21. The forward contract is
properly designated as a fair value hedge of the FC 100,000 firm commitment. On
June 12, when the company receives the parts, the spot rate is P0.23. at what amount
should Lawrence Company carry the parts inventory on its books assuming that the
firm commitment account be considered as an adjustment to net income account (or
profit or loss account)?
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ADVANCED FINANCIAL ACCOUNTING & REPORTING

ReSA Batch 45 – May 2023 CPALE Batch
23 April 2023  03:00 PM to 06:00 PM AFAR Final Pre-Board
a. P20,000 c. P22,000 Exam
b. P21,000 d. P23,000
48. Post, Inc. had a receivable from a foreign customer that is payable in the customer’s
local currency. On December 31, 2019, Post correctly included this receivable for
200,000 local currency units (LCU) in its balance sheet at P110,000. When Post
collected the receivable on February 15, 2020, the Philippine peso equivalent was
P95,000. In Post’s 2020 consolidated income statement, how much should it report
as a foreign exchange loss?
a. P -0- c. P15,000
b. P10,000 d. P25,000
49. The following are information regarding parent and subsidiary:
I. Clark Company had the following transactions with affiliated parties during
2008:
• Sales of P60,000 to Dean, with P20,000 gross profit. Dean had P15,000 of
this inventory on hand at year-end. Clark owns a 15% interest in Dean and
does not exert significant influence.
• Purchases of raw materials totaling P240,000 from Kent Corporation, a
wholly-owned subsidiary. Kent’s gross profit on the sale was P48,000. Clark
had P60,000 of this inventory remaining on December 31, 2008.
Before eliminating entries, Clark had consolidated current assets of P320,000.
What amount should Clark report in its December 31, 2008, consolidated balance
sheet for current assets?
a. P320,000 b. P317,000 c. P308,000 d. P303,000

II. Par Company owns 60% of Sub Corp.’s outstanding capital stock. On May 1, 2008,
Par advanced Sub P70,000 in cash, which was still outstanding at December 31,
2008. What portion of this advance should be eliminated in the preparation of
the December 31, 2008 consolidated balance sheet?
a. P70,000 b. P42,000 c. P28,000 d. P 0
a. I – c; II – a c. I – c; II – d
b. I – d; II – d d. None of the above
50. Grete had the following foreign currency transactions during 2019:
• Purchased merchandise from a foreign supplier on January 20, 2019, for
the Philippine peso equivalent of P60,000 and paid the invoice on April
20, 2019, at the Philippine peso equivalent of P68,000.
• On September 1, 2019, borrowed the Philippine peso equivalent of P300,000
evidenced by a note that is payable in the lender’s local currency on
September 1, 2020. On December 31, 2019, the Philippine peso equivalent of
the principal amount was P320,000.
In Grete’s 2019 income statement, what amount should be included as a foreign
exchange loss?
a. P 4,000 c. P22,000
b. P20,000 d. P28,000
51. Lucille Inc. manufactures a product that gives rise to a by-product called "Robon."
The only costs associated with Robon are additional processing costs of P1.00 for
each unit. Lucille accounts for "Robon" sales first by deducting its separable
costs from such sales and then by deducting this net amount from the cost of sales
of the major product. For the past year 2,000 units of Robon were produced which
were sold for P3.00 each.
Sales revenue and cost of goods sold from the main product were P500,000 and
P400,000 respectively.

(1) Compute the gross margin after considering the by-product sales and costs; (2)
if Lucille changes its method of accounting for Robon sales by showing the net
amount as "Other Income," the effect on the gross margin would be (3), if the
accounting method were changed by showing the net amount as "Other Income," the
effect on net income for the period would be:
a. (1) P104,000; (2) P4,000; (3) Zero
b. (1) P104,000; (2) Zero; (3) P4,000
c. (1) P106,000; (2) P4,000; (3) Zero
d. (1) P106,000; (2) P2,000; (3) P6,000 increase

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ADVANCED FINANCIAL ACCOUNTING & REPORTING

ReSA Batch 45 – May 2023 CPALE Batch
23 April 2023  03:00 PM to 06:00 PM AFAR Final Pre-Board
52. Southern Company’s balance sheet is as follows: Exam
Current assets P 12,000,000
Plant & equipment 150,000,000
Total P 162,000,000

Liabilities P 130,000,000
Common stock, P1 par 400,000
Additional paid-in capital 23,800,000
Retained earnings (10,000,000)
Treasury stock, 6,000 shares (400,000)
Accumulated OCI 18,200,000
Total P 162,000,000

Pecan Corporation is in the process of acquiring Southern. Its research reveals

that Southern’s current assets are carried at P2,000,000 more than book value, its
plant & equipment is carried at P60,000,000 more than book value, and it has the
following unreported intangibles:
Fair value
Non-competition agreement P 8,000,000
Skilled employees 4,000,000
Business from prospective customers 16,000,000
Order backlog, i.e. customer related contract 30,000,000

Pecan includes an earnings contingency, with a present value of P1,000,000, as part

of the acquisition agreement.

(1) Pecan finances the acquisition with bonds. If Southern’s shareholders are to
receive P72 per share in cash on acquisition, how much cash must Pecan generate
from the sale of bonds? (2) How much cash must Pecan generate from the sale of
bonds, if it wants to report P40,000,000 in goodwill?
a. (1) P28,368,000; (2) P47,000,000
b. (1) P28,368,000; (2) P48,800,000
c. (1) P28,800,000; (2) P47,000,000
d. (1) P30,368,000; (2) P43,000,000

53. A company has identified the following overhead costs and cost drivers for the
coming year:
Budgeted Budgeted Activity
Overhead Item Cost Driver Cost Level
Machine Setup Number of setups P 20,000 200
Inspection Number of Inspections
P 130,000 6,500
Material handling Number of Material moves P 80,000 8,000
Engineering Engineering Hours P 50,000 1,000
P 280,000

The following information was allocated on three jobs that were completed during
the year:
Job 101 Job 102 Job 103
Direct materials P 5,000 P12,000 P 8,000
Direct labor P 2,000 P 2,000 P 4,000
Units completed 100 50 200
Number of setups 1 2 4
Number of inspections 20 10 30
Number of material moves 30 10 50
Engineering hours 10 50 10

Budgeted direct labor cost was P100,000 and budgeted direct material cost was
P280,000.

