AFAR Second Monthly Assessment

Part 1

1. On March 1, 20x1, Emong Company enters into a contract to transfer a product to Fabian on July
31, 20x1. The contract is structured such that Fabian is required to pay the full contract price of
₱57,000 on August 31, 20x1. The cost of goods transferred is ₱34,200. Emong delivers the product
to Fabian on July 31, 20x1. The contract exists on?
a. March 1, 20x1 c. August 31, 20x1
b. July 31, 20x1 d. None of the choices
2. As A Friend Inc. enters into a contract with a customer, Baguio, for the sale of a fertilizer-plant
which is customized to Baguio's requirements and installation of the plant in Baguio's factory. The
installation services are routinely performed by other entities and therefore can be priced separately
to the sale of the plant. Which of the following statements is correct?
a. The contract has two performance obligations, because each component is distinct: the sale of
the fertilizer-plant, and the installation service.
b. The whole contract constitutes one single performance obligation only, because the two

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components are interrelated with each other.
c. The contract has only one performance obligation, as the installation cannot occur without the
sale of the plant.

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d. The installation of the plant should not be identified as a separate performance obligation, as it
can be performed by another entity.
3. Which one of the following statements about variable consideration is correct?

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a. Variable consideration should be included in the transaction price only if it is highly probable
that no revenue reversal will occur when the uncertainty associated with the variable
consideration is subsequently resolved.
b. Variable consideration should be always included in the transaction price in all circumstances.
c. When determining the probability of a significant subsequent revenue reversal, an entity should

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always estimate the subsequent revenue reversal as the weighted average amount of all
possible outcomes.
d. When determining the probability of a significant subsequent revenue reversal, an entity should
assess the possibility of a change in the estimate of variable consideration and the magnitude
of the possible revenue reversal when the uncertainty related to the variable consideration has
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been resolved.
4. Yen Santos Company entered into the contract with LJ, a customer to construct a warehouse. The
total contract price is ₱100,000, but if Yen Santos builds a warehouse within 3 months after the
contract’s signature, LJ will pay the performance bonus of ₱10,000. Yen Santos estimates that
probability of meeting 3 months deadline is 90%. What is the transaction price? (Discount rate is
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5%, discount factor for 1 year is 0.952)

a. ₱109,000
b. ₱104,720
c. ₱110,000
d. ₱100,000
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5. Jolina Construction Company entered into a contract with Kiko Hotel for constructing and installing
a standard designed gym for a fixed price of ₱400,000. Nonrefundable progress payments are made
on a monthly basis for work completed during the month. Legal title to the gym passes to Kiko Hotel
upon completion of the building process. If Kiko cancels the contract before the gym construction is
completed, Jolina Construction Company removes all the installed equipment and Kiko Hotel must
compensate Jolina for any loss of profit on sale of the gym to another customer. When should
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revenue be recognized?
a. Any time c. Point in time
b. Upon transfer of legal title d. Over time
6. Auring Industries received a ₱300,000 prepayment from the Packard Associates for the sale of new
equipment. Auring will bill Packard an additional ₱100,000 upon delivery of the equipment. Upon
receipt of the ₱300,000 prepayment, how much should Auring recognize for a contract asset, a
contract liability and accounts receivable?
a. Contract asset: ₱0; contract liability: ₱300,000; accounts receivable, ₱0.
b. Contract asset: ₱300,000; contract liability: ₱0; accounts receivable, ₱0.
c. Contract asset: ₱0; contract liability: ₱300,000; accounts receivable, ₱100,000.
d. Contract asset: ₱300,000; contract liability: ₱0; accounts receivable, ₱100,000.
7. On 1 January 20x1, a construction company entered into a contract that has a fixed price contract
for ₱100,000 to construct a building (the project).
The contractor's initial estimate of total contract costs is ₱60,000. It will take two years to construct
the building.
As of 31 December 20x1, the contractor has incurred costs of ₱20,000 on the contract, including
₱2,000 on cement that is held offsite. The entity's estimate of total contract costs has stayed the
same.
If the contractor determines the stage of completion of the construction contract by reference to the
proportion that costs incurred for work performed to date bear to the estimated total costs, what is
the revenue, expenses, and profit for the year 20x1:
Revenue Expenses Profit
a. ₱30,000 ₱18,000 ₱12,000

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b. ₱32,000 ₱20,000 ₱12,000
c. ₱31,333 ₱18,000 ₱13,333
d. ₱33,333 ₱20,000 ₱13,333

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8. Franchise fees should be recognized
a. On the date the contract was signed.
b. On the date the franchise is opened for business.

