CPA REVIEW SCHOOL OF THE PHILIPPINES

MANILA

ADVANCED FINANCIAL ACCOUNTING AND REPORTING Sunday, October 6, 2024

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

Number 1

Entities A and B will contribute the following: A will contribute cash, P3,000,000, and B will
contribute a Building with a carrying amount of P2,000,000 and an agreed value of P2,400,000. The
building has a mortgage of P300,000, but it will be assumed by the partnership. One of the provisions
of their agreement is that upon formation, the capital balances of the partners will be equal.
What is the capital credit to B upon formation?
A. 2,000,000
B. 2,100,000
C. 2,400,000
D. 2,550,000

Number 2

Partners A and B started their operations on January 1, 2025, and agreed to distribute profits and losses
with the following provisions:
a) Quarterly salaries of P50,000 and P40,000, respectively, for A and B
b) Bonus to B was 10% of net income after the salaries
c) The remainder shall be shared at 70:30
At the end of the year, the partnership's income summary account had a credit balance of P350,000.
What is the share of A in the net income of the partnership?
A. 200,400
B. 193,000
C. 200,000
D. 206,000

Number 3

Partners A and B have capital balances of P1,000,000 and P600,000, respectively, before admitting
incoming Partner C. Incoming Partner C will pay P300,000 for 25% capital interest and 20% in the
profits and losses. The partners also agreed that there is an asset that is needed to be revalued.
What is the amount of the asset revaluation?
A. 100,000 over
B. 700,000 over
C. 400,000 over
D. 533,333 over

Number 4

Joint costs are most frequently allocated based on relative

A. profitability
B. conversion cost
C. prime cost
D. sales value
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Number 5

Partners A, B, and C have capital balances of P600,000, P400,000, and P200,000, respectively. The
following were also loan balances in the partnership books: a loan to A in the amount of P50,000 and a
loan from C in the amount of P30,000. Partner A decided to retire from the partnership, and they
agreed to pay P200,000 for his interest. They share profits and losses 30:30:40, respectively.
What is C's capital balance after retirement?
A. 430,000
B. 340,000
C. 370,000
D. 400,000

Number 6

Partners A, B, and C have capital balances of P300,000, P200,000, and P100,000, respectively. The
liabilities, outside creditors, of the partnership were P70,000, and the cash balance was P250,000.
There was also a loan payable to C in the amount of P30,000. They agreed to liquidate the partnership.
Non-cash assets were sold for P200,000, and liquidation expenses were paid for P80,000. They share
profits and losses 20:40:40. All partners are solvent.
What is the amount of the additional contribution made by the deficient partner?
A. 32,000
B. 38,000
C. 2,000
D. 0

Number 7

Partners A, B, and C have capital balances of P300,000, P200,000, and P100,000, respectively. The
total liabilities of the partnership were P150,000, and the cash balance was P250,000. They agreed to
liquidate the partnership. Only P150,000 of the non-cash assets were sold for P100,000, and liquidation
expenses were paid for P40,000. Cash withheld for future liquidation expenses was P10,000. Only 20%
of the liabilities to outside creditors were paid in the first installment. They share profits and losses
30:40:30.
What is the total maximum possible loss?
A. 200,000
B. 480,000
C. 360,000
D. 330,000

Number 8

Under process costing, the FIFO method will produce the same amount of cost of goods completed as
the Weighted Average method when
A. the goods produced are homogeneous
B. there is no beginning inventory work-in-process
C. there is no ending inventory work-in-process
D. beginning and ending inventory work-in-process is 50% complete

Number 9

Under IFRS 3, on the date of acquisition, we can assume a contingent liability when it is
A. measured reliably and probable
B. measured reliably and reasonably possible
C. not measured reliably, but probable
D. none of the choices
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Number 10

Total assets at realizable value

(excluding any excess asset from securing a fully secured creditor) 100,000
Total unsecured liabilities without priority
(including any excess liability from partially secured creditors) 200,000
Unsecured creditors with priorities 30,000
A certain inventory with an estimated realizable value of P30,000 was pledged to accounts payable in
the amount of P40,000.
What is the estimated recovery percentage?
A. 35.00%
B. 33.33%
C. 47.62%
D. 50.00%

