"Partnership Formation”

Differentiate between the accounting for partnership, sole proprietorships and corporations."
1
A partnership is formed by two individuals who were previously sole proprietors. Property other than cash that
is part of the initial investment in the partnership would be recorded for financial reporting purposes at the
a. Proprietor’s book values or the fair value of the property at the date of the investment, whichever is higher.
b. Proprietor’s book values or the fair value of the property at the date of the investment, whichever is lower.
c. Proprietor’s book values of the property at the date of the investment.
d. Fair value of the property at the date of the investment.
e. None of the above.

Valuation of Contributions of Partners

On March 1, 2024, CC and FF formed a partnership with each contributing the following assets:

The building is subject to a mortgage loan of P90,000, which is to be assumed by the partnership agreement
provides that CC and FF share profits and losses 30 percent and 70 percent, respectively.

2
On March 1, 2024, the capital account of FF would show a balance of:
a. P280,000 c. P314,000
b. P305,000 d. P370,000

3
Assuming that the partners agreed to bring their respective capital in proportion to their respective profit and
loss ratio, and using FF’s capital as the base, how much cash is to be invested by CC?
a. P19,000 c. P40,000
b. P30,000 d. P55,000

Accounting for Partner's Initial Investment

4
Company Y is purchased by Company X, and the purchase price is P2,500,000 greater than the fair values of
the identifiable net assets acquired. One of the assets acquired is a building, originally valued at P1,000,000 at
the date of the purchase. Six months after the acquisition, it is discovered that the building was really only
worth P200,000 at (as of) the date of acquisition. What entry is made to reflect this new information?
a. dr. goodwill, cr. building for P800,000.
b. dr. loss on building, cr. building for P800,000.
c. dr. other contributed capital, cr. building for P800,000.
d. dr. retained earnings, cr. building for P800,000.

"Partnership Operations
Division of Profits and Losses"
5
The partnership of Monte and Carlo has the following provisions:
1. Monte, who is primarily responsible for obtaining new clients, is to receive a 30% bonus on revenues in
excess of P200,000.
2. Carlo, who is primarily responsible for administration, is to receive a 30% bonus on profits in excess of 50%
of revenues, as reflected in the general ledger.
3. All remaining profits or losses are to be divided equally.
Revenues for the year P280,000
Operating expenses 120,000
 The share of partner Monte in the net income should be:
a. P92,000 c. P71,000
b. P89,000 d. P57,000

6
A partnership agreement calls for allocation of profits and losses by salary allocations, a bonus allocation,
interest on capital, with any remainder to be allocated by preset ratios. If a partnership has a loss to allocate,
generally which of the following procedures would be applied?
a. Any loss would be allocated equally to all partners.
b. Any salary allocation criteria would not be used.
c. The bonus criteria would not be used.
d. The loss would be allocated using the profit and loss ratios, only.

7
The partnership agreement of AAA, BBB and CCC provides for the year-end allocation of net income in the
following order:
● First, AAA is to receive 10% of net income up to ₱100,000 and 20% over ₱100,000
● Second, BBB and CCC each are to receive 5% of the remaining income over ₱150,000
● The balance of income is to be allocated equally among the three partners

The partnership’s 2009 net income was ₱250,000 before any allocations to partners. What amount should be
allocated to BBB?
0. 71,000
0. 68,000
0. 108,000
0. 110,000

Partnership Agreement for Salaries, Interest and Bonus

8
Which of the following interest component calculation bases is least susceptible to manipulation when
allocating profits and losses to partners?
a. Beginning capital account balance
b. Average of beginning and ending capital account balances
c. Weighted average capital account balance
d. Ending capital account balance

9
A, B, and C’s partnership agreement requires the partners to maintain average investments ₱2,500,000,
₱1,250,000, and ₱1,250,000, respectively. Six percent (6%) interest per annum is to be computed on any
excess or deficiency in the contributions. After the interest allowances, any remaining profit or loss is shared in
the ratio of 5:3:2. Average amounts invested during the first six months were as follows: A, ₱3,000,000; B,
₱1,375,000; and C, ₱1,000,000. Loss of ₱62,500 was incurred for the first six months. How is the loss
distributed among the partners?
A B C
0. 12,500 10,000 49,500
0. 18,375 21,875 22,250
0. 21,875 18,375 22,250
a. 31,250 18,750 12,500