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c. On the date the franchise fee is paid to franchisor.
d. When performance obligations are satisfied.
9. Caloy sells the Tornado vacuum cleaner. Each vacuum cleaner has a one-year warranty (quality-
assurance) that covers any product defects. When customers purchase a vacuum cleaner, they also

obligations exist?
a. None b. One
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have the option to purchase an extended three-year warranty that covers any breakage or
maintenance. The extended warranty sells for the same amount regardless of whether it is
purchased at the same time as the vacuum cleaner or at some other time. How many performance

c. Two d. Three
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10. Globemart Inc., a telecommunications operator, entered into a contract with Smartmatic on March
1, 20x1. In line with the contract, Smartmatic subscribes for Globemart’s monthly plan for 12
months and in return, Smartmatic receives a free Apple I-Phone handset from Globemart.
Smartmatic will pay a monthly fee of ₱1,200 starting March 31, 20x1. Smartmatic gets the handset
immediately after contract signing.
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Globemart sells the same handsets for ₱3,600 and the same monthly plans for ₱800 per month
without handset.
On March 1, 20x1, the revenue from sale of goods to be reported by Globemart is?
a. Nil b. ₱3,927.00 c. ₱8,727.50 d. ₱12,654.50
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11. On January 1, 20x1, Solid Company accepted a long-term construction project for an initial contract
price of ₱1,000,000 to be completed on June 30, 20x3. On January 1, 20x2, the contract price was
increased to ₱1,500,000 by reason of change in the design of the project. The outcome of the
construction contract can be estimated reliably. The project was completed on December 31, 20x3
which resulted to penalty amounting to ₱200,000. The entity provided the following data concerning
the direct costs related to the said project for 20x1 and 20x2:
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20x1 20x2
Costs during the year ₱440,000 ₱680,000
Remaining estimated costs to complete at year-end 660,000 280,000
Applying PFRS for SME, what is the realized gross profit for the year ended December 31, 20x2?
a. ₱200,000
b. ₱80,000
c. ₱180,000
d. ₱100,000
12. The ABC Company recognizes profit on credit sales on installment basis. At the end of 20x2, before
the accounts are adjusted, the ledger shows the following:
Installment Accounts receivable, 20x1 ₱337,500
 Installment Accounts receivable, 20x2 525,000
Deferred grow profit, 20x1 ₱ 185,000
Deferred gross profit, 20x2 272,500
Regular Sales 1,500,000
Cost of Regular Sales 960,000
Each year the gross profit on installment sales was 8% lower than the regular sales. In 20x2. the
gross profit on installment sales was 4% higher than 20x1.
How much is the total realized gross profit in 20x2?
a. ₱229,500
b. ₱769,500
c. ₱181,000
d. ₱721,000

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13. On January 1, 20x1, Mr. Gerald entered into a franchise agreement with Anderson to market their
products. The agreement provides for an initial fee ₱12,500,000 payable as follows: ₱3,500,000 to
be paid upon signing of the contract and the balance in five equal annual payments every end of

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the year starting December 31, 20x1. Mr. Gerald signs a non-interest bearing note for the balance.
His credit rating indicates that he can borrow money at 15% interest for a loan of this type. The
present value of an annuity of ₱1 at 15% for 5 periods is 3.352. The agreement further provides
that the franchisee must pay a continuing franchise fee equal to 3% of the monthly gross sales. On

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August 31, the franchiser completed the initial services required in the contract at a cost of
₱4,290,120 and incurred indirect cost of ₱175,000. The franchisee commenced business operations
on November 30, 20x1. The gross sales reported to the franchisor were ₱1,800,000 for the year
ended December 31, 20x1. The first instalment payment was made in due date.