Number 11

The following were ascertained for the month of November in the statement of Realization and
Liquidation:
Assets to be realized 12/01 30,000
Assets realized 150,000
Assets not realized 10/31 200,000
Increase in assets during the month 80,000
Liabilities liquidated during the month 130,000
Liabilities not liquidated 10/31 180,000
Liabilities assumed during the month 10,000
Liabilities to be liquidated 12/01 60,000
Supplementary credits 70,000
Supplementary debits 50,000
What is the amount of gain or loss for the period of November?
A. 20,000 gain
B. 20,000 loss
C. 80,000 gain
D. 80,000 loss

Number 12

Stock issuance costs are costs related to issuing new shares. Under the Philippines Interpretations
Committee, stock issuance costs are accounted as
A. a reduction to share premium only
B. a reduction to Retained earnings only
C. a reduction to share premium first, then any excess will be a reduction to Retained earnings
D. an increase in share premium

Number 13

The following affects the consolidated net income except

A. intercompany dividends
B. amortization of excess of fair value over book value of equipment
C. amortization of excess book value over the fair value of an inventory
D. pre-existing goodwill
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Number 14
The following affects the non-controlling interest in net income, except
A. impairment loss under partial goodwill
B. amortization of excess book value over the fair value of an inventory
C. amortization of excess of fair value over the book value of a machine
D. net income per book of subsidiary

Number 15
At the beginning of 2024, the company enters into a contract to build an establishment for a client. The
following data were ascertained:
2024 2025
Costs incurred to date P1,800,000 P4,350,000
Estimated costs to complete P2,700,000 P1,450,000
Realized gross profit / (loss) for the year P200,000 P(500,000)
Percentage of completion 40% 75%
What is the construction revenue recognized for the year ended December 31, 2025?
A. 4,125,000
B. 1,925,000
C. 1,750,000
D. 2,125,000

Number 16
On June 1, 2025, Entity A entered into a franchise agreement with Entity B. The franchise fee stated in
the contract was P800,000, of which P250,000 was the down payment, and the balance was shouldered
by a 12% interest-bearing note. Entity A also completed its performance obligation on June 1, 2025,
with a cost of P450,000 and incurred indirect costs of P35,000. Also stated in the contract, Entity A
will have additional revenue from continuing services of 10% of the sales. For the seven months ended
December 31, 2025, the franchise generated P100,000 sales.
What is Entity A's net income for the year ending December 31, 2025?
A. 391,000
B. 363,500
C. 350,000
D. 398,500

Number 17
Cash sales made by the consignee P150,000
Freight paid by consignor P5,000
Freight and other costs paid by consignee (reimbursable by consignor) P15,000
Commission of consignee was 20% of sales
What is the amount of the net remittance to the consignor?
A. 130,000
B. 100,000
C. 105,000
D. 120,000

Number 18
Unrealized profit ending inventory in 2025 will be realized in
A. 2026, when the buying affiliate sells the inventory to outsiders
B. 2026, when the buying affiliate uses the inventory
C. 2025 at year-end
D. none of the choices
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Number 19

The Home Office in Manila established a branch in Silay. At the end of the year, the reciprocal account
in Silay's books was P200,000. The following transactions were under examination due to errors:
a) Manila paid an accounts payable of Silay in the amount of P10,000, but Silay was not notified.
b) Silay collected from a customer of Manila in the amount of P25,000, but Manila recorded the
transaction in the amount of P20,000.
c) Silay reported a net loss of P15,000. The Manila branch was not notified.
What is the unadjusted balance of the Investment in Silay account in the books of Manila?
A. 220,000
B. 180,000
C. 210,000
D. 200,000

Numbers 20 and 21

The home office consistently sends merchandise to the branch at a billed price of 120%. During the
year, the home office credited Shipments-to-branch with P180,000. The beginning inventory reported
by the branch was P50,000, of which P30,000 came from home office merchandise. In the combined
statement, the branch's ending inventory was P80,000, of which P20,000 came from outsiders.