10
AB Partnership was formed on February 28, 20x1. Partner A invested ₱150,000 cash while Partner B invested
land that he originally bought for ₱70,000 but has a current fair value of ₱180,000. Because of cash shortage,
B invested additional cash of ₱60,000 on November 1, 20x1. The partnership contract states the following:
A B
 10,000 20,000
● Monthly salary (recognized as expenses and withdrawn periodically)
12% p.a. 12% p.a.
● Interest on beginning capital
20%
● Bonus on profit before salaries and interest but after bonus
50% 50%
● Remaining profit or loss

AB Partnership earned profit of ₱120,000 in 20x1 before deducting the bonus and interests. What is the capital
balance of A on December 31, 20x1?
0. 243,500
0. 226,500
0. 193,500
0. 266,500

"Partnership Dissolution
Admission of Partner through Purchase of Interest and Investment"
11
Horne and Picolo are partners with capital balances of P140,000 and P100,000, respectively. They share
profits and losses in a 2:1 ratio, respectively. Sax is admitted into the partnership for a P60,000 cash
contribution. Sax shares in 25% of the profits and losses and is to have a 25% capital interest.
How much should be credited to Sax’s capital account under the bonus method?
a. P60,000 c. P 80,000
b. P75,000 d. P100,000

12
Cord and Stringer are partners who share profits and losses in the ratio of 3:2, respectively. On August 31,
2029 their capital accounts are as follows:
Cord P70,000
Stringer 60,000

On that date, they agree to admit Twiner as a partner with a one-third interest in the capital and profits and
losses, for an investment of P50,000. The new partnership will begin with a total capital of P180,000. The
capital balance of Cord after the admission of Twiner should be:
a. P56,000 c. P70,000
b. P64,000 d. P76,000

13
The admission of a new partner under the bonus method will result in a bonus to
a. the old partners only.
b. the new partner only.
c. either the new partner or the old partners, but not both.
d. none of the above.

Changes in the Composition of the Partners

The following condensed balance sheet is presented for the partnership of AAA and BBB, who share profits
and losses in the ratio of 60:40, respectively:
Cash P 45,000 Accounts payable P 120,000
Other assets 625,000 AAA, capital 348,000
BBB, loan 30,000 BBB, capital 232,000
Total P 700,000 Total P 700,000

The assets and liabilities are fairly valued on the balance sheet. AAA and BBB decide to admit CCC as a new
partner with 20% interest.

14. What amount should CCC contribute in cash or other assets?

a. P110,000 c. P140,000
b. P116,000 d. P145,000

15. Instead of admitting a new partner, AAA and BBB decide to liquidate the partnership. If other assets are
sold for P500,000, what amount of the available cash should be distributed to AAA?
a. P255,000 c. P327,000
b. P273,000 d. P348,000

Account for the Effect of Dissolution on Partnership Equity

16
The assets and equities of the QQ, RR, and SS partnership at the end of its fiscal year on October 31, 2029
are as follows:

The partners decide to liquidate the partnership. They estimate that the non-cash assets, other than the loan to
RR, can be converted into P100,000 cash over the two-month period ending December 31, 2029. Cash is to
be distributed to the appropriate parties as it becomes available during the liquidation process. The partner
most vulnerable to partnership losses on liquidation:
a. QQ c. QQ and RR equally
b. RR d. SS

17
Using the same information in No. 46 and a total amount of P7,500 is available for distribution to partners after
all non-partner liabilities are paid, it should be paid as follows:
QQ RR SS

a. P7,500 P 0 P 0
b. P 0 P3,750 P3,750
c. P2,250 P3,750 P1,500
d. P2,500 P2,500 P2,500

"Partnership Liquidation
Methods of Liquidations"
18
The following is the priority sequence in which liquidation proceeds will be distributed for a partnership:
a. partnership drawings, partnership liabilities, partnership loans, partnership capital balances.
b. partnership liabilities, partnership loans, partnership capital balances.
c. partnership liabilities, partnership loans, partnership drawings, partnership capital balances.
d. partnership liabilities, partnership capital balances, partnership loans.