Compute the cost of each unit of Job 102 using Activity-Based Costing:
a. P340 c. P440
b. P392 d. P520

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ADVANCED FINANCIAL ACCOUNTING & REPORTING

ReSA Batch 45 – May 2023 CPALE Batch
23 April 2023  03:00 PM to 06:00 PM AFAR Final Pre-Board
54. Hotel Dian Restaurant sells fast-food Exam
franchises. Hotel Dian Restaurant receives
P135,000 from a new franchisee for providing initial training, equipment, and
furnishings that together have a stand-alone selling price of P135,000. Hotel Dian
Restaurant also receives P64,800 per year for use of the Hotel Dian Restaurant name
and for ongoing consulting services (starting on the date the franchise is
purchased). Vicvic became a Hotel Dian Restaurant franchisee on March 1, 20x6, and
on May 1, 20x6 Vicvic had completed training and was open for business. How much
revenue in 20x6 will Hotel Dian Restaurant recognize for its arrangement with
Vicvic?
a. Zero c. P178,200
b. P135,000 d. P189,000
55. A vertical combination occurs when one entity acquires another entity which has
the following characteristic(s)?
a. The acquiree purchases the acquirer’s outputs
b. The acquiree is a competitor of the acquirer
c. The acquiree supplies raw materials to the acquirer
d. Either a. or c.
56. Which of the following is not a business combination?
a. Statutory amalgamation
b. Joint venture
c. A company's purchase of 100% of another company's net assets
d. A company's purchase of 80% of another company's voting shares
57. A parent buys 32 percent of a subsidiary in one year and then buys an additional
40 percent in the next year. In a step acquisition of this type, the original 32
percent acquisition should be
a. maintained at its initial value.
b. adjusted to its equity method balance at the date of the second acquisition.
c. adjusted to fair value at the date of the second acquisition with a
resulting gain or loss recorded.
d. adjusted to fair value at the date of the second acquisition with a
resulting adjustment to additional paid-in capital.
58. Which of the following describes the impact on consolidated financial statements
of upstream and downstream transfers?
a. No difference exists in consolidated financial statements between upstream
and downstream transfers.
b. Downstream transfers affect the computation of the non-controlling
interest’s share of the subsidiary’s income but upstream transfers do not.
c. Upstream transfers affect the computation of the non-controlling interest’s
share of the subsidiary’s income but downstream transfers do not.
d. Downstream transfers can be ignored because the parent company makes them.
59. Any intercompany gain or loss on a downstream sale of land should be recognized in
consolidated net income:
I. In the year of the downstream sale.
II. Over the period of time the subsidiary uses the land.
III. In the year the subsidiary sells the land to an unrelated party.
a. I c. III
b. II d. I or II
60. A joint arrangement is established by three parties in which A owns 50% voting
rights while B and C each own 25% voting rights of that arrangement. The terms of
the contract among A, B and C state that a minimum of 75% voting rights are needed
to exercise the control over the arrangement. This joint arrangement is:
a. Joint Control c. Business Combination
b. No Joint Control d. Statutory Consolidation
61. What is the basis of accounting used in accounting for not-for-profit universities?
a. fund accounting c. modified accrual basis
b. accrual basis d. cash basis
62. In preparing the financial statements of the home office and its various branches:
a. Nonreciprocal accounts are eliminated but reciprocal accounts are combined
b. Both reciprocal and nonreciprocal accounts are eliminated
c. Both reciprocal and nonreciprocal accounts are combined
d. Reciprocal accounts are eliminated and nonreciprocal accounts are combined

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ADVANCED FINANCIAL ACCOUNTING & REPORTING

ReSA Batch 45 – May 2023 CPALE Batch
23 April 2023  03:00 PM to 06:00 PM AFAR Final Pre-Board
63. Other not-for-profit entity" (ONPO) provide Exam
three financial statements. Which of
the following is NOT one among them?
a. A statement of functional expenses c. A statement of activities
b. A statement of financial position d. A statement of cash flows

64. Voluntary health and welfare organizations must present

a. A separate statement showing expenses by both function and natural clas-
sification.
b. A separate statement showing expenses by function.
c. A separate statement showing expenses by natural classification.
d. Expenses by natural classification in the statement of activities.
e. None of the above.

65. Partial satisfaction of a multiple performance obligation is reported on the

statement of financial position as
a. contract liability. c. contract asset.
b. receivable. d. unearned service revenue.

66. Philippine based Corporation X has a number of importing transactions with companies
based in UK. Importing activities result in payables. If the settlement currency
is the British Pound, which of the following will happen by changes in the direct
or indirect exchange rates?
Direct Exchange Rate Indirect Exchange Rate
Increases Decreases Increases Decreases
a. NA NA NA NA
b. Loss Gain Gain Loss
c. Loss Gain NA NA
d. Gain Loss Loss Gain

67. Which of the following is true of the financial statement presentation of

gains/losses from cash flow hedges and fair value hedges?
Cash flow hedge Fair value hedge
gains/losses are reported in: gains/losses are reported in:
a. current earnings Other Comprehensive Income
b. current earnings current earnings
c. Other Comprehensive Income current earnings
d. Other Comprehensive Income Other Comprehensive Income

68. A foreign subsidiary’s functional currency is its local currency, which has not
experienced significant inflation. The weighted average exchange rate for the
current year is the appropriate exchange rate for translating
Wages Expense Wages Payable
a. Yes Yes
b. Yes No
c. No Yes
d. No No

69. In preparing the financial statements of the home office and its various branches:
a. Nonreciprocal accounts are eliminated but reciprocal accounts are combined
b. Both reciprocal and nonreciprocal accounts are eliminated
c. Both reciprocal and nonreciprocal accounts are combined
d. Reciprocal accounts are eliminated and nonreciprocal accounts are combined

70. Which of the following are recognized each period under the cost-recovery (point-
in-time) method?
a. Costs only. c. Both costs and revenues.
b. Revenues only. d. None of these.