20. What is the total goods available for sale from home office merchandise?
A. 205,000
B. 266,000
C. 246,000
D. 210,000

21. What is the additional branch income?

A. 32,333
B. 29,000
C. 31,000
D. 23,000

Number 22

A certain company manufactures a certain product and uses a job order costing system. There is always
spoilage during production. The following are the costs related to the current production:
Total cost inclusive of allowance for spoilage P200,000
Allowance for spoilage P25,000
Units produced 10,000
At the end of the production, 500 units are spoiled. The spoiled units can be sold for P5,000. Spoilage
is charged to all jobs.
What is the total cost transferred to finished goods?
A. 175,000
B. 190,000
C. 170,000
D. 166,250

Number 23

The following affects the consolidated net income attributable to the parent, except
A. downstream UPEI
B. upstream RPBI
C. downstream RPBI
D. none of the choices
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Number 24

The following increases the non-controlling interest in net income except

A. upstream realized gain from intercompany sale of land
B. upstream realized gain from intercompany sale of equipment
C. downstream unrealized loss from the sale of land
D. upstream unrealized loss from the sale of the machine

Number 25

The loss on sale from an intercompany sale of land is recorded in the separate books of the Parent
A. is true and correct
B. will be realized in the consolidated financial statements when the Subsidiary sells the land to
outsiders
C. Both A and B are true
D. Both A and B are false

Number 26

The entity had an anticipated purchase commitment, and it shall be designated as

A. fair value hedge
B. cash flow hedge
C. hedge of a net investment
D. undesignated hedge

Number 27

During the month, the spot rate increased, and the entity had a purchase transaction from a foreign
supplier. At the end of the month, the entity will recognize
A. forex gain due to an increase in receivable
B. forex loss due to a decrease in receivable
C. forex gain due to a decrease in payable
D. forex loss due to an increase in payable

Number 28

US Company wants to consolidate with its Japanese subsidiary. In the consolidated financial statements
of the US Company, the Japanese subsidiary's financial statements will be translated to the presentation
currency of the US Company in
A. US Dollar
B. Japanese Yen
C. Philippine Peso
D. Any currency the US Company chooses

Number 29

A joint arrangement, which is classified as a joint venture, will be accounted for by the venturers using
A. equity method
B. proportionate consolidation
C. cost method
D. fair value method
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Number 30
When the arrangement is structured through a separate vehicle, and the legal form of the separate
vehicle has the rights to the assets and obligations to the liabilities, however, after assessing the other
relevant facts and circumstances, the separate vehicle does not confer separation from the parties. The
joint arrangement is classified as
A. joint venture
B. joint operation
C. either a joint venture or joint operation
D. cannot be determined

Number 31
It refers to the newest system adopted by the Commission on Audit for analyzing, classifying,
summarizing, and communicating all transactions involved in the receipt and disbursement of all
government funds and properties and interpreting the results thereof.
A. New government accounting system
B. Government accounting manual
C. Fund accounting
D. Public fund accounting

Number 32
Which cash in bank accounts is used by national government agencies for disbursement?
A. Cash Treasury/Agency Deposit Regular
B. Cash – Modified Disbursement System – Regular
C. Cash in Bank Land Bank of the Philippines
D. Cash in Bank Bangko Sentral ng Pilipinas

Number 33
Which of the following cash in bank accounts is used by national government agencies for cash
remittances to the Bureau of Treasury?
A. Cash Treasury/Agency Deposit Regular
B. Cash – Modified Disbursement System – Regular
C. Cash in Bank Land Bank of the Philippines
D. Cash in Bank Bangko Sentral ng Pilipinas

Number 34
In the statement of activities, expenses of nonprofit organizations shall be recorded only as reductions
from
A. Temporarily restricted net assets
B. Unrestricted net assets
C. Permanently restricted net assets
D. Current Liability