19
In accounting for partnership liquidation, cash payments to partners after all creditors’ claims have been
satisfied, but before the final cash distribution, should be according to:
a. The partners’ relative profit and loss—sharing ratios.
b. The final balances in partner capital accounts.
c. The partners’ relative share of the gain or loss on liquidations.
d. Safe payments computations.

Marshalling of Assets
20
After all noncash assets have been converted into cash in the liquidation of the AA and JJ partnership, the
ledger contains the following account balances: Debit Credit
 Cash…………………………………P 34, 000
Accounts payable……………………………………………… P25, 000
Loan payable to AA……………………………………………….. 9,000
AA, capital……………………………..8,000
JJ, capital………………………………………………………………….8,000

Available cash should be distributed; P25,000 to accounts payable and;

a. P9, 000 loan payable to AA c. P1,000 to AA and P8, 000 to JJ

b. P4, 500 each to AA and JJ d. P8,000 to AA and P1, 000 to JJ

Account for the Partnership Liquidation

21
Which statement is true concerning the safe payment and cash distribution plan approaches to liquidation?
a. Both approaches are used in simple liquidations.
b. The safe payment approach determines how the current available cash Is distributed, but not
future payments.
c. The safe payment approach is more conservative than the cash distribution plan.
d. The safe payment approach uses the right of offset, but the cash distribution plan does not

The partners of the M & N Partnership started liquidating their business on July 1, 20x4, at which time the
partners were sharing profits and losses 40% to M and 60% to N. The balance sheet of the partnership
appeared as follows:

M & N Partnership
Balance Sheet – July 1, 20x4

Assets Liabilities & Capital

Cash……………………. P 8,800 Accounts payable…………………… P32, 400
Receivable……………… 22,400 M, capital…………….. P31, 000
Inventory…………...….. 39,400 M, drawing………………… 5,400 25, 600
Equipment………….. P65, 200 N, capital……………… P33, 200
Accumulated N, drawing…………………….200 33, 000
Depreciation…….. 30, 800 34, 400 N, loan……………….. 14, 000
Total…………………… P105, 000 Total…………………… P105, 000

During the month of July, the partners collected P600 of the receivables with no loss. The partners also sold
during the month the entire inventory on which they realized a total of P32,400.

22
How much of the cash was paid to M’s capital on July 31, 20x4?
a. P -0- c. P5, 400
b. 25, 600 d. 320

"Corporate Liquidation
Accounting for Corporate Liquidation and Reorganization"
Orville Company recently petitioned for bankruptcy and is now in the process of preparing a statement of
affairs. The carrying values and estimated fair values of the assets of Orville Company are as follows:
Debts of Orville are as follows:

23
What is the total amount of unsecured claims?
a. P 93,000 c. P121,000
b. P113,000 d. P126,000

24
What estimated amount will be available for general unsecured creditors upon liquidation?
a. P28,000 c. P113,000
b. P93,000 d. P121,000

Prepare Statement of Affairs and Statement of Deficiency

25
What is the estimated dividend percentage?
a. 23% c. 77%
b. 93% d. 68%

26
Eagle Company recently petitioned for bankruptcy and is now in the process of preparing a statement of
affairs. The following information has been assembled for this statement:

What amount will be paid to the fully secured creditors and the creditors with priority?
Fully Secured Creditors Creditors with Priority
a. P300,000 P140,000
b. P300,000 P 92,000
c. P600,000 P 92,000
 d. P700,000 P140,000

Prepare Statement of Realization and Liquidation

27
On a statement of financial affairs, how are liabilities classified?
a. Current and noncurrent.
b. Secured and unsecured.
c. Monetary and nonmonetary.
d. Historic and futuristic.

28
Liabilities in the statement of affairs are classified into
0. Unsecured liabilities with priority
0. Fully secured creditors
0. Partially secured creditors
0. Unsecured liabilities without priority
0. All of these

Determination of the Order of Priority of Claimant Assets Subject to Liquidation

Andrix Asterix Co. has filed for voluntary insolvency and is going to liquidate. Andrix Asterix Co.’s statement of
financial position immediately prior to the liquidation process is shown below:
Andrix Asterix Co.
Statement of financial position
As of December 31, 20x0

