AFAR December 2021

DISCLAIMER: Not of all these questions are the exact questions itself
on the said CPALE but the concept behind those questions, exists here.

1. The functional currency is

A. The currency in which the entity reports earnings.
B. The currency in which the entity primarily conducts banking
activities.
C. The currency in which the entity primarily operates.
D. The currency in which the entity presents the financial statement.

2. Which of the following should be considered nonmonetary?

A. Trade receivables
B. Deferred tax liabilities
C. Accrued expense
D. Taxes payable

3. Which of the following is not one of the steps in accounting for an

acquisition?
A. Prepare proforma financial statements prior to acquisition.
B. Determine the acquisition date.
C. Identify the acquirer.
D. Expense the costs and general expenses of the acquisition in the
period of acquisition.

4. Which is a characteristic of a joint arrangement?

A. The parties are bound by a contractual agreement.
B. The contractual arrangement gives two or more parties joint control
over the arrangement.
C. The parties are bound by a contractual arrangement which gives two
or more parties absolute control over the arrangement.
D. The parties are bound by a contractual arrangement which gives two
or more parties joint control over the arrangement.

5. Two entities established a joint arrangement in an incorporated

entity. The assets and liabilities of the entity will be in the name
of the incorporate entity. The activities of the arrangement will be
decided by its own board of directors. The rights of the two parties
are limited only to the net assets of incorporated entity. How should
the two parties account for their investment?
A. Proportionate consolidation
B. Joint venture
C. Joint operation
D. Investment in trading securities

6. Franchise fee revenue shall be recognized when all material

services or conditions have been substantially performed or satisfied
by the franchisor. Substantial performance means
A. Franchisor has no remaining obligation or intent to refund money or
forgive unpaid debt.
B. Substantially all initial services have been performed.
C. No other material conditions or obligations exist.
D. All of these define substantial performance by the franchisor.

7. Contract revenue in construction contract comprises

A. The initial amount of revenue agreed in the contract.
B. Variation in contract work, claim and incentive payment.
C. The initial amount of revenue agreed in the contract, variation in
contract work, claim and incentive payment.
D. The initial amount of revenue agreed in the contract and progress
billings.

8. In a job order cost system, the use of indirect materials

previously purchased is recorded usually as an increase in
A. Stores control
B. Work in process control
C. Factory overhead control
D. Factory overhead applied

9. In job order system, conversion costs do not consider

A. Direct labor
B. Indirect labor
C. Direct materials
D. Factory overhead

10. At the time of corporate liquidation, which of the following

unsecured claims with priority shall be settled first?
A. Liability for taxes
B. Liability for corporate crime
C. Liability for employee benefits
D. Liability for corporate torn

11. The partnership of Jess, Tulfo, and Raffy was dissolved on June
30, 2021 and account balances after non-cash assets were converted
into cash on September 1, 2021 are:

Assets Liabilities and Equity

Cash 50,000 Accounts payable 120,000
Jess, capital (30%) 90,000
Tulfo, capital (30%) (60,000)
Raffy, capital (40%) (100,000)

Personal assets and liabilities of the partners at September 1, 2021

are:

Personal Assets Personal Liabilities

Jess 80,000 90,000
Tulfo 100,000 61,000
Raffy 192,000 80,000

If Raffy contributes 70,000 to the partnership to provide cash to pay

the creditors, what amount of Jess’s 90,000 partnership equity would
appear to be recoverable?
A. P90,000
B. P81,000
C. P79,000
D. P60,000

12. The Jaja Sales Company began the appliances business on January 1,
2019 reports gross profit on the installment basis. The following
information relative to the installment sales are available:

2019 2020 2021

Installment sales 360,000 375,000 450,000
Cost of installment sales 270,000 271,875 324,000
Gross profit 90,000 103,125 126,000

Collections:
2019 installment contracts 67,500 112,500 108,750
2020 installment contracts 71,250 120,000
2021 installment contracts 93,750

Defaults:

Unpaid balance of 2019

installment contracts 18,750 22,500
Value assigned to repossessed
merchandise 9,750 9,000
Unpaid balance of 2020
Installment contracts 24,000
Value assigned to repossessed
Merchandise 13,500

The realized gross profit on installment sales before repossession

during 2021
A. P86,437.50
B. P90,300
C. P86,687.50
D. P120,000

13. Happy Inc. opens a sales agency in Davao City, and a working fund
for P20,000 is established on the imprest basis. The first payment
from the fund is P3,000 for rent. This transaction should be recorded
by the home office as follows:
A. No entry
B. Rent 3,000
Cash 3,000
C. Davao Agency 3,000
Cash 3,000
D. Davao Agency 3,000
Working Fund 3,000
14. Zero Na Corporation has been undergoing liquidation since January
1. As of March 31, its condensed statement of realization and
liquidation is presented below:

Assets:
Assets to be realized 550,000
Assets acquired 350,000
Assets realized 325,000
Assets not realized 125,000

Liabilities:
Liabilities liquidated 278,000
Liabilities not liquidated 310,000
Liabilities to be liquidated 463,000
Liabilities assumed 115,000

Revenues and Expenses

Supplementary charges 229,900
Supplementary credits 617,900

The net gain(loss) for the three-month period ending March 31 is:
A. P72,000 loss
B. P72,000 gain
C. P848,000 loss
D. P848,000 gain

15. Kamayan Inc. charges an initial franchise fee of P500,000 for the
right to operate as a franchise of Kamayan. Of this amount, P100,000
is payable when the agreement was signed and the balance is payable in
a noninterest bearing note in five annual payments of P80,000 each. In
return for the initial franchise fee, the franchisor will help locate
the site, negotiate the lease or purchase of the site, supervise the
construction activity, and provide the bookkeeping services. The
credit rating of the franchisee indicates that money can be borrowed
at 8%. The present value of an ordinary annuity of five annual
receipts of P80,000 each discounted at 8%. The present value of an
ordinary annuity of five annual receipts of P80,000 each discounted at
8% is P319,416.80. The discount represents the interest revenue to be
accrued by the franchisor over the payment period.

If the probability of refunding the initial franchise fee is extremely

low, the amount of future services to be provided to the franchisee is
minimal, collectibility of the note is reasonably assured and
substantial performance has occurred.

The unearned franchise fees would be

A. P500,000
B. P419,416.80
C. P0
D. P319,416.80
16. The following condensed balance sheet is presented for the
partnership of Smith and Jones, who share profits or losses in the
ratio of 60:40, respectively:

Other assets P450,000

Smith, loan 20,000
P470,000

Accounts payable P120,000

Smith, Capital 195,000
Jones, Capital 155,000
P470,000

The partners decided to liquidate the partnership. If the other assets

are sold for P385,000, what amount of the available cash should be
distributed to Smith?
A. P136,000
B. P156,000
C. P159,000
D. P195,000

17. It is the contractually agreed sharing control of an arrangement,

which exists only when decisions about the relevant activities require
the unanimous consent of the parties sharing control.
A. Joint control
B. Joint undertaking
C. Joint operation
D. Joint venture

18. IFRS 11, Joint Arrangement, provides that the classification of

the arrangements will require entities to apply judgment when
assessing their rights and obligations arising from the arrangement by
considering the following, except:
A. The terms agreed by the parties in the contractual agreements.
B. The structure and legal form of the arrangement.
C. When relevant, other facts and circumstances.
D. When structured in a legal entity, the choice between proportionate
consolidation and the equity method.