Number 35
An NPO received a restricted contribution for the acquisition of equipment. The NPO only used half of
the contribution in acquiring equipment. What is the effect on the net assets about the acquisition of the
equipment
A. the unrestricted net assets will increase by half of the contribution
B. the temporary restricted net assets will increase
C. the temporary restricted net assets will decrease by half of the contribution
D. no effect
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Number 36

On September 1, 2024, ABC Co. acquired all the identifiable net assets of JKL. The total assets of JKL
is P2,430,000, while its liabilities amount to P610,000. The book values of the acquired company’s
identifiable assets and liabilities equal their fair values.

As a consideration, ABC issued its own shares of stock with a market value of P1,715,000 and cash
amounting to P375,000. Contingent consideration that was probable and reasonably estimated on the
date of acquisition amount to P148,000. The merger resulted into P648,000 goodwill.

Compute the pre-existing goodwill of JKL Company immediately before the merger.
A. 154,000
B. 230,000
C. 698,000
D. 456,000

Numbers 37 and 38

DEF Corporation acquired all the identifiable net assets of TUV Company on August 1, 2024. TUV
Company reported assets with a book value of P1,520,000 and liabilities of P890,000. The total
consideration of the surviving company is composed of cash amounting to P110,000 and shares with a
par value of P16, which is P4 less than its fair value.

The acquiring company determined that the fair value of the machinery of TUV was P30,000 higher
than its book value, and the recorded amount of the inventory was overvalued by P12,000. All other
identifiable assets and liabilities reported by the acquired company approximated the recorded
amounts.

The following are independent cases relating to the merger:

37. Compute the number of shares issued under the merger, assuming the acquiring company
recorded a gain on a bargain purchase of P212,000.
A. 16,300
B. 13,300
C. 17,500
D. 14,500

38. Assume the total consideration of the surviving company is composed of cash amounting to
P110,000 and bonds traded at 125. Compute the face amount of the bonds issued under the
merger, assuming the acquiring company recorded goodwill of P184,000.
A. 596,800
B. 577,600
C. 529,600
D. 548,800
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Number 39

The working paper eliminating entries prepared by TUV Co. on the date of acquisition for FGH Co.
resulted to the following balances:
Account Name Dr (Cr)
Ordinary Shares – FGH Co. 600,000
Share Premium – FGH Co. 200,000
Retained Earnings – FGH Co. (100,000)
Inventory 80,000
Equipment 200,000
Patent (120,000)
Goodwill ?
Investment in FGH Co. (855,000)
Noncontrolling Interest in Net Assets (285,000)
If P70,000 of the full goodwill is attributable to the non-controlling interest, which of the
following is correct?
A. The percentage of ownership of TUV Co. is 67%.
B. Goodwill from business combination is P280,000.
C. The book value of the assets acquired is higher than it’s fair value.
D. Goodwill from business combination is P210,000.

Number 40 and 41

On January 1, 2024, PQR Co. acquired 70% of the outstanding shares of MNO Co. at a price of
P1,350,000. On the date of acquisition, MNO Co. had a total equity of P1,200,000 (Ordinary shares,
P500,000 and Retained Earnings, P700,000). All the assets and liabilities of MNO Co. have book value
equal to its fair value except for machinery which is undervalued by P50,000. The remaining useful life
of the machinery is 2.5 years.

In 2025, the companies resulted to the following:

PQR Co. MNO Co.
Net income 750,000 500,000
Dividends paid 200,000 150,000

During 2025, PQR Co. sold merchandise to MNO Co. at 150% of its cost, the same percentage that
was used last year. The composition of MNO Co. inventory were as follows:
Acquired from PQR Co. Acquired from XYZ Co.
Beginning balance 19,200 100,000
Ending Balance 36,000 135,000

The retained earnings of MNO Co. per books at the beginning of 2025 was P900,000. Non-controlling
interest is measured using the proportionate share. Impairment of goodwill, if any amount to P40,000
and P50,000 in 2024 and 2025, respectively.