ASSETS
Current assets:
Cash 160,000
Accounts receivable 880,000
Note receivable 400,000
Inventory 2,120,000
Prepaid assets 40,000
3,600,000
Noncurrent assets:
Land 2,000,000
Building, net 8,000,000
Equipment, net 1,200,000
11,200,000
Total assets 14,800,000

LIABILITIES AND EQUITY

Current liabilities:
Accrued expenses 884,000
Current tax payable 1,400,000
Accounts payable 4,000,000
6,284,000
Noncurrent liabilities:
Note payable (secured by equipment) 1,200,000
Loan payable (secured by land and building) 8,000,000
9,200,000
Capital deficiency:
Share capital 2,000,000
Retained earnings (deficit) (2,684,000)
(684,000)
Total liabilities and equity 14,800,000
Additional information:
The following information was determined before the start of the liquidation process:
0. Only 76% of the accounts receivable is collectible.
0. The note receivable is fully collectible, and in addition interest of ₱40,000 is expected to be collected.
0. The inventory has an estimated selling price of ₱1,680,000 and estimated costs to sell of ₱40,000.
0. The prepaid assets are non-refundable.
0. The land and building have fair values of ₱8,000,000 and ₱3,200,000, respectively. However, Andrix
expects to sell both assets at a single price of ₱10,400,000. Costs to sell are negligible because the
prospective buyer agrees to shoulder all costs relating to the transfer of the property.
0. The equipment is expected to be sold at a net selling price of ₱800,000.
0. Administrative expenses of ₱120,000 are expected to be incurred in the liquidation.
0. The accrued expenses include accrued salaries of ₱100,000.
0. Interest of ₱60,000 is expected to be paid on the loan.
0. All the other liabilities are stated at their expected net settlement amounts.

29. How much are the total assets pledged to partially secured creditors?
a. 800,000
b. 3,140,000
c. 1,200,000
d. 400,000

30. How much are the total unsecured liabilities without priority?
a. 4,748,000
b. 4,884,000
c. 4,904,000
d. 5,184,000

"Joint Arrangements
Characteristics of Joint Arrangement"
31
This is defined as an arrangement in which two or more parties have joint control
a. Joint operation
b. Joint venture
c. Joint arrangement
d. Joint undertaking

32
Which is a characteristic of a joint arrangement?
a. The parties are bound by a contractual arrangement.
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.

Differentiate Between Joint Operation and Joint Venture

33
It is the joint arrangement that involves the establishment of a corporation in which each party has an equity
interest in the net assets of the corporation.
a. Joint venture
b. Joint operation
c. Joint undertaking
d. Joint entity

34
It is a type of joint arrangement whereby the parties that have joint control of the arrangement have right to the
total assets and obligations for the total liabilities relating to the arrangement.
a. Joint venture
b. Jointly controlled asset
c. Joint operation
d. Joint business

Accounting for Joint Operations Transactions

A, B and C formed a joint operation. They agreed on the following:
● C is the appointed as the manager. As compensation, C is entitled to a ₱120 salary plus bonus of 25%
of profit after deducting the salary and the bonus. However, C will be charged for the cost of any unsold
inventory.
● Interest of 10% per annum is allowed to A’s and B’s capital contributions.
● Any remaining profit or loss is divided equally.

The joint operation was completed after a year. The following were the transactions:
● A contributed cash of ₱400 and merchandise costing ₱800.
● B contributed merchandise costing ₱1,600. B paid freight of ₱80 in the transfer.
● C purchased merchandise worth ₱400 using A’s cash contribution.
● C paid expenses of ₱800 using his own cash.
● C made total sales of ₱3,200.
● All inventories were sold except one-half of those contributed by B.

35
How much is the joint operation’s profit after deduction for salary but before deduction for bonus?
a. 192
b. 240
c. 360
d. 420

36
On the cash settlement between the joint operators,
a. A pays ₱1,288.
b. B pays ₱1,816.
c. C receives ₱96.
d. All of these