19. According to IAS 27 as amended in 2014, in the separate financial

statements of a parent entity, investments in subsidiaries that are
not classified as held for sale should be accounted for
A. Cost value
B. Book value
C. Market value
D. Net realizable value

20. Which of the following would be most likely to be used by the

partnership in distributing the profits of the company among partners
who are active in managing the affairs of the business?
A. Bonus as a percentage of profit
B. Bonus as a percentage of sales in excess of the targeted amount
C. Interest based on weighted average capital
D. Salaries provided to the partners

21. The partner’s maximum loss absorbable is determined:

A. By adding the remaining non-cash assets and cash withheld for
possible loss.
B. By adding cash withheld for possible loss and remaining unpaid
liabilities.
C. By dividing capital interest balance by his profit or loss ratio
D. By dividing total interest balance by his profit and loss ratio

22. P Corp. acquired 90% interest of S Corp. in 20x5. On this date,

the book values and fair values were equal to one another. On January
1, 20x6, P Corp. sold an equipment with P900,000 book value to S Corp.
for P1,800,000. S Corp. is depreciating the equipment for 10 years
using the straight line method. P Corp. uses equity method to record
its investment in S Corp. The separate income of P Corp. and S Corp.
were as follows:
P S
Sales 36,000,000 21,000,000
Cost of goods sold (15,000,000) (5,700,000)
Gross profit 21,000,000 15,300,000
Depreciation expense (9,000,000) (2,700,000)
Other expenses (3,600,000) (9,000,000)
Gain on sale of equipment 900,000
Separate income 9,300,000 3,600,000

The total investment income of P Corp.

A. P3,240,000
B. P3,690,000
C. P2,430,000
D. P2,790,000

23. Taken Company adds a markup of 20% of cost on all merchandise

shipped to the branch. It is then sold by the branch at 25% above
billed price. However, on February 24, 2021, typhoon Jolina destroyed
the warehouse of the branch as well as all the inventory items on
hand. The company did not have any insurance policies on both the
warehouse and the inventory items. Inspection of the books maintained
by the branch revealed the following information:

Merchandise Inventory, January 1 P24,000

Shipments from Home Office 18,000
Sales 18,750
Sales Return 2,250

How much is the true cost of the inventory destroyed by the fire?
A. P24,000
B. P22,500
C. P27,000
D. P28,000

24. ABC transferred merchandise inventory from its home office to its
branch and the average gross margin on the transfer is 40%. At the
beginning of the year, the branch held merchandise purchased from the
home office in the amount of P35,000. During the year, the home office
made three shipments of inventory to the branch at transfer prices of
P30,000, P64,000 and P50,000. At the end of the year, the branch had
on hand inventory purchased from the home office of P40,000.

What entry should the home office record on the realized intercompany
profit during the year?
A. Allowance for overvaluation of inventory 41,600
Branch income summary 41,600
B. Allowance for overvaluation of inventory 39,714
Branch income summary 39,714
C. Allowance for overvaluation of inventory 71,600
Branch income summary 71,600
D. Allowance for overvaluation of inventory 55,600
Branch income summary 55,600

25. Rap Manufacturing Corporation uses a standard cost system to

collect costs related to the production of its ski lift chairs. Rap
uses machine hours as an overhead base. The variable overhead
standards for each chair are 1.2 machine hours at a standard cost of
P18 per hour. During the month of September, Rap incurred 34,000
machine hours in the production of 32,000 ski lift chairs. The total
variable overhead cost was P649,400.

What is Rap’s variable overhead spending variance for the month of

September?
A. P37,400 unfavorable
B. P41,800 favorable
C. P79,200 unfavorable
D. P84,040 favorable

26. The National Co. acquired 80% of the Local Co. for a consideration
transferred of P100 million. The consideration was estimated to
include a control premium of P24 million. Local’s net assets were P85
million at the acquisition date. Are the following statements TRUE of
FALSE, according to IFRS 3, Business Combination?

Statement 1 – Goodwill should be measured at P32 million if the non-

controlling interest is measured at is share of Local’s net assets.
Statement 2 – Goodwill should be measured at P34 million if the non-
controlling interest is measured at fair value.