40. Compute the consolidated net income attributable to parent in 2025.

A. 939,400
B. 925,400
C. 1,059,400
D. 935,400

41. Compute the non-controlling interest in net assets in 2025.

A. 591,500
B. 545,000
C. 528,000
D. 540,000
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Number 42
The QRS Corp. acquired 60% of the outstanding shares of JKL Corp. At the beginning of the year,
JKL Corp sold machinery to QRS Corp. for P490,000. The machinery was acquired 3 years ago with a
carrying value of 700,000 and a total estimated useful life of 10 years. QRS Corp. and JKL Corp
reported net income of P600,000 and P550,000, respectively. Dividends declared and paid by JKL
Corp for the year amounted to P100,000.
Compute the non-controlling interest in net income
A. 292,000
B. 208,000
C. 304,000
D. 220,000

Numbers 43 and 44
On January 1, 2024, ABC Co. acquired 70% of the outstanding shares of LMN Co. at underlying book
value. On January 2, 2024, ABC sold an equipment to LMN for P500,000 cash. The equipment had an
original cost of P1,000,000 and is now 60% depreciated after 3 years from original purchase date. Net
income of ABC and LMN for 2024 amounted to P1,000,000 and P500,000 respectively. Net income of
ABC and LMN for 2025 amounted to P1,500,000 and P900,000 respectively.
43. Assuming the equipment was still being used by LMN at the end of 2024, compute the
consolidated net income attributable to controlling interest 2024.
A. 1,450,000
B. 1,300,000
C. 1,315,000
D. 1,400,000

44. Assuming the equipment was sold by LMN to outsiders on July 1, 2024, which resulted to a
gain of P120,000. Compute the increase or decrease to gain on sale of equipment for
consolidation purposes.
A. 75,000 decrease
B. 75,000 increase
C. 50,000 increase
D. 0

Number 45
DEF Corp. acquired an additional 45% of the outstanding shares of GHI Company on October 1, 2024.
It was noted that DEF owned 10% of the outstanding shares of GHI amounting to P1,000,000 as of
June 30, 2024, accounted as an investment in equity securities through profit or loss.
The following information showed the book value and fair value of GHI Company on October 1, 2024.
Book Value Fair Value
Total Assets 12,070,000 15,300,000
Total Liabilities 2,140,000 2,140,000
Additional information were as follows:
● On October 1, 2024, DEF Corp. paid P6,750,000 inclusive of the control premium of P250,000.
● The fair value of non-controlling interest is P5,500,000.
Compute the goodwill or gain on bargain purchase on October 1, 2024.
A. 1,012,000
B. 1,590,000
C. 590,000
D. 956,444
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Numbers 46 and 47

On January 1, 2024, HIJ Corp. acquired 90% of STU Company’s outstanding shares for P1,350,000.
The book value of STU’s net assets is P1,000,000, which is P300,000 lower than its fair value. The
excess of fair value over the book value is attributable to a fixed asset with 2 years remaining life. Net
income for the year 2024 amounted to P2,000,000 for HIJ and P1,780,000 for STU. During 2025, STU
sold merchandise to HIJ, one-fifth were sold to outsiders by the end of 2025. The profit for this
intercompany sale amounted to P10,000. Also during 2025, HIJ sold merchandise to STU, one-third of
which were unsold to outsiders at the end of the same year. The profit for this sale amounted to
P15,000. Net income for the year 2025 amounted to P2,500,000 for HIJ and P2,000,000 for STU.

46. Compute the consolidated net income for 2024.

A. 3,780,000
B. 3,467,000
C. 3,630,000
D. 3,645,000

47. Compute the consolidated net income attributable to non-controlling interest for the year 2025.
A. 185,000
B. 184,200
C. 184,000
D. 184,800

Numbers 48 and 49

ABC Manufacturing Company had the following information for the month of October. All materials
are added at the start of the process. ABC uses the FIFO costing method for its process costing system.