Describe Accounting Requirements for Joint Venture Transactions

37
On January 1, 20x1, PATRIMONY Co. entered into a joint arrangement classified as a joint venture. For an
investment of ₱2,000,000, PATRIMONY Co. obtained 30% interest in HERITAGE Joint Venture, Inc. During
the year, HERITAGE Joint Venture, Inc. reported profit of ₱4,000,000 and other comprehensive income of
₱800,000, i.e., a total comprehensive income of ₱4,800,000. HERITAGE Joint Venture, Inc. declared
dividends of ₱2,400,000. How much is the carrying amount of the investment in the joint venture on December
31, 20x1?
a. 2,720,000
b. 2,000,000
c. 2,480,000
d. 4,160,000
38
When an investment in joint venture is held by a venture capital organization, mutual trust fund, unit trust and
insurance-linked fund
a. The entity must apply the equity method of accounting
b. The entity must apply the fair value method of accounting.
c. The entity may elect to measure the investment in joint venture at fair value through profit or loss.
d. The entity may elect to measure the investment in joint venture at fair value through other comprehensive
income

Understand the Relevant Provisions of the PFRS for SMEs

39
Cloud Co. acquired an investment in Sky Co., a joint venture, for ₱100,000, incurring transaction costs of
₱1,000. Cloud Co. determined that it has joint control over Sky. Cloud Co. uses the PFRS for SMEs and
elects the cost model for its investments in joint ventures. The investment’s fair values were ₱102,000,
₱110,000 and ₱90,000 on December 31, 20x1, 20x2 and 20x3, respectively. Costs to sell were estimated at
₱4,000 throughout. Cloud Co. recognizes in its profit or loss which of the following amounts? gain (loss)
20x1 20x2 20x3
0. 0 0 0
0. (1,000) 8,000 (20,000)
0. (3,000) 8,000 (20,000)
a. (3,000) 3,000 (15,000)

"Constructions Contracts
Account for revenue from contracts with customers on different revenue recognition issues"
40
AA Computers licenses customer-relationship software to ABS Company. In addition to providing the software
itself, AA Computers promises to provide consulting services by extensively customizing the software to ABS’s
information technology environment, for a total consideration of P3,456,000. In this case, AA Computers is
providing a significant service by integrating the goods and services (the license and the consulting service)
into one combined item for which ABS has contracted. In addition, the software is significantly customized by
AA Computers in accordance with specifications negotiated by ABS. How many performance obligations exist
in the contract?
a. 0 c. 2
b. 1 d. 3

41
Contract liability is a company’s obligations to transfer goods or services to a customer for which the company
has received consideration from the customer. An example of a contract liability is
a. Prepaid subscription. c. Mortgage Payable.
b. Unearned magazine d. Service Revenue. subscription.

"Constructions Contracts
Account for revenue from contracts with customers on different revenue recognition issues"
42
On 25 June 2029 Cambridge Co received an order from a new customer, Circus Co, for products with a sales
venue of P900,000. Circus Co enclosed a deposit with the order of P90,000. On 30 June Cambridge Co had
not completed credit checks on Circus Co and had not despatched any goods. Cambridge Co is considering
the following possible entries for this transaction in its financial statements for the year ended 30 June 2029.
(i) Create a trade receivable for P810,000.
(ii) Include P90,000 in revenue for the year.
(iii) Recognise P90,000 as a contract liability.
(iv) Include P900,000 in revenue for the year.
(v) Do not include anything in revenue for the year.
According to PFRS 15 Revenue from Contracts with Customers, how should Cambridge
Co record this transaction in its financial statements for the year ended 30 June 2029?
a. (i) and (iv) only c. (ii) and (v) only
b. (ii) and (iv) only d. (iii) and (v) only

43
LP received an order to supplier a customer with 10,000 units of product A every month for two years. The
customer had negotiated a low price of P200 per 1,000 units and agreed to pay P12,000 in advance every six
months. The customer made the first payment on July 1, 2026 and LP supplied the goods each month from
that date. LP’s year end is September 30. In addition to the effect of cash received, what is the effect of this
order on LP’s financial statement for the year ended September 30, 2026, in accordance with PFRS 15
Revenue from Contracts with Customers? (NOTE: Overtime)
Revenue Statement of financial position
a. P 6,000 P36,000 trade receivable
b. P 6,000 P 6,000 current liability
c. P12,000 P36,000 trade receivable
d. P12,000 No effect
Application of the Revenue Recognition Principles under PFRS 15 for Contraction Contracts