A. False; False
B. False; True
C. True; False
D. True; True
27. It is the entity that has the controlling financial interest
A. Investor
B. Parent
C. Associate
D. Affiliate

28. On January 1, 2020, Owen Corporation purchased all of Sharp

Corporation’s common stock for P1,200,000. On that date, the fair
values of Sharp’s assets and liabilities equaled their carrying
amounts of P1,320,000 and P320,000, respectively. During 2020, Sharp
paid cash dividends of P20,000. Selected information for the separate
balance sheets and income statements of Owen and Sharp as of December
31, 2020 and for the year then ended follows:

Owen Sharp
Balance sheet accounts:
Investment in subsidiary P1,300,000
Retained earnings 1,240,000 560,000
Total stockholder’s equity P2,620,000 P1,120,000

Income statement accounts:

Operating income P420,000 P200,000
Equity in earnings of Sharp 120,000
Net income 400,000 140,000

In Owen’s December 31, 2020 consolidated balance sheet, what amount

should be reported as total retained earnings?
A. 1,240,000
B. 1,360,000
C. 1,380,000
D. 1,800,000

29. In a job order system, the application of factory overhead is

usually reflected in the general ledger as an increase in
A. Factory overhead control
B. Finished goods control
C. Work in process control
D. Cost of goods sold

30. At the end of the last fiscal year, Baehr Co. had the following
account balances:

Overapplied overhead P. 6,000

Cost of goods sold 980,000
Work in process 38,000
Finished goods 82,000

If the most common treatment of assigning overapplied overhead was

used, the final balance in cost of goods sold would have been
A. P985,340
B. P974,660
C. P974,000
D. P986,000

31. AAA Inc. granted BBB a franchise on January 2, 2030. The agreement
provided an initial franchise fee of P2,000,000 payable as follows:
P400,000 down payment and the balance payable in four annual
installments starting December 31, 2030. The prevailing interest rate
for a similar note is 20% and the present value of an annuity of 1 for
4 periods is P2.5887. The agreement also provides for a continuing
franchise fee of 5% of gross sales of the franchise payable 10 days
the following month. The collectability of the note is reasonably
assured. The franchisee commenced operation on July 1,2030 and
reported gross sales of P4,000,000 from July to December 2030.

What is the total revenue from franchise fees to be reported by BBB

for the year ended December 31, 2030?
A. P2,200,000
B. P2,000,000
C. P1,635,480
D. P600,000

32. On January 1, 2030, an entity granted a franchise to a franchisee.

The franchise agreement required the franchisee to pay a nonrefundable
upfront fee in the amount of P400,000 and on-going payment of
royalties equivalent to 5% of the sales of the franchisee. The
franchisee paid the nonrefundable upfront fee on January 1, 2030. In
relation to the nonrefundable upfront fee, the franchise agreement
required the entity to render the following performance obligations:

 To construct the franchisee’s stall with stand-alone selling price

of P200,000.

 To deliver 10,000 units of raw materials to the franchisee with

stand-alone selling price of P250,000.

 To allow the franchisee to use the entity trade name for a period of
10 years starting January 1, 2030 with stand-alone selling price of
P50,000.

On June 30, 2030, the entity completed the construction of the

franchisee’s stall. On December 31, 2030, the entity was able to
deliver 3,000 units of raw materials to the franchisee. For the year
ended December 31, 2030, the franchisee reported sales revenue
amounting to P100,000.

The entity had determined that the performance obligations are

separate and distinct from one another.

What is the amount of nonrefundable upfront fee to be allocated to the

construction of the franchisee’s stall?
A. 200,000
B. 160,000
C. 250,000
D. 120,000

33. An entity is employing backflush costing in connection with just-

in-time production process. The production data for the year is
provided below:
 The entity acquired direct materials during the year at a cost of
P100,000.
 The entity reported direct labor cost of P200,000.
 The actual factory overhead incurred during the year amounted to
P170,000.
 The standard factory overhead application rate is 75% of direct
labor cost.
 The ending finished goods inventory is reported at P120,000.