– end of examination –
The most difficult secret of a man to keep is the opinion he has of himself.
Nothing great was ever achieved without determination.
The secret of life is not just to live, but to have something worthwhile to
live for.
Weakness of attitude becomes weakness of character – Albert Einstein
Ability is what you’re capable of doing. Motivation determines what you do.
Attitude determines how well you do it – Lou Holtz

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ADVANCED FINANCIAL ACCOUNTING & REPORTING

ReSA Batch 45 – May 2023 CPALE Batch
23 April 2023  03:00 PM to 06:00 PM AFAR Final Pre-Board
Exam
ANSWERS & SOLUTIONS/CLARIFICATIONS
1 A 26 B 51 A
2 A 27 C 52 A
3 D 28 A 53 A
4 D 29 D 54 D
5 D 30 B 55 D
6 C 31 D 56 B
7 B 32 B 57 C
8 B 33 A 58 C
9 D 34 C 59 C
10 B 35 A 60 B
11 C 36 D 61 B
12 C 37 B 62 D
13 A 38 B 63 A
14 D 39 D 64 A
15 D 40 D 65 C
16 D 41 A 66 B
17 C 42 C 67 C
18 D 43 C 68 B
19 A 44 C 69 D
20 D 45 A 70 C
21 C 46 C
22 C 47 D
23 C 48 C
24 A 49 A
25 B 50 D

1. (A)
Statement of Realization and Liquidation
Assets to be
realized: Assets realized:
Merchandise P 60,000 Merchandise P 30,000
Plant and Plant and
equipment _100,000 P160,000 equipment _25,000 P 55,000

Liabilities liquidated: Assets not realized:

Accounts payable P 21,000 Merchandise P 15,000
Plant and
Loan payable __45,000 66,000 equipment _60,000 75,000

Liabilities not Liabilities to be

liquidated: liquidated:
Accounts payable P 49,000 Accounts payable P 70,000
Loan payable 105,000 Loan payable _150,000 220,000
Accrued expenses __10,000 164,000
Liabilities incurred:
Accrued expenses 10,000

________ Loss on realization 30,000

Total P390,000 Total P390,000

2. (A)
Materials
Product Unit Produced Ratio Materials Costs
R 25,000* 5/10 P 60,000
S 15,000 3/10 36,000
T 10,000 2/10 24,000
50,000 P120,000
*50,000 x 5/10

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ADVANCED FINANCIAL ACCOUNTING & REPORTING

ReSA Batch 45 – May 2023 CPALE Batch
23 April 2023  03:00 PM to 06:00 PM AFAR Final Pre-Board
Conversion Costs Exam
Product Unit Produced Final SP Total Ult. MV FPC HyMV/NRV % Conv. Costs
R 25,000* P10 P250,000 P30,000 P220,000 40% P88,000
S 15,000 12 180,000 20,000 160,000 40% 64,000
T 10,000 15 150,000 30,000 120,000 40%
50,000 P500,000
Total Cost
Product Materials Costs FPC Conv. Costs Total Costs UC (TC/UP)
R P 60,000 P30,000 P88,000 P178,000 P7.12**
S 36,000 20,000 64,000 120,000
T 24,000 30,000
P120,000
**Unit cost of R: P178,000 / 25,000 = P7.12
3. (D)
Changing the treatment of the by-product from Cost of Goods Sold to Other Revenue will result to a
reduction in the Gross Profit but have no effect on Net Income. The amount would be as follows:
Sales Price…………………………………………………………………………….………………P 40
Less: Estimated cost to sell………………………………………………………………………… 6
Net Realizable Value per unit…………………………………………………………………….P 34
X: Units Produced (Production = Sales)………………………………………………………… 12,000
Net Realizable Value…………………………………………………………………………… P 408,000
4. (D)
Contract price 900,000
Costs incurred each year 78,750
Add: Cost incurred in prior years _____0-
Costs incurred to date 78,750
Add: Estimated cost to complete
Total estimated costs
Estimated Gross Profit (loss) *144,000
Multiply by: % of completion (15,000 + 78,750) / 900,000 10.4167%
Recognized Gross Profit (Loss) to date 15,000
Less: Gross Profit (Loss) in prior year ____-0-
Recognized Gross Profit (Loss) in current year 15,000
*P15,000 / 10.4167%
Or, alternatively:
Contract Price………………………………………………………………………..P 900,000
x: GP% (15,000/93,750)…………………………………………………………….. 16%
Estimated Gross Profit……………………………………………………………….P 144,000

5. (D) – no sale has taken place as control of the goods has not been transferred, but Cambridge
Company must recognize a contract liability (since no delivery of goods yet) reflect the fact that it
has received P90,000 prior to transferring goods to its customer.