a. ₱3,126,268 b. ₱3,201,268
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Assume the collectability of the note is not reasonably assured, how much is the net income for the
year ended, December 31, 20x1?
c. ₱2,417,268 d. ₱3,072,268

14. Which of the following transactions will increase the home office account in the branch's separate
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statement of financial position?
a. Net loss of the branch
b. Collection by the home office of branch's receivable
c. Debit memo received from the home office
d. Payment by branch of home office’s liability
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15. The following transactions relating to branch AA and branch BB are the following:
• On September 30, 20X1, branch AA collected branch BB's accounts receivable of ₱80,000 less
3% discount
• October 31, 20X1, home office shipped merchandise costing ₱400,000 to branch AA. Freight of
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₱6,000 was paid by the home office. It is the policy of the company to bill its branches at 25%
above cost.
• On November 30, 20X1, upon the instruction of the home office, branch AA reshipped a quarter
of the above merchandise to branch BB with freight of ₱3,000 (freight-collect). Had the goods
been shipped directly to branch BB, the freight would have been only ₱1,400.
What is the home office current account of branch AA as of October 31, 20X1?
a. ₱483,600
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b. ₱577,600
c. ₱583,600
d. ₱983,600
Part 2

1. The Mahiyain Manufacturing Co. of Quezon City opened a branch at Davao City on January 1, 1988,
to expand the market of its product. Merchandise shipped during 1988 to the Davao branch totalled
₱104,000, and this included a profit of 25% based on cost. At the end of the year, the inventory
was ₱12,500, at billed price. The branch extends credit, makes collections and pay expenses from
cash received. The company applied the periodic inventory method. Other transactions affecting
the branch are as follows: Sales on account ₱117,000; expenses ₱20,000, of which ₱1,300 were
unpaid on December 31, 1988; cash received from customers' accounts, ₱84,000, after allowing
cash discounts of ₱1,480; cash remitted to the home office during the year ₱65,000. [May 1989]
In so far as the home office is concern, the true income or loss of the branch operation was:
a. ₱24,300 b. ₱22,320 c. (₱18,300) d. ₱24,320
2. Trial balances for the home office and the branch of the Helen Company show the following accounts
on December 31, 20x1. The home office policy of billing the branch for merchandise is 20% above
cost.

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Home Branch
Office

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Allowance for overvaluation of branch merchandise ₱ 10,800
Shipments to branch 24,000
Purchases (outsiders) ₱ 7,500
Shipments from home office 28,800

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Merchandise inventory, January 1, 20x1 45,000
What part of the branch inventory as of January 1, 20x1 represents purchases from outsiders and
what part represents goods acquired from the home office?
Outsiders Home Office
a.
b.
c.
d.
₱12,000
₱16,500
₱15,000
₱ 9,000
₱32,000
₱28,500
₱30,000
₱36,000
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3. The home office of Glendale Company, which uses the perpetual inventory system, bills shipments
of merchandise to the Montrose Branch at a markup of 25% on the billed price. On August 31, 20x1,
the credit balance of the home office's Allowance for Overvaluation of Inventories - Montrose Branch
ledger account was ₱60,000. On September 17, 20x1, the home office shipped merchandise to the
branch at a billed price of ₱400,000. The branch reported an ending inventory, at billed price, of
₱160,000 on September 30, 20x1. Compute the realized gross profit?
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a. ₱20,000
b. ₱28,000
c. ₱108,000
d. ₱120,000
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4. On December 31, 20X1 the home office of Trisha Supply Company recorded a shipment of
merchandise to its Glenda Forth branch as follows:
Glenda Forth branch ₱30,000
Shipments to Glenda Forth branch ₱25,000
Unrealized profit in Glenda Forth branch inventory 4,000
Cash (for freight charges) 1,000
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The Glenda Forth branch sells 40% of the merchandise to outside entities during the rest of
December 31, 20X1. The books of the home office and Trisha branches are closed on December 31
of each year. On January 5, 20X2, the Glenda Forth branch transfers half of the original shipments
to the Sandy branch, and the Glenda Forth branch pay ₱500 freight on the shipment.
At what amounts should the 60% of the merchandise remaining unsold at December 31, 20X1 be
included in (1) the inventory of the Glenda Forth branch at December 31, 20X1, and (2) the
published statement of financial position of Trisha Office Supply Company at December 31, 20X1.
a. ₱15,000; ₱17,400
b. ₱17,400; ₱15,000
c. ₱15,600; ₱18,000
d. ₱18,000; ₱15,600
5. The Androphobia Manufacturing Company delivered ten DVD players to Basiphobia Company on
consignment. These DVD players cost ₱3,000 each and are to be sold at ₱5,000 each. The
Androphobia Manufacturing Co. paid shipment cost of ₱2,500.
Basiphobia Co. submitted an account sale stating that it had returned one unit and was remitting
₱21,900. This amount represents the total amount due to Androphobia Manufacturing Co. after
deducting the following from the selling price of the DVD player sold:
Commission 20% of selling price
Advertising ₱1,000
Delivery and installation ₱ 600
Cartage on consigned goods ₱ 500
The profit (loss) on consignment realized by Androphobia Manufacturing Company is:

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a. ₱2,300 c. (₱2,550) c. ₱2,480 d. None of the choices
6. Under PFRS for SME, how shall an entity (acquirer) account for each business combination?

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a. Pooling of interest method
b. Purchase method
c. Acquisition method
d. Equity method

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7. Which of the following statements about identifying the acquirer is/are true?
I. In a cash acquisition, the acquirer is generally the entity that pays the cash.
II. When a new holding entity issues shares to effect the combination, another of the combining
entities must be identified as the acquirer.
III. Usually the acquirer is the entity that becomes the parent of the other combining party or

a.
parties, but not always.

II, III and IV

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IV. In a reverse acquisition, the entity that becomes the subsidiary of the other entity is the
acquirer.
b. I, II, III and IV c. I, II and III d. I and II only
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8. Anders acquired a manufacturing facility from Bane for a total consideration of ₱6,000,000. The
facility contains 4 equipment with fair value of ₱1,500,000, a building with appraisal value of
₱2,500,000 and land with appraised value of ₱4,000,000. At what value will the equipment’s be
recognized, in the financial statements of Anders?
a. ₱ 0 b. ₱1,125,000 c. ₱1,500,000 d. ₱2,000,000
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9. On January 1, David Corporation paid ₱800,000 and issued 18,000 shares of ₱50 par ordinary shares
with market value of ₱1,320,000 for all the net assets of Goliath Corporation. In addition, David
paid ₱12,000 for registering and issuing the 18,000 shares and ₱20,000 for indirect costs of the
business combination. Summary statement of financial position information for the companies
immediately before the merger is as follows:
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David
Corporation Goliath Corporation
Book Value Book Value Fair Value
Cash ₱1,400,000 ₱160,000 ₱160,000
Inventories 480,000 320,000 400,000
Other current assets 120,000 80,000 80,000
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Plant assets – net 1,040,000 720,000 1,120,000

Current liabilities 640,000 120,000 120,000
Other liabilities 320,000 200,000 160,000
Ordinary shares, ₱50 par 1,680,000 800,000
Accumulated profits 400,000 160,000
The total assets immediately after the merger is
a. ₱ 4,488,000 b. ₱ 4,608,000 c. ₱ 4,008,000 d. ₱ 5,440,000
10. An acquirer made the following entry to report an acquisition:
Tangible assets ₱ 4,000
Customer lists 600
Goodwill 1,000
 Liabilities ₱ 2,000
Cash 3,600
Six months after the acquisition, the customer lists are determined to be worthless. How is this
information reported if (1) the new information relates to the value of the customer lists as of the
date of acquisition, and (2) the new information relates to changes in value since acquisition?
Customer lists are written off, and
(1) (2)
a. A gain on acquisition of ₱600 is recorded. Goodwill decreases ₱600.
b. Goodwill increases ₱600. A loss of ₱600 is recorded.
c. A loss of ₱600 is recorded. Goodwill increases ₱600.
d. Cash is reduced by ₱600. A loss of ₱600 is recorded.
11. On January 2, the statement of financial position of Pluto Company and Saturn Company prior to