What is the cost of goods sold to be reported by the entity under

backflush costing?
A. P470,000
B. P350,000
C. P330,000
D. P300,000

34. On January 1, 2021, an entity accepted a long-term construction

project for an initial contract price of P1,000,000 to be completed on
June 30, 2023. On January 1, 2022, the contract price was increased to
P1,500,000 by reason of change in the design of the project. The
project was completed on December 31, 2023 which resulted to penalty
amounting to P200,000. The outcome of the construction contract can be
estimated reliably.

The entity provided the following data concerning the direct costs
related to the said project:

2021 2022 2023

Costs during the year P440,000 P680,000 P130,000
Remaining estimated costs to
complete at the end of the year 660,000 280,000 -

What is the revenue to be recognized by the entity for the year ended
December 31, 2021?
A. P340,000
B. P400,000
C. P440,000
D. P360,000

35. It is the currency in which the financial statements are presented

A. Foreign currency
B. Presentation currency
C. Functional currency
D. Legal tender
36. Items of assets and liabilities at functional currency shall be
translated into presentation currency at
A. Historical rate
B. Closing rate
C. Average rate
D. Opening rate

37. What is the initial measurement of foreign currency transaction?

A. Historical rate for monetary items and closing rate for nonmonetary
items.
B. Historical rate for nonmonetary items and closing rate for monetary
items.
C. Historical rate for both monetary items and nonmonetary items.
D. Closing rate for both monetary items and nonmonetary items.

38. Items of income and expenses at functional currency shall be

translated into presentation currency ay
A. Historical rate
B. Closing rate
C. Average rate
D. Opening rate

39. Unrealized holding gain or loss arising from changes in fair value
of derivatives shall be recognized in current earnings pertaining to
effective portion

Fair value hedge Cash flow hedge

A. Yes No
B. Yes Yes
C. No Yes
D. No No

40. On January 1, 2020, a NPO received P5,000,000 cash donation from a

donor who stipulated that the amount should be invested indefinitely
in revenue producing investment. The deed of donation also provides
that the dividend income shall be used for the acquisition of
computers of the NPO. On December 31, 2020, the NPO received. P500,000
cash as dividend income from the investment of the fund. On January 1,
2021, the NPO acquired a computer at a cost of P250,000 with a useful
life of 5 years without residual value.

How shall the cash flows be reported in NPO’s Statement of Cash Flows
for the year ended December 31, 2020?
A. Cash receipts from operating activities by P500,000
B. Cash receipts from financing activities by P5,500,000
C. Cash disbursements for investing activities by P250,000
D. Cash disbursements for investing activities by P500,000

41. Which of the following statements concerning the different types

of hedging transactions is incorrect?
A. In hedging transaction designated as cash flow hedge, unrealized
holding gain or loss on hedged item will be recognized in other
comprehensive income with reclassifications adjustment to profit or
loss if realized.
B. In hedging transaction designated as fair value hedge, unrealized
holding gain or loss on hedged item will be recognized in profit or
loss.
C. In hedging transaction which is undesignated, unrealized holding
gain or loss on hedging instrument will be recognized in profit or
loss.
D. In hedging transaction designated as hedge of net investment in
foreign operation, unrealized holding gains or losses on hedging
instrument which is considered effective portion will be recognized in
other comprehensive income with reclassification adjustment to profit
or loss if realized.

42. What is the effect of admission of a new partner to an existing

partnership through the purchase of interest of an existing partner?
A. It will result to partnership gain or loss.
B. It will increase the partnership total assets by the cash paid to
the existing partner.
C. It will not change the total capital of the partnership.
D. It will decrease the capital of the partnership by the capital to
be transferred to the new partner.