6. (C)

Sales Revenue
Parent P 88,000
Subsidiary 20,000
Combined Sales Revenue P 108,000
Less: Intercompany sales 15,000
P 93,000

7. (B)
Cost of Sales:
Trench P 1,950,000
Hill 1,340,000
Combined Cost of Sales P3,290,000
Add (Deduct): Intercompany sales and cost of sales ( 450,000)
UPEI – P (upstream)
25% EI x P450,000 = P112,500 x 25/125 ____22,500
Consolidated Cost of Sales P2,862,500

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ADVANCED FINANCIAL ACCOUNTING & REPORTING

ReSA Batch 45 – May 2023 CPALE Batch
23 April 2023  03:00 PM to 06:00 PM AFAR Final Pre-Board
8. (B) Exam
NCI share in NI (20% x P2,000,000) P400,000
NCI share in UG on sale (20% x P30,000) ( 6,000)
NCI share of reduction in deferred tax liability due to
elimination of UG and so reduction in BV
(20% x P30,000 x 30%) ___1,800
P395,800
or
Parent Subsidiary
NI from own operations
Parent (Talbot) P -0-
Subsidiary (Perkins) (80:20) 1,600,000 P 400,000
Unrealized gain on saleof fixed asset (end of the yr)
- upstream sale (80:20) ( 24,000) ( 6,000)
Tax on Unrealized gain: (P30,000 x 30% = P9,000) 7,200 1,800
P 395,800

9. (D)
FV of Subsidiary:
Consideration transferred:
Cash P 2,000,000
Shares: 400,000 shares x P3 1,200,000
FV of NCI [Prop Method] (20% x P2,000,000) 400,000 P 3,600,000
Less: BV of Smith 2,000,000
Allocated excess P 1,600,000
Less: O/U of A & L (BV=FV) -0-
Positive Excess: Goodwill P 1,600,000
Less: Goodwill impairment (25%) ____400,000
Positive Excess: Goodwill (net of impairment) P 1,200,000

10. (B) – P395

Sales (unknown) X
Less Charges:
Commission (unknown)
( )
__x__ P10
P100
Delivery expense __P45__ ________
Remittance P35,505

x- [( _x__ ) P10 + P45 ] = P35,505

100

x – _P10x_ = P35,550
P100
P100x – P10x = P3,555,000
P90x = P3,555,000
x = P39,500
Number of ball pens sold = _P39,500_ = 395
P100 per unit

11. (C)

Raw-and-In-Process Finished Goods Cost of Goods Sold

320,000 320,000 320,000 1,011,200 1,011,200
704,000 4,000

Conversion Cost 1,024,000 1,011,200 1,015,200

708,000 704,000 12,800*

* P1,024,000 / 16,000 = P64 x (16,000 – 15,800) = P12,800.

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ADVANCED FINANCIAL ACCOUNTING & REPORTING

ReSA Batch 45 – May 2023 CPALE Batch
23 April 2023  03:00 PM to 06:00 PM AFAR Final Pre-Board
12. (C) – I – c; II - d Exam
MV of By-product Zest…………………………………………………………… P 5
Less: Selling and administrative expense……………………………………… 2
Operating profit…………………………………………….………………… 1
Share in Joint Cost per unit………………………………………………………P 2
x: Units produced………………………………………………………………… 1,000
Share in joint cost…………………………………..……………………………P 2,000

Hyp. MV Jt. Costs

Pep: 5,000 x (P50-P10) = P 200,000 x 50% = P100,000
Vim: 4,000 x (P40-P 5) = 140,000
P340,000 P170,000*

Joint Costs…………………….…………………………………………………P172,000
Less: Joint costs allocated to By-product…………………………………… 2,000
Joint costs to joint products……………………….…………………………P170,000

Sales of Pep: (P50 x 5,000)……………………………………………………P 250,000

Less: Cost of Sales:
Joint costs…………………………………………………..P100,000
Further processing cost…………………………………… 50,000 150,000
Gross profit………………………………………………………………………P 100,000

13. (A)

14. (D):
Equipment: P120,000 x (P75,000/P150,000) = P60,000
Installation: P120,000 x (P50,000/P150,000) = P40,000
Training: P120,000 x (P25,000/P150,000) = P20,000

15. (D)
Sales (P537,500 + P300,000)……………………………………………….………. P 837,500
Less: Cost of goods sold
Merchandise inventory, beg. [P50,000 + (P45,000 / 1.20)]P 87,500
Add: Purchases…………………………………………………. 500,000
Cost of Goods Available for Sale…………………………... P 587,500
Less: MI, ending [P70,000 + (P60,000 / 1.20)]………………. 120,000 467,500
Gross profit………………………………………………………………. P 370,000
Less: Expenses (P120,000 + P50,000)………………………………. 170,000
Net Income……………………………………………………………… P 200,000

16. (D)
Overvaluation of Cost of Goods Sold:
Unrealized Profit in branch inventory/ before adjustment……………….P 7,200
Less: Allowance of ending branch inventory (P20,000 x 84% =
P16,800 x 20/120………………………………………………………... 2,800
Overvaluation of Cost of Goods Sold…………………………………….….P 4,400

Adjusted branch net income:

Sales………………………………………………………………………………………P60,000
Less: Cost of goods sold:
Inventory, January 1, 20x4……………………………….P 30,000
Add: Purchases…………………………………………..... 11,000
Shipments from home office…………………….. 19,200
Cost of Goods available for sale……………………… P 60,200
Less: Inventory, December 31, 20x4…………………. 20,000 40,200
Gross profit…………………………………………………………………………….. P19,200
Less: Expenses…………………………………………………………………………. 12,000
Unadjusted branch net income…………………………………………………... P 7,800
Add: Overvaluation of Cost of Goods Sold……………………………………. 4,400
Adjusted branch net income……………………………………………………... P 12,200