Units:
Beginning work in process (75% done) 12,000
Started in production 128,000
Transferred-out 97,000
Ending work in process (90% to complete) 20,000
Normal loss ?
Abnormal loss 3,000

Beginning costs:
Direct materials 10,400
Conversion cost 20,525

Current costs:
Direct materials 889,600
Conversion cost 979,475

48. Assume the quality inspection of the products is done at the midpoint of the process. Compute
the cost of goods transferred out.
A. 1,439,950
B. 1,470,875
C. 1,675,450
D. 1,706,375

49. Assume losses occur evenly throughout the process. Compute the amount charged to period
cost. (round off the cost per EUP to two decimal places)
A. 35,325
B. 49,800
C. 56,310
D. 57,260
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Numbers 50 and 51

LMN Manufacturing Corporation manufactures homogenous products which it accounts for using the
FIFO inventory costing method. One-fourth of the total materials are added at the start of the process,
fifty percent of the total materials are added when the units are 40% done, 10% of the total materials
are added at the 90% stage of production and the remaining materials are added at the end of the
process. The following information are available:

Units in process, beginning 1,300 units

Complete as to conversion 75%

Units started at the beginning of the month 4,800 units

Units completed during the month ?

Units in process, ending 1,100

Complete as to conversion 20%

The following costs were available:

Beginning work in process
Direct Materials P58,525
Conversion Cost P90,450

Current Production
Direct Materials P5,190,100
Conversion Cost P4,711,950

50. Compute the cost of goods manufactured.

A. 8,573,925
B. 8,721,875
C. 9,326,950
D. 9,474,900

51. Assuming the weighted average costing method was used. Compute the cost of the units in
process at the end of the month
A. 576,125
B. 637,175
C. 476,025
D. 421,300

Number 52

ABC Company manufactures two main products, AB and BC, in a joint process which also yields AC,
a by-product. The joint cost amounted to P693,000 and is allocated among the main products using the
sales value at split-off approach. The company treats the revenue from sale of by-products as a
deduction to the manufacturing cost. The following relevant information are available:

Product Units produced Sales value at split-off

AB 15,000 P157,500
BC 21,000 P304,500
AC 9,000 P26,250

Compute the joint cost allocated to BC

A. 227,300
B. 250,924
C. 439,449
D. 456,750
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Numbers 53 and 54
NOP Manufacturing Company has two departments in its factory which uses a process costing system
under the weighted average method. Two-fifths of the materials are added at the fifty percent stage of
production. The remaining materials are added at the four-fifths stage of production. The following
information were available for its second department:
BWIP (60% complete as to conversion) 900 units

Units transferred-in during the month 5,000 units

Units transferred-out during the month 4,500 units
EWIP (40% complete as to conversion) ? units

Costs BWIP Current

Transferred-in P11,840 P68,105
Direct materials 0 4,950
Conversion costs 2,615 11,300

53. Compute the cost of the units transferred-out.

A. 78,300
B. 78,910
C. 77,760
D. 77,210

54. Compute the cost of units in process at the end of the month.
A. 19,900
B. 20,510
C. 21,050
D. 21,600

Number 55
XYZ Corp. makes joint products, RS and LM. During 2024, it produced 12,000 units of RS with a
relative sales value of P45,000, and 6,000 units of LM with a relative sales value of P30,000 at the
point of separation. If processed further, additional costs of P10,000 and P3,000, respectively, would
be needed but market values would increase to P60,000 for RS and P36,000 for LM. The joint cost
allocated to RS using the approximated NRV approach amounted to P27,000.
Compute the joint cost for the year 2024.
A. 40,500
B. 44,820
C. 45,000
D. 67,500

Number 56
TUV Manufacturing firm uses activity-based costing to account for its productions. The firm has two
products, products A and B. The following information were extracted for the company budget plans:
Activity Estimated Expected Activity
Cost Pool Cost Product A Product B Total
Activity 1 P 23,760 1,080 405 1,485
Activity 2 16,200 675 270 945
Activity 3 35,100 1,080 540 1,620
Total P 75,060 2,835 1,215 4,050
Compute the activity rate under the activity-based costing system for Activity 3.
A. 18.53
B. 21.67
C. 26.48
D. 32.50
 Page 14
Numbers 57, 58, 59 and 60