43. In statement of affairs, assets pledged for partially secured

creditors are
A. Included with assets pledged for fully secured creditors
B. Offset against partially secured liabilities
C. Included with free assets
D. Disregarded

44. In every corporate liquidation, which of the following creditors

will always fully recover their claims from a liquidating corporation?
A. Unsecured creditors with priority
B. Unsecured creditors without priority
C. Partially secured creditors
D. Fully secured creditors

45. Shey, Apple, and Tan are partners with capital balances of
P112,500, P46,875, and P140,625 respectively, sharing profits and
losses in the ratio of 3:2:1. Paz is admitted as a new partner
bringing with him expertise and is to invest cash for a 25% interest
in the partnership which includes a P25,000 credit for goodwill upon
his admission. How much cash should Paz contribute?
A. P100,000
B. P225,000
C. P75,000
D. P125,000

46. Xatu and Yen have capital balances of P150,000 and P180,000
respectively. Zet is to invest P60,000 for 15% in the partnership
interest and is also in the profit or loss. There is an undistributed
income in the amount of P80,000. Partners X and Y share profit and
loss of 65:35. How much is the capital credit of Zet upon his
admission?
A. P60,000
B. P61,500
C. P72,000
D. P70,500

47. Which is true about a silent partner?

A. He involves in the day to day activities of the partnership.
B. He is considered a general partner.
C. None of the above
D. He is an adviser to the partnership.

48. Which of the following statements is correct?

Statement 1: The acquirer shall recognize the acquiree’s contigent
liabilities if certain conditions are met.
Statement 2: The acquirer shall recognize the acquiree’s contingent
assets if certain conditions are met.
A. I only
B. II only
C. Both I and II
D. Neither I or II

49. Miggy Company has the following information for July:

Units started 100,000 units

Beginning work in process (35% complete) 20,000 units
Normal spoilage (discrete) 3,500 units
Abnormal spoilage 5,000 units
Ending work in process (70% complete) 14,500 units
Transferred out 97,000 units

All materials are added at the start of the production process. Miggy
Company inspects goods at 75 percent completion as to conversion.

What are the equivalent units production for conversion costs,

assuming FIFO?
A. 108,900
B. 103,900
C. 101,650
D. 106,525

50. Artic Company manufactures three products in a joint process which

costs P25,000. Each product can be sold at split-off or processed
further and then sold. 10,000 units of each product are manufactured.
The following information is available for the three products:

Product Sales value at Seperable processing Sales value at

split-off costs after split - off completion
 X P12 P9 P21
Y P10 P4 P17
Z P15 P6 P19

To maximize profits, which products should Artic process further?

A. Product Y only
B. Product X and Z
C. Product X only
D. Product X, Y, and Z

51. Propaganda Corporation manufactures joint products X and Y and by-

product A. The joint costs are assigned to the joint products using
the net realizable sales value method, which considers further
processing costs in succeeding operations. The joint costs are
allocated to by-product using the reversal cost method. The total
manufacturing costs for 10,000 units were P172,000 during the quarter.
Production and cost data follow:

X Y A
Units produced 5,000 4,000 1,000
Sales value per unit P50 P40 P5
Further processing costs per unit P10 P5 -
Disposal cost per unit P2
Desired profit per unit P1

The gross profit of product X

A. P120,000
B. P100,000
C. P70,000
D. P80,000

52. Zobel decides to contribute P5,000,000 to his alma mater. De La

Salle University agrees to pay Jacob fixed amount every month for the
next years in exchange for the donation. Zobel’s donation would be
accounted for in the
A. Endowment fund
B. Restricted current fund
C. Annuity fund
D. Agency fund

53. Under Section 4, Article IX-D of the 1987 Philippine Constitution

states that this agency shall submit to the President and the
Congress, within the time fixed by law, an annual report covering the
financial condition and operation of the Government, its subdivisions,
agencies, and instrumentalities, including government-owned or
controlled corporations, and non-governmental entities subject to its
audit, and recommend measures necessary to improve their effectiveness
and efficiency. It shall submit such other reports as may be required
by law
A. Department of Finance
B. Bureau of Treasury
C. Department of Budget and Management
D. Commission on Audit

54. On January 1, 2021, the DPWH received a P10,000,000 appropriation

from the national government for the acquisition of machinery. On
February 1, 2021, DPWH received the allotment from the DBM. On March
1, 2021, DPWH entered into a contract with CAT Inc. for the
acquisition of the machinery with a price of P8,000,000. On April 1,
2021, DPWH received the Notice of Cash Allocation from DBM net of 1%
withholding tax for income tax of supplier and 5% withholding of final
tax on VAT of supplier. On May 1, 2021, CAT Inc. delivered the
machinery to DPWH. On June 1, 2021, DPWH paid the obligation to CAT
Inc. On July 1, 2021, DPWH remitted the withheld income tax and final
VAT to BIR.