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ADVANCED FINANCIAL ACCOUNTING & REPORTING

ReSA Batch 45 – May 2023 CPALE Batch
23 April 2023  03:00 PM to 06:00 PM AFAR Final Pre-Board
17. (C)- use T-accounts if possible. Exam
Home Office Books Branch Books
(Branch Current- Dr. (Home Office Current –
balance) Cr. balance)
Unadjusted balance P150,000 P117,420
Add (deduct) adjustments:
In transit 37,500
HO A/R collected by br. 10,500
Supplies returned ( 4,500)
Error in recording Br. NI ( 1,080)
Cash sent to branch
to General Expense by HO 25,000 25,000
Adjusted balance P 179,920 P 179,920
18. (D)
Work Equivalent
Quantity Schedule: Actual Done Production
In process, beginning……………………………. 1,200
Received from Prec. Dept……………………… 5,400
6,600
Accounted for as follows:
In process, beg., F&T ……………………… 1,200 1/4 300
Started, F&T (6,200 – 1,200)……………….. 5,000 100% 5,000
In process, ending…………………………. 400 1/4 100
6,600 5,400
Since, an itemized amount of work –in-process, beginning is not available. It would be best to apply FIFO method in this
kind of situation.
Cost per Equivalent Unit: Total
Added costs during February:
(P11,772 + P15,660 +P2,268) ……………………………………… P29,700
Divided by: No. of Equivalent Units ……………………………….. 5,400
P 5.50
Total Cost transferred:
In-process, beg., F&T:
Cost last month……………………………………… P 13,312
Cost this month :(P5.50 x 300)…………………… 1,650 P14,962
Received, Finished and Transferred:
[(P47,595.60 ÷ 5,400) + P5.50)] x 5,000…………. 71,570
P 86,532 (d)
Cost of In-process, February 28:
Cost from preceding dept.: P8.814 x 400………………………… P3,525.60
Cost this department: P5.50 x 100…………………………………. 550.00
P4,075.60 (d)

19. (A)
Consideration transferred (P60,000 ÷ 80%) ......................................................... P75,000
Less: Strand's book value ..................................................................................... (50,000)
Fair value in excess of book value ...................................................................... P25,000
Excess assigned to inventory (60%) ....................................................... P15,000
Excess assigned to goodwill (40%) ......................................................... P10,000

Park current assets .................................................................................................. P 70,000

Strand current assets .............................................................................................. 20,000
Excess inventory fair value ..................................................................................... 15,000
Consolidated current assets .................................................................................. P105,000

Park noncurrent assets .......................................................................................... P 90,000

Strand noncurrent assets ...................................................................................... 40,000
Excess fair value to goodwill (partial).................................................................. ___8,000
Consolidated noncurrent assets .......................................................................... P138,000

Park noncurrent assets ........................................................................................... P 90,000

Strand noncurrent assets ....................................................................................... 40,000
Excess fair value to goodwill (full) ......................................................................... __10,000
Consolidated noncurrent assets ........................................................................... P140,000

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ADVANCED FINANCIAL ACCOUNTING & REPORTING

ReSA Batch 45 – May 2023 CPALE Batch
23 April 2023  03:00 PM to 06:00 PM AFAR Final Pre-Board
Exam
Add the two book values and include 10% (the P6,000 current portion) of the loan taken out by
Park to acquire Strand.

Add the two book values and include 90% (the P54,000 noncurrent portion) of the loan taken out
by Polk to acquire Strand.

Partial/Proportionate Goodwill Approach:

Park stockholders' equity ...................................................................................... P80,000
NCI (partial):
BV of SHE – S ……………………………………………………………..P50,000
Adjustments to reflect fair value (inventory)………………………. 15,000
FV of SHE – S……………………………………………………………… P65,000
x: Multiplied by: NCI%........................................................................ 20% 13,000
Total stockholders' equity .................................................................................... P93,000

Full/FV Goodwill Approach:

Park stockholders' equity ...................................................................... …………. P80,000
NCI (full):
BV of SHE – S ……………………………………………………………..P50,000
Adjustments to reflect fair value (inventory)………………………. 15,000
FV of SHE – S……………………………………………………………… P65,000
x: Multiplied by: NCI%......................................................................... 20%
NCI (partial)………………………………………………………………P13,000
Add: NCI on full-goodwill (P10,,000 – P8,000)……………………… 2,000
Non-controlling interest at fair value (20% × P75,000)………… 15,000
Total stockholders' equity P95,000

20. (D) – These services do not meet the criteria for donated services that are recognized.

21. (C)
(1) c – P95,000 = (P956,000 / .80) - P1,000,000 - P100,000
(2) c – P251,000 = .20[(P956,000 + P239,000) + (P190,000 - P5,000 - P125,000)]

22. (C)
(1) b – (P50,000 + P70,000) x 25% = P30,000
(2) b – P100,000, P only

23. (C) – Amounts charged to patients of P800,000 less contractual adjustments, P110,000 = P690,000.

24 (A) – (Because of the time restriction, the amount spent for playground equipment remains in temporarily
restricted net assets until depreciated. The equipment was bought at the end of the year so that no
depreciation was recorded and no reclassification was made.)

25.(B)

26. (B)
The original production of 1,100 drills cost P33,000 (1,100 drills x P30 per drill). The reworking of the
defective drills (i.e. P500) increased the cost total to P33,500. The P1,500 received from the sale of the
100 defective units should be subtracted from the total cost incurred in producing the 1,100 drills.
Therefore, the total cost for producing 1,000 good drills equals P32,000 (P33,000 + P500 – P1,500). Yielding
unit cost of good drills of P32.