44
On 31 March DT received an order from a customer, XX, for products with a sales value of P900,000. XX
enclosed a deposit with the order of P90,000. On March 31, DT had not obtained credit references of XX and
has not determined if it will meet this order. According to PFRS 15 Revenue from Contract with Customers,
how should DT record this transaction in its financial statements for the year ended March 31?
(1) Include P900,000 as revenue for the year
(2) Include P90,000 as revenue for the year
(3) Do not include anything as revenue for the year
(4) Create a trade receivable for P810,000
(5) Create a trade payable for P90,000
a. 1 and 4 c. 3 and 4
b. 2 and 5 d. 3 and 5

45
Seadrill Engineering licensed software to oil-drilling firms for 5 years. In addition to providing the software, the
company also provides consulting services and support to ensure smooth operation of the software. The total
transaction price is P350,000. Based on standalone values, the company estimates the consulting services
and support have a value of P100,000 and the software license has a value of P250,000. Assuming the
performance obligations are not interdependent, the journal entry to record the transaction includes
a. a credit to Sales Revenue for P250,000 and a credit to Unearned Service Revenue of P100,000.
b. a credit to Service Revenue of P100,000.
c. a credit to Unearned Service Revenue of P100,000.
d. a credit to Sales Revenue of P350,000.

Understanding the Methods of Measuring Progress.

46
New Age Computers manufactures and sells pagers and radio paging systems which include a 180 day
warranty on product defects. It also sells an extended warranty which provides an additional two years of
protection. On May 10, it sold a paging system for P3,850 and an extended warranty for another P1,200. The
journal entry to record this transaction would include
a. a credit to Service Revenue of P5,050.
b. a credit to Service Revenue of P1,200
c. a credit to Sales of P3,850 and a credit to Service Revenue of P1,200
d. a credit to Unearned Service Revenue of P1,200.

47
D and R Computer Inc. manufactures and sells computers that include a warranty to make good on any defect
in its computers for 120 days (often referred to as an assurance warranty). In addition, it sells separately an
extended warranty, which provides protection from defects for three years beyond the 120 days (often referred
to as a service warranty). How many performance obligations exist in this contract?
a. None c. Two
b. One d. Three

Accounting for Construction Contracts

48
A construction contract has a fixed price contract for P100,000 to construct a building of a design that has
never before been constructed and using materials that have never before been used in the construction of
building (the project).

The contractor began construction of the building in 2019 and expects that construction will take at least five
years. In 2019 the contractor incurred P5,000 contract costs on the project.

At the end of 2019 the contractor cannot estimate the outcome of the contract with sufficient reliability to
estimate the project’s percentage of completion (i.e., because of the uncertainties arising from the new design
and new materials the entity cannot estimate total expected contract costs with sufficient reliability). It is highly
likely that the contract price will be received from the customer.

At the end of 2019 the contractor must recognize revenue of:

a. Nil or zero c. P100,000
b. P 5,000 d. Incomplete data

49
The Naples Company uses the percentage-of-completion method and the cost-to-cost method for its long-term
construction contracts. On one such contract, Naples expects total revenues of P260,000 and total costs of
P200,000. During the first year, Naples incurred costs of P50,000 and billed the customer P30,000 under the
contract. At what net amount should Naples' Construction in Progress for this contract be reported at the end
of the first year?
a. P30,000 c. P50,000
b. P35,000 d. P65,000

Journal Entries and Determination of Revenue Costs and Gross Profit

50
Bonifacio contractors had a 3-year construction contract in 2022 for P900,000. The company uses the
percentage-of-completion method for financial statement purposes. Income to be recognized each year is
based on the ratio of cost incurred to total estimated cost to complete the contract. Data on this contract
follows:

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

Uncertainty in the Collectability of Contract Revenue

51
When dealing with uncertainty in the collectability of contract revenue under accounting standards such as
ASC 606 or IFRS 15, which approach is typically followed?
A) Uncertainty in collectability is not considered, and all contract revenue is recognized as soon as the contract
is signed.
B) Uncertainty in collectability is recognized by creating a separate provision for doubtful accounts,
reducing recognized revenue.
C) Uncertainty in collectability is recognized by delaying the recognition of revenue until it's more certain to be
collected.
D) Uncertainty in collectability is resolved by including a contingency clause in the contract, ensuring full
collection of revenue.