Refer to the following direct selling rates against the peso:

JPY (P0.10 spread) 10/31/24 11/30/24 12/31/24 1/31/25 2/28/25

Spot rate 0.55 0.50 0.45 0.44 0.40
30 days forward 0.60 0.55 0.46 0.42 0.35
60 days forward 0.70 0.47 0.59 0.46 0.26
90 days forward 0.85 0.84 0.60 0.38 0.36
120 days forward 0.90 0.77 0.44 0.48 0.50

57. On October 31, 2024, the Manila Company entered a forward contract to speculate on a sale
of 54,300 Japanese Yen, to be delivered on February 28, 2025. How much PHP should Manila
Company receive on the settlement date?
A. 48,870
B. 21,720
C. 43,440
D. 16,290

58. On November 30, 2024, the Manila Company entered into a sales commitment with a
Japanese Company for 1 million Japanese Yen, delivery on January 31, 2025. On the same
date, the Manila Company entered a forward contract to hedge against unfavorable
fluctuations in the foreign exchange rates. How much is the debit or credit to “firm
commitment” account on December 31, 2024?
A. 10,000 credit
B. 10,000 debit
C. 60,000 debit
D. 60,000 credit

59. On November 30, 2024, the Manila Company sold goods to a Japanese Company for
JPY500,000, to be settled on February 28, 2025. How much is the reportable amount of the
accounts receivable on December 31, 2024?
A. 250,000
B. 200,000
C. 175,000
D. 225,000

60. On November 30, 2024, the Manila Company borrowed JPY90,000, evidenced by a 60-day
5% interest-bearing note. On the settlement date in 2025, how much is the effect in profit or
loss?
A. 1,068.75
B. 900.00
C. 907.50
D. 903.75

Number 61

Free Learn College, a private not-for-profit college, received the following contributions during 2024:
I. P3,750,000 from an alumni for the construction of a consultation room to be constructed in 2025.
II. P750,000 from a donor who stipulated that the contribution be retained and that the earnings be
used for scholarships. As of December 31, 2024, earnings from investment amounted to P37,500.
For the year ended December 31, 2024, what amount of these contributions should be reported as
temporarily restricted revenues on the statement of activities?
A. 37,500
B. 3,787,500
C. 3,750,000
D. 4,537,500
 Page 15

Numbers 62 and 63

Refer to the following direct selling rates against PHP:

KRW 10/31/24 11/30/24 12/31/24 1/31/25

Spot rate 0.042 0.043 0.050 0.055

On October 31, 2024, KLM Corporation purchased merchandise from HIJ Inc. on account for
KRW3,000,000, payment due on January 31, 2025. On the same date, to hedge against the foreign
exchange risk exposure, KLM Corporation purchased an at-the-money call option to buy
KRW3,000,000 on January 31, 2025 for PHP21,000. The fair value of the option contract on
December 31, 2024 amounted to PHP30,000.

62. How much is the gain or loss on the hedging instrument as to the effective portion on
January 31, 2025?
A. 9,000 gain
B. 15,000 gain
C. 6,000 loss
D. 0

63. How much is the gain or loss on the hedging instrument as to the time value for the year
ended December 31, 2024?
A. 9,000 gain
B. 15,000 loss
C. 24,000 gain
D. 0

Number 64

Mr. DEF, an accountant, has been rendering services for a nonprofit organization for five months now,
he fills the position of a finance director, a position that normally pays P300,000 per year. Mr. DEF
agreed to help the organization set-up its books and financial reports at no cost.
How should these donated services be recorded?
A. Debit to Salary expense, P125,000
B. Debit to Pledge Receivable, P125,000
C. Credit to Contributions Revenue, P300,000
D. No required entry