27. (C) – I – d; II – d
I. – (d)
Original costs charged to Work-in-Process P 53,200
Add: Rework Costs
Direct Materials P 2,000
Direct Labor 3,200
Applied Overhead (150% of P3,200) 4,800 10,000
Total Costs of Job No. 369 P 63,200
Divided by: Good Units 200
P 316
II. - d
Zero, there are no allocations between service departments when using the direct method.
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ADVANCED FINANCIAL ACCOUNTING & REPORTING

ReSA Batch 45 – May 2023 CPALE Batch
23 April 2023  03:00 PM to 06:00 PM AFAR Final Pre-Board
28. (A) – the amount of land that will be presented in the presented in the CFS is the original cost Exam
of
P416,000 + P256,000 = P672,000.
29. (D) – original cost and accumulated depreciation

30. (B)
P41,500 - [(P3,000 + 6,000) + P14,000 + (P3.50 x 3,600)]…….P 5,900

Actual Factory Overhead (Control):

P2,300 + P3,700 + P19,400 + P5,400 = P30,800
Less: Applied Manufacturing Overhead: P3.50 x 8,500 = 29,750
Underapplied Overhead = P30,800 P29,750 P 1,050
31. (D)
Traditional / conventional method:
P50,000 / (200 DLH + 200 DLH) = P125 per DLH x 200 DLH
= P25,000/25 units of Wall Mirror = P1,000 per unit
ABC costing: P50,000 / (5 + 15 materials move) = P2,500 per materials move x 5 materials move of wall
mirrors = P12,500 / units produced = P500 per unit
32. (B)
CC AC Additional
Old 308,000 308,000 / 70%
New 110,000 132,000 22,000
418,000 440,000 = 100%

Old (A & B) New (Carver)

Assets *368,000 *110,000
-: Liabilities 60,000 -0-
Capital (contributed) 308,000 110,000

* Old: P220,000 + P108,000 = P368,000

New: P40,000 + P50,000 + P20,000, intangibles = P110,000
33. (A)
Inventory, 1/1 at billed price P165,000
Add: Shipments at billed price 110,000
Cost of goods available for sale at billed price P275,000
Less: CGS at BP:
Sales P169,000
Less: Sales returns and allowances 3,750
Sales price of merchandise
acquired from outsiders
(P7,500 / 120%) 9,000
Net Sales of merchandise acquired from home office P156,250
x: Intercompany cost ratio 100/125 125,000
Inventory, 8/1/20X4 at billed price P150,000
x: Cost ratio 100/125
Merchandise inventory at cost destroyed by fire P120,000

34. (C)-
Dividends declared in 20x9 (P100,000 + P150,000)…………………………………P 250,000
X: ownership percentage………………………………………………………………… 30%
Dividend income………………………………………………………………………… P 75,000
35. (A)
(1) (P23,000 + P650,000)/4 = P168,250
(2)
Original partners New partner Total
Gain on real estate sold:
Prior to 1/1/x5 P 25,000 P 25,000
After 1/1/x5 20,000 P 5,000 25,000
Interest income ____400 ___100 ____500
Total income allocation P 45,400 P 5,100 P 50,500

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ADVANCED FINANCIAL ACCOUNTING & REPORTING

ReSA Batch 45 – May 2023 CPALE Batch
23 April 2023  03:00 PM to 06:00 PM AFAR Final Pre-Board
36. (D)- Exam
Total gain on sale of real estate:
Selling price P925,000
Cost (P400,000 + P370,000 – P100,000) 670,000
Total gain P255,000

Gain prior to 1/1/x5:

Remaining fair value (P650,000 – P125,000) P525,000
Remaining cost (P400,000 – P100,000) 300,000
Pre-1/1/x5 gain P225,000

Gain after 1/1/x5:

Total gain P255,000
Less pre-1/1/x5 gain (225,000)
Post-1/1/x5 gain P 30,000

Cash balance at dissolution:

Balance, 1/1/x5 P 23,000
New partner investment 168,250
All partners investment 50,000
Proceeds from sale of real estate 150,000
Interest 500
Investment in real estate (370,000)
Balance, 12/31/x5 P 21,750
Proceeds from sale of real estate 925,000
Total cash at dissolution P946,750

Original New
partners partner Total
Capital, 1/1/x5 P423,000 P423,000
New partner investment P168,250 168,250
All partner investment 40,000 10,000 50,000
20x5 income allocation 45,400 5,100 50,500
Capital, 12/31/x5 P508,400 P183,350 P691,750
Allocation of pre-1/1/x5 gain 225,000 225,000
Allocation of post-1/1/x5 gain 24,000 6,000 30,000
Total distribution to partners P757,400 P189,350 P946,750

37. (B)

38. (B)
Direct materials inventory, June 1, 20x8..................... P 48,600
Add: Purchases............................................... 60,000
Direct materials available for use........................... P 108,600
Less: Direct materials inventory, June 30, 20x8.............. 51,000
Direct materials used........................................ P 57,600
Direct labor (9,900 hours x P5/hour)......................... 49,500
Applied factory overhead (9,900 hours x P2.5/hour)........... 24,750
Manufacturing cost........................................... P 131,850
Add: Work-in-process, June 1,20x8............................ 10,710
Total work placed in process................................. P 142,560
Less: Work-in-process, June 30, 20......................... 24,210
Cost of goods manufactured................................... P 118,350

39. (D) (1) – d; (2) – b

(1) (d)
Since the problem did not mention the method to be use, therefore, FIFO Method (is used since the
work-in-process, P13,312 (is in a lump-sum figure, no costs details given)
Note: EVEN Application of COSTS (M=L=O), since there was no segregation of costs application.