"Franchise Operations
Journal Entries and Determination of Revenue, Costs and Gross Profit"
52
Hotel Dian Inc. charges an initial franchise fee of P90,000 broken down as follows:

Rights to trade name, market area, and proprietary know-how P40,000

Training services 11,500
Equipment (cost of P10,800) 38,500
Total initial franchise fee P90,000

Upon signing of the agreement, a payment of P40,000 is due. Thereafter, two annual payments of P30,000
are required. The credit rating of the franchisee is such that it would have to pay interest of 8% to borrow
money. The franchise agreement is signed on August 1, 2024, and the franchise commences operation on
November 1, 2024. Assuming that no future services are required by the franchisor once the franchise begins
operations, the entry on November 1, 2024 would include (nearest amount)
a. a credit to Unearned Franchise Revenue for P40,000.
b. a debit to Service Revenue for P11,500.
c. a debit to Sales Revenue for P38,500.
d. a debit to Unearned Franchise Revenue for P41,000.

Application of the General and Specific Revenue Recognition Principles under PFRS 15 for Franchise
Contracts
53
Assuming that the franchise agreement is signed on August 1, 2025, and the franchise commences operation
on November 1, 2025. Assume that the total training fees includes training services for the period leading up
to the franchise opening (P5,500 value) and for 3 months following opening. The journal entry on August 1,
2025 would include (nearest amount)
a. a credit to Unearned Service Revenue for P11,500.
b. a credit to Unearned Service Revenue for P6,000.
c. a debit to Sales Revenue for P38,500.
d. a debit to Unearned Franchise Revenue for P40,000.

On January 1, 2025, Lesley Benjamin signed an agreement (covering 5 years) to operate as a franchisee of
Campbell Inc. for an initial franchise fee of P50,000. The amount of P10,000 was paid when the agreement
was signed, and the balance is payable in five annual payments of P8,000 each, beginning January 1, 2026.
The agreement provides that the down payment is non-refundable and that no future services are required of
the franchisor once the franchise commences operations on April 1, 2025. Lesley Benjamin’s credit rating
indicates that she can borrow money at 11% for a loan of this type.

For Campbell’s 2025-related revenue for this franchise arrangement, assuming that in addition to the franchise
rights, Campbell also provides 1 year of operational consulting and training services, beginning on the signing
date. These services have a value of P3,600.
54
The amount of franchise and service revenue on January 1, 2025 amounted to
a. Zero. c. P39,567
b. P10,433 d. P50,000

55
The amount of franchise revenue (not including service revenue) on April 1, 2025:
a. Zero. c. P39,567
b. P35,967 d. P50,000

56
The amount of service revenue for the year 2025:
a. Zero. c. P3,600
b. P2,700 d. P6,300

"Consignment Sales
Define a Consignment Arrangement"
57
On August 5, 2025, Famous Furniture shipped 20 dining sets on consignment to Furniture Outlet, Inc. The cost
of each dining set was P350. The cost of shipping the dining sets amounted to P1,800 and was paid for by
Famous Furniture. On December 30, 2025, the consignee reported the sale of 15 dining sets at P850 each.
The consignee remitted payment for the amount due after deducting a 6% commission, advertising expense of
P300, and installation and setup costs of P390.
The amount cash received by Famous Furniture is
a. P12,750 c. P11,685
b. P11,985 d. P11,295

Application of the Revenue Recognition Principles under PFRS 15 for Consignment Arrangement
58
On November 30, 20x1, Northup Co. consigned 90 freezers to Watson Co. for sale at ₱1,600 each and paid
₱1,200 in transportation costs. A report of sales was received on December 30, 20x1 from Watson reporting
the sale of 20 freezers, together with a remittance that was net of the agreed 15% commission. How much,
and what month, should Northup recognize as sales revenue?
November December November December
a. 0 32,000 c. 144,000 0
b. 0 27,200 d. 142,800 0

"Installment Contracts
Determine the Revenue Recognition under Installment Sales Method"
59
ABC Co. has the following information:
20x2
20x1
Installment sales ? ?
Cost of sales 600,000 660,000
Installment receivable - 20x1 600,000 400,000
Installment receivable - 20x2 720,000
Gross profit rates based on sales 40% 45%

How much is the total realized gross profit in 20x2?