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the combination are:
Pluto Saturn
Company Company

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Cash ₱1,500,000 ₱ 50,000
Inventories 1,000,000 100,000
Property and equipment (net) 2,500,000 350,000
Total assets ₱5,000,000 ₱ 500,000

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Current liabilities ₱ 300,000 ₱ 50,000
Ordinary shares, ₱100 par 500,000 50,000
Share premium 1,500,000 100,000
Accumulated profits 2,700,000 300,000
Total liabilities and shareholder’s equity
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The fair value of Saturn Company’s equipment is ₱590,000.
₱ 500,000

Assuming Pluto Company acquired all of the outstanding shares of Saturn Company resulting to
goodwill of ₱248,000, how much is the price paid to Saturn Company’s share?
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a. ₱988,000 b. ₱938,000 c. ₱698,000 d. ₱690,000
12. Harrison, Inc. acquires 100% of the voting stock of Rhine Company on January 1, 20X1 for ₱400,000
cash. A contingent payment of ₱16,500 will be paid on April 15, 20X2 if Rhine generates cash flows
from operations of ₱27,000 or more in the next year. Harrison estimates that there is a 20%
probability that Rhine will generate at least ₱27,000 next year and uses an interest rate of 5% to
incorporate the time value of money. The fair value of ₱16,500 at 5%, using a probability weighted
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approach is ₱3,142.
Assuming Rhine generates cash flow from operations of ₱27,200 in 20X1, how will Harrison record
the ₱16,500 payment of cash on April 15, 20X2?
a. Debit Contingent performance obligation 16,500 and Credit Cash ₱16,500.
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b. Debit Contingent performance obligation ₱3,142, debit Loss from contingent performance
obligation ₱13,358 and Credit Cash ₱16,500.
c. Debit Investment in Subsidiary and Credit Cash, ₱16,500.
d. Debit Goodwill and Credit Cash, ₱16,500.
13. The Statement of Financial Position of Lancer Corporation on June 30 is presented below:
Current assets ₱ 32,500
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Land 220,000
Building 110,000
Equipment 87,500
Total Assets ₱ 450,000
Liabilities ₱ 87,500
Capital stock, ₱5 par 150,000
Additional paid in capital 137,500
Retained earnings 75,000
Total equities ₱ 450,000
 All the assets and liabilities of Lancer assumed to approximate their fair values except for land and
building. It is estimated that the land have a fair value of ₱350,000 and the fair value of the building
increased by ₱80,000.
Phantom Corporation acquired 80% of Lancer’s capital stock for ₱500,000.
Assuming the consideration paid excludes control premium of ₱23,000 and the fair value of the non-
controlling interest is ₱122,750, how much is the goodwill/(gain on acquisition) on the consolidated
financial statement?
a. ₱78,250 b. ₱73,250 c. ₱69,500 d. ₱74,750
14. PPh Corp. and PFJ Co. which are both engaged in the manufacturer of industrial gases are being
consolidated to form Richo Gases Corp. The constituent companies agreed to the issuance by Richo
Gases Corp. of ₱100 par value stock of their contributions and goodwill. The goodwill shall be equal
to earnings in excess of 8% on assets contributions capitalized at 20%. Their assets and earnings

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contributions are as follows:
Expected Annual
Net tangible Assets Earnings

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PPH Corp ₱250,000 ₱25,000
PFJ Co. 150,000 14,000
What amount shall be recognized by Richo gases Corp. as goodwill?
a. ₱32,000 b. ₱35,000 c. ₱39,000 d. ₱45,000

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15. Pako acquired 80,000 out of 100,000 outstanding ordinary shares of Sako which enabled the former
to obtain control of the latter an acquisition price of ₱1,000,000. Pako paid ₱100,000 acquisition
related costs and ₱50,000 indirect costs of business combination.
At the date of acquisition, the net assets of Sako are reported at ₱1,600,000. An asset of Sako is
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overvalued by ₱60,000 while one liability is undervalued by ₱40,000.
What is the initial measurement of noncontrolling interest in the consolidated statement of financial
position?
a. ₱320,000
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b. ₱300,000
c. ₱250,000
d. ₱316,000
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