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 lOMoARcPSD|46124491

ADVANCED FINANCIAL ACCOUNTING & REPORTING

ReSA Batch 45 – May 2023 CPALE Batch
23 April 2023  03:00 PM to 06:00 PM AFAR Final Pre-Board
Quantity Schedule: Actual Exam
In process, beginning 1,200
Rec PD/Transferred-in 5,400 8.814* 47,595.60
6,600
EUP-
Accounted for as follows – FIFO Actual Work Done M,L,OH
In process, beg., F&T 1,200 1/4 300
Received, F&T(6,200-1,2200) 5,000 100% 5,000
In process, ending 400 1/4 100
6,600 5,400
Cost per EUP:
CPD: *P47,595.60/5,400 = P8.814
Costs ADDED: (P11,772 + P15,660 + P2,268)/ 5,400……………………………P 5.50

F&T:
IP, beg.: P13,312 + (300 x P5.50)……………………………………………P14,962
RFT: 5,000 x (P8.814 + P5.5)………………………………………………………… 71,570
Total Cost Transferred……………………………………………………………… P86,532.00
IP, end:
CPD: 400 x P8.814……………………………………………………………………………………P 3,525.60
CTD (Added): 400 x ¼ = 100 x P5.50……………………………………… 550,00 4,075.60

(2) (b)
FIFO (Note: Proper term is Modified FIFO), in Financial Accounting FIFO method is STRICTLY FIFO Method.
Normal lost happens during the production (therefore, work done is zero, since no particular point of
inspection; Normal Lost DURING, is not included in the LECPA Syllabus). While abnormal lost was
discovered at the end.
Work EP - Work EP -
Quantity Schedule: Actual Done Mat. Done CC
In process, beginning 7,000
Started in process 60,000
67,000
Accounted for as follows – FIFO
In process, beg., F&T 7,000 0 0 90% 6,300
Started, F&T(52,000-7,000) 45,000 100% 45,000 100% 45,000
In process, ending 10,000 100% 10,000 60% 6,000
Normal lost-during(7% x 60,000) 4,200 0 0 0 0
Abnormal lost (4,500* – 4,200) 800 100% 800 100% 800
67,000 55,800 58,100
Accounted for as follows – Average
F&T 52,000 100% 52,000 100% 52,000
In process, ending 10,000 100% 10,000 60% 6,000
Normal lost-during(7% x 60,000) 4,200 0 0 0 0
Abnormal lost (4,500* – 4,200) 800 100% 800 100% 800
67,000 62,800 58,800

40. (D)
Fair value of Subsidiary - Swan
Consideration transferred………………………………………………………………………P1,420,000
Less: Fair value of identifiable assets and liabilities of Swan (70% x P1.2 million).. 840,000
Goodwill (partial)..……………………………………………………………………………P 580,000
Goodwill is carried as an asset in the consolidated statement of financial position.
Fair value of Subsidiary - Homer
Consideration transferred…………………………………………………………………. P 300,000
Less: Fair value of identifiable assets and liabilities of Homer (65% x P640,000)….. 416,000
Gain on bargain purchases…………………………………………………………………P(116,000)
Gain on a bargain purchase is recognized in profit or loss not on the statement of financial position.
Hence, answer is nil or zero,

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 lOMoARcPSD|46124491

ADVANCED FINANCIAL ACCOUNTING & REPORTING

ReSA Batch 45 – May 2023 CPALE Batch
23 April 2023  03:00 PM to 06:00 PM AFAR Final Pre-Board
Notes: Exam
1. Moon measures non-controlling interests at the relevant share (it means proportionate share) of
the identifiable net assets at the acquisition date; therefore, partial goodwill is in effect.
2. Fair value is assumed to be the same with the carrying/book value.

41. (A)
Books of M
JV M, capital Journal entry for settlement should be:
O, capital……………………….. 1,650
750 1,650 900 M, capital…………………… 900
900 N, capital…………………… 750
Books of N
JV N. capital

900 1,650 750

750
Books of O
JV O, capital

900 1,650
750

1,650
42. (C)
M N Total
Total interests 25,600 47,000 72,600
Reduction in interest (25,280) (37,920) (63,200)
Payment to partners* 320 9,080 *9,400

* Cash beginning……………………………………………………P 8,800

Add: Proceeds from receivables……………………...………… 600
Sale merchandise………………………………………… 32,400
Less: Payment of accounts payable…...……………………… 32,400
Payment to partners…………….…………………………………P 9,400
43. (C)
Date of purchase: 3 million baht / 2 baht per peso…………………P 1.5 million
Balance sheet date: 3 million baht / 1.5 baht per peso………..….. 2.0 million
Exchange loss………………………………………………………….……P 0.5 million
44. (C)
Consideration Transferred………………………………………………..…………… 9.0 million
Less: Fair value of net assets acquired……………………………………………… 6.0 million
Goodwill………………………..………………………………………………………… 3.0 million
Divided by: CURRENT RATE on the balance sheet for
purposes of translation on the date of
acquisition.……………………………………………………………………… 2.0 baht per peso
Goodwill in the Consolidated Balance Sheet (date of Acquisition) …………P 1.5 million
Examinees may be misled that since the functional currency is peso, the temporal method (applied
only in case of subsequent to date of acquisition) should then be applied wherein goodwill or any
fair value adjustments is considered as a non-monetary asset carried at historical cost be remeasured
(or translated) using historical rate (which in this problem is 1.5 baht = P1). But the problem do not fall
under this category – the temporal method, instead it is a classical example of a goodwill and fair
value adjustments arising from acquisition of subsidiaries.
Goodwill arising from the Acquisition of Subsidiaries (Date of Acquisition)
When a company acquires a controlling interest in another company, the excess of the purchase
price over the acquirer’s interest in the fair value of the identifiable net assets of the acquired
company is recognized as goodwill on consolidation. In the context of a foreign company, the issue
arises as to whether goodwill is an asset of the acquired company or an asset in the acquirer’s books.
If it is an asset of the acquired subsidiary, the goodwill is a foreign asset which should be translated in
the same manner as any other asset of the acquired subsidiary, which may give rise to a translation
difference. However, if it is treated as an asset in the acquirer’s books, there is no need for translation.
Pas 21 par. 47 states that:
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 lOMoARcPSD|46124491