What is the journal entry on April 1, 2021?

A. Debit Cash – MDS Regular P7,520,000 and Credit Subsidy Income from
National Government P7,520,000.
B. Debit Machinery P8,000,000 and Credit Accounts Payable P8,000,000.
C. Debit Accounts Payable P8,000,000 and Credit Due to BIR P480,000
and Cash – MDS Regular, P7,520,000.
D. Debit Due to BIR P480,000 and Credit Subsidy Income from National
Government P480,000.

55. ABC 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
purchase merchandise from the home office (at 120% of home office
cost), as well as from outside suppliers. Selected information from
the December 31, 2021 trial balances of the home office and branch is
as follows:

Home Office Branch

Sales 240,000 120,000
Shipments to branch 32,000 -
Purchases 140,000 22,000
Inventory, January 1, 2021 80,000 60,000
Shipments from home office - 38,400
Expenses 56,000 24,000
Branch inventory allowance 14,400 -

Additional information:
 The entire difference between the shipment account is due to the
practice of billing and the branch at cost plus 20%.
 The December 31, 2015 inventories are 80,000 and 40,000 for the home
office and the branch respectively. (The branch purchased 16% of its
ending inventory from outside suppliers).
 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 for the adjusted balance of branch inventory allowance and
adjusted branch net income
A. P8,800; P100,400
B. P5,600; P24,400
C. P14,400; P30,000
D. P8,800; P21,200

56. Under IFRS 10, what financial statements are required to be

prepared and presented by a parent corporation?
A. Consolidated financial statements and combined financial statements
B. Consolidated financial statements, combined financial statements,
and
Separate financial statements
C. Combined financial statements, and separate financial statements
D. Only consolidated financial statements

57. The Snipe Co. owns 65% of the Genesis Co. On the last day of the
accounting year, Genesis sold to Snipe a non-current asset for
P200,000. The asset originally cost P500,000 and at the end of the
reporting period its carrying amount in Genesis’ books was P160,000.
The group’s consolidated financial statement of financial position has
been drafted without any adjustments in relation to this non-current
asset. Under IFRS 10, what adjustments should be made to the
consolidated statement of financial position figures for non-current
assets and retained earnings?

Non-current assets Retained Earnings

A. Increase by P300,000 Increase by P195,000
B. Reduce by P40,000 Reduce by P26,000
C. Reduce by P40,000 Reduce by P40,000
D. Increase by P300,000 Increase by P300,000

58. What links between power and right of variable returns in

consolidated financial statements?
A. Voting
B. Influence
C. Control
D. Exposure

59. Which of the following has a separate recognition criteria under

IFRS 3?
A. Equity
B. Accounts receivable
C. Goodwill
D. Contingent consideration

60. Under IFRS 10, an investment entity is required to measure an

investment in a subsidiary at
A. Cost
B. Fair value through profit or loss
C. Fair value through other comprehensive income
D. Net realizable value

61. Which of the following statements is true/false about IFRS 4

Insurance Contracts?
Statement I – IFRS 4 shall be applied by an entity to financial
instruments that it issues with a discretionary participation feature
Statement II – An insurer is allowed to re-measure designated
insurance liabilities consistently in each period to reflect current
market interest rates.
Statement III – Insurance contracts shall apply to pre-need contracts

A. Statement I and III true, Statement II false

B. Statement I true, Statement II and III false
C. Statement I and II true, Statement III false
D. Statement III true, Statement I and II false