Number 65

On December 31, 2024, a foreign subsidiary in Hong Kong submitted the following accounts stated in
its local currency, which is the functional currency of the foreign operation. The subsidiary in Hong
Kong acquired in 2024 is not integrated with the operations of the parent in the Philippines. Moreover,
its cash flows do not directly affect the parent company. The foreign operation is self-sufficient and is
not dependent on the parent company for financing.
Total Assets HK$ 4,410,000
Total Liabilities 882,000
Ordinary Shares 2,205,000
Retained Earnings 1,323,000
The exchange rates were: Current rate, P7.75; Historical rate, P7.10; Weighted average rate, P7.50.
Compute the cumulative translation adjustment (Dr)/Cr on December 31, 2024
A. (4,504,500)
B. 1,764,000
C. 4,504,500
D. 2,293,200
 Page 16
Number 66

The Department of Justice incurred the following expenses:

Meralco Bill P 22,000
PLDT Bill 5,000
Maynilad Bill 3,000

What is the proper entry for the payment of the following utility bills?

A. Water Expenses 22,000

Electricity Expenses 5,000
Telephone Expenses 3,000
Cash-Modified Disbursement System, Regular 30,000

B. Water Expenses 22,000

Electricity Expenses 5,000
Telephone Expenses 3,000
Subsidy From National Government 30,000

C. Cash in Bank-Local Currency, BSP 30,000

Income from Grants and Donations 30,000

D. Water Expenses 22,000

Electricity Expenses 5,000
Telephone Expenses 3,000
Petty Cash Fund 30,000

Number 67

On September 1, 2024, SME A and SME B acquired 30% (each) of the ordinary shares that carry
voting rights at a general meeting of shareholders of Entity Z for P2,850,000 and transaction cost of
P37,500. SME A and SME B immediately agreed to share control over Entity Z. For the year ended
December 31, 2024, Entity Z recognized a profit of P3,600,000. On December 30, 2024, Entity Z
paid a dividend of P315,000 declared in the prior year. On December 31, 2024, the fair value of each
venturers’ investment in Entity Z was P3,195,000 and cost to sell amounted to P54,000. The amount
of value in use is P3,114,000. There is a published price quotation for Entity Z.
The effect on profit or loss to be reported by SME A in 2024 using the fair value model
A. 348,000
B. 307,500
C. 402,000
D. 94,500

Number 68

On March 1, 2024, SME X and SME Y acquired 25% (each) of the ordinary shares that carry voting
rights at a general meeting of shareholders of Entity C for P2,040,000. Transaction cost is 6% of the
transaction price. SME X and SME Y immediately agreed to share control over Entity C. For the year
ended December 31, 2024, Entity C recognized a profit of P2,250,000. On December 30, 2024, Entity
C declared and paid a dividend of P960,000 for the year 2024. On December 31, 2024, the fair value
of each venturers’ investment in Entity C was P2,520,000. Cost to sell is 4% of the fair value. Value
in use amounts to 2,400,000. However, there is no published price quotation for Entity C. Assuming
SME X uses the equity model to account for its investment in Entity C.

Compute the balance of Investment in Entity C on Dec. 31, 2024 using the equity model
A. 2,419,200
B. 2,391,150
C. 2,520,000
D. 2,484,900
 Page 17

Numbers 69 and 70

On January 1, 2024, BCD Company invested P4,500,000 on KLM Corporation for a 50% interest.
BCD Company, together with another entity, has obtained joint control over KLM Corporation. After
assessment of the circumstances in accordance IFRS 11, it was determined that the joint arrangement
should be treated as a joint venture.

The operations of the joint venture for 2024 resulted to a net loss of P12,600,000, but recovered with a
net income of P5,400,000 during 2025.

69. How much is the share in net loss to be recognized by BCD Company from its investment in
KLM Corporation for the year ended December 31, 2024?
A. 12,600,000
B. 4,500,000
C. 6,300,000
D. 9,000,000

70. How much is the investment in joint venture account to be presented by BCD Company as of
the year ended December 31, 2025?
A. 5,400,000
B. 1,800,000
C. 2,700,000
D. 900,000

END