ADVANCED FINANCIAL ACCOUNTING & REPORTING

ReSA Batch 45 – May 2023 CPALE Batch
23 April 2023  03:00 PM to 06:00 PM AFAR Final Pre-Board
“Any goodwill arising on the acquisition of a Exam
foreign operation and any fair value
adjustments to the carrying amount of assets and liabilities arising on the acquisition of
that foreign operation shall be treated as assets and liabilities of the foreign operations.
Thus they shall be expressed in the functional currency of the foreign operation and shall
be translated at the closing rate…”
Subsequent to date of acquisition, accordingly goodwill has to be measured in the functional
currency of the foreign operation. If the functional currency of the foreign operation is the local
currency, the goodwill on acquisition is to be translated at the closing rate (refer to also Question No.
57). On the other hand, if the functional currency of the foreign operation is the parent’s currency (or
the presentation currency), goodwill on acquisition is treated as a non-monetary asset and
remeasured at the exchange rate of the acquisition of the foreign operation.

45. (A)
Allocated Excess arising from consolidation…………………………… 1.2 million baht
Divided by: CURRENT RATE on the balance sheet for
purposes of translation the date of
acquisition….………………………………………………………… 2.0 baht per peso
Allocated Excess (over/under valuation) ……………………………P600,000

Refer to No. 48 for further discussion of using closing/current rate on the acquisition of a foreign
operation resulting in fair value adjustments. Again, the same with No. 44, the functional currency of
peso is somewhat misleading; it does not refer to the use of temporal method on the date of
acquisition.

46 (C) – 20 million x 240.4/60.4 = 80 million

47. (D) - The parts inventory will be recognized at the spot rate at the date of purchase (FC100,000 x P.23 =
P23,000), if the firm commitment account will be charged to profit and loss account (or adjustment in
net income account).

48. (C) - The peso value of the LCU receivable has decreased from P110,000 at December 31, 2019 to
P95,000 at February 15, 2020. This decrease of P15,000 should be reported as a foreign exchange loss
in 2020.

49. (A)
I. - c
Current Assets before eliminating entries………………………………………………P 320,000
Less: Unrealized profit in ending inventory
Upstream sales: P60,000 x P48,000/P240,000…………………………… 12,000
Consolidated Current Assets…….……………………………………………………… P 308,000

The relationship between Clark and Dean does not give rise to any consolidation entries, since there
is no parent-subsidiary relationship (Clark only owns 15% of Dean)
II. - a
In a consolidated balance sheet, reciprocal balances, such as receivables and payables,
between a parent and a consolidated subsidiary should be eliminated in its entire amount
regardless of the portion of the subsidiary’s stock held by the parent. Thus, the entire P70,000
advance should be eliminated in the preparation of the year-end consolidated balance sheet.

50. (D) - The merchandise purchase results in a foreign exchange loss of P8,000, the difference between
the Philippine peso equivalent at the date of purchase and at the date of settlement.

The increase in the peso equivalent of the note’s principal results in a foreign exchange loss of
P20,000.

The total foreign exchange loss is P28,000 (P8,000 + P20,000).

51. (A) – (1) P500,000 (P400,000 - P4,000) = P104,000

– (2) 2,000 x (P3.00 P1.00) = P4,000
– (3) Zero (no effect on net income)

52. (A) - (1) Southern has 400,000 – 6,000 = 394,000 shares outstanding. 394,000 x P72 = P28,368,000

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ADVANCED FINANCIAL ACCOUNTING & REPORTING

ReSA Batch 45 – May 2023 CPALE Batch
23 April 2023  03:00 PM to 06:00 PM AFAR Final Pre-Board
(2) Fair value of identifiable net assets acquired = P10,000,000 + P90,000,000 + P8,000,000Exam
+
P30,000,000 - P130,000,000 = P8,000,000.

To report P40,000,000 in goodwill, the total acquisition cost must be P48,000,000. The earnings
contingency is P1,000,000, so P47,000,000 in cash must be paid.

53. (A)
Job 102:
Direct materials……………………………………………………………………………. P 12,000
Direct labor………………………………………………………………………………….. 2,000
Overhead:
Machine Setup: P20,000/200 = P100 x 2………………………………P 200
Inspection: P130,000/6,500 = P20 x 10……………………………………. 200
Material Moves: P80,000/8,000 = P10 x 10………………………………. 100
Engineering: P50,000/1,000 = P50 x 50………………………………...… 2,500 3,000
Production/Manufacturing Costs…………………………………………………….. P 17,000
Divided by: Units completed………………………………………………………….. 50
Cost per unit under ABC………………………………………………………………… P 340

54. (D) - Because Vicvic had completed training and was open for business on May 1, 20x6, Hotel Dian
Restaurant apparently has satisfied its performance obligation with respect to the initial training,
equipment and furnishings, so it would recognize P135,000 of revenue in 20x6. In addition, since Vicvic
was a franchisee and using the Hotel Dian Restaurant name and consulting services for the last ten
months of 20x6 (starting March 1), Hotel Dian Restaurant should recognize 10 ÷ 12 = 5/6 of a yearly fee
of P64,800, or P54,000. In total, Hotel Dian Restaurant recognizes revenue from Vicvic of P135,000 +
P54,000 = P189,000 in 20x6.

55. D
56. B
57. C
58. C
59. C
60. B
61. B
62. D
63. A
64. A
65. C
66. B
67. C
68. B
69. D
70. C

The greatest friend of truth is Time, her greatest enemy is Prejudice, and her
constant companion is Humility.
Humility is nothing but truth, and pride is nothing but lying.
There is no chance, no destiny, no fate, that can hinder or control the firm resolve
of a determined soul.
Unless someone can look into the core of your heart, and see the degree of your
passion, or look into the depths of your soul and see the extent of your will, then
they have no business telling you what you can or cannot achieve. Because while they
may know the odds, they do not know you.

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