62. When shall an entity present all insurance finance income or

expense?
A. Profit or loss
B. Other comprehensive income
C. Either A or B
D. Neither A or B

Insurance contracts, choices BCD are deferred (defective question)

63. On November 30, 2021, Juan Company authorized Miguel Corporation

to operate as a franchise for an initial franchise fee of P1,950,000.
Of this amount, P750,000 was received upon signing the agreement and
the balance, represented by a note, is due in four annual payments
starting November 30, 2022. The franchise agreement shows that Juan
Company has three performance obligations with their corresponding
standalone selling prices – Install computer equipment, P500,000;
Supply initial inventory, P200,000; Provide employee trainings,
P300,000.

As of end of 2021, only the installation of computer equipment has

been performed. The two other obligations are yet to be performed. PV
of 1 at 12% for 4 periods is 0.6355. The PV of an ordinary annuity of
1 at 12% for 4 periods is 3.0374. How much is the earned franchise
revenue for the year ended December 31, 2021?
A. P1,661,220
B. P830,610
C. P911,220
D. P0

64. Ola Company produces two products from a joint process – Dora and
Boots. Joint processing costs for production cycle are P8,000. The
number of units to be produced per product are – Dora, 1,500; Boots,
2,200. Sales price at split-off – Dora, P6.00; Boots, P9.000. Using a
physical measure, what amount of joint processing cost is allocated to
Dora?
A. P4,000
B. P4,757
C. P5,500
D. P3,243

65. Which is false statement regarding franchise accounting (IAS 18)

answer is if reasonably assured, use installment sales method
A. The initial franchise fee should not be recognized as revenue until
the franchisor has substantially performed the services required to be
performed.
B. To recognize initial franchise fee as revenue, the franchisor is
not obliged in any way to refund cash already received or forgive
debt.
C. If the collection of the related note receivable is reasonably
assured, installment method will apply.
D. The entire initial franchise fee shall be recognized as revenue if
the franchise has no other material conditions or obligations exist.

66. Selected information from the separate and consolidated income

statements of People Corporation and its subsidiary, Society Company
for the year ended December 31, 2025 are as follows:

People Corp. Society Co. Consolidated

Sales P 600,000 P 420,000 P 924,000

Cost of Goods Sold 450,000 330,000 693,000
Gross Profit P 150,000 P 90,000 P 231,000

During 2025, People Corporation sold goods to Society Company at the

same mark-up on cost that People uses for all sales. At December 31,
2025, Society had not paid all of these goods and still held 37.5% of
them in inventory.

What is the original cost of goods in Society’s inventory acquired

from People Corp.?
A. P36,000
B. P27,000
C. P9,000
D. P18,000

67. Which is the best reason why the net income reported by the branch
is less than the net income computed by the home office concerning the
branch operation?
A. Overstatement of goods in the beginning inventory of the branch for
the goods coming from the home office.
B. Understatement of goods in the beginning inventory of the branch
for the goods coming from the outside supplier.
C. Understatement of cost of goods sold reported by the branch for the
goods coming from the outside supplier.
D. Overstatement of cost of goods sold reported by the branch for the
goods coming from the home office.
68. When shall an entity recognize revenue from contracts with
customers?
A. When it is probable that future economic benefits will flow to the
entity and the revenue can be measured reliably.
B. When or as the entity satisfies the performance obligation.
C. When the entity collected the cash from the customers.
D. When the entity and the customers sign the contracts.

69. Two entities established a business. The contractual agreement

provided that the relevant activities of the business will require
unanimous consent of the two parties. The business is not incorporated
before SEC. The two parties equally own interest in the said business.
How should the two parties account for their investment?
A. Proportionate consolidation
B. Joint operation
C. Joint venture
D. Business combination

70. In a job order system, indirect labor costs incurred would usually
be included in
A. Factory overhead control
B. Factory overhead applied
C. Work in process control
D. Accrued payroll