a. 189,000 b. 268,000 c. 296,000 d. 326,000

60
ABC Co.’s records show the following information:
20x1 20x2
Deferred gross profit (adjusted ending balances):
from 20x1 sale 240,000 160,000
from 20x2 sale 324,000
Gross profit rates based on sales 40% 45%
Cash collections from:
20x1 sales 400,000 200,000
20x2 sales 480,000

How much is the total installment receivable on December 31, 20x2?

a. 1,000,000 b. 1,120,000 c. 1,280,000 d. 720,000

Defaults, Repossessions, and Trader Ins

Rooster Co. uses the installment sales method. Relevant information follows:
20x1 20x2
Sales 300,000 480,000
Cost of sales 240,000 336,000
Installment receivable - 20x1 180,000 60,000
Installment receivable - 20x2 360,000

Rooster Co. repossessed a property that was sold in 20x1 for ₱50,000. Total collections from this sale were
₱24,000. Rooster Co. expects to resell the property for ₱30,000 after reconditioning costs of ₱4,000. The
normal profit margin on resale of repossessed property is 30%.

61. How much is the gain or loss on repossession?

a. 3,200 b. 3,800 c. 4,300 d. 2,900

62. How much is the total realized gross profit in 20x2?

a. 56,000 b. 54,800 c. 53,200 d. 51,600

Allocation of Cost of Goods Sold between Regular and Installment Sales

63
ABC Co. uses the installment sales method. The following information was taken from ABC’s records:
20x1 20x2
Installment sales 1,000,000 1,200,000
Cost of sales 600,000 660,000
Cash collections from:
20x1 sales 400,000 200,000
20x2 sales 480,000

How much is the total deferred gross profit on December 31, 20x2?
a. 324,000 b. 484,000 c. 284,000 d. 504,000

64
ABC Co. uses the installment sales method. ABC Co. has the following collection policy on its installment
sales:
● 20% down payment
● Balance collectible as follows: 50% in the year of sale, 30% in the second year, and 20% in the third
year.
● Installment sales during 20x1, 20x2 and 20x3 were ₱1,200,000, ₱1,500,000 and ₱1,800,000,
respectively.
● Gross profit rate throughout the three years was 40% based on sales.

How much are the realized gross profits in 20x1, 20x2 and 20x3, respectively?
20x1 20x2 20x3 20x1 20x2 20x3
a. 288,000 475,200 652,800 c. 288,000 457,200 652,800
b. 276,000 475,200 628,600 d. 286,000 487,200 632,800

Cost Recovery Method

65
Demolish Co. uses the “cost recovery method” (traditional accounting based on old US GAAP). The records of
Demolish Co. show the following information:
20x1 20x2
Sales 10,000 15,000
Cost of sales 8,000 9,000
Cash collections:
- from 20x1 sales 7,000 3,000
- from 20x2 sales 12,000
How much is the gross profit recognized by Demolish in 20x2?
a. 0 b. 5,000 c. 3,000 d. 2,000

"Home Office, Branch and Agency Accounting

Account for transactions between a home office and its branch."
Selected balances from the Cebu Company’s Branch A and B are as follows:
Branch A Branch B
Inventory, Jan. 1, 2018 P 21,000 P 19,000
Imprest Branch Fund 2,000 1,500
Inventory, Dec. 31, 2018 19,000 12,000
A/Receivable, Jan. 1, 2018 55,000 43,500
Merchandise from Home Office… A/Receivable, 61,000 47,000
Dec. 31, 2018 70,000 53,500
Sales 100,000 80,000
Cash Expenses… 21,000 14,300
All sales, collections, and expenses are handled at the branch. All cash received from
sales and collections are sent directly to the Home Office. Expenses are paid by the
branch from the imprest fund and immediately reimbursed by the Home Office and credited
to the Home Office account. All expenses paid by the branch are recorded in the books of
the branch.
66.
Compute the balance of the Home Office account in the books of Branch on January 1, 2018:
A B A B
a. P163,000 P67,000 c. P139,000 P111,000
b. P 64,000 P78,000 d. P 78,000 P 64,000
67.
Compute the balance of the Home Office account on December 31, 2018.
A B A B
a. P110,000 P152,000 c. P64,000 P78,000
b. P 91,000 P 67,000 d. P78,000 P64,000
68.
The entry in Branch B’s records in order to update the reciprocal Home Office Account on
December 31, 2018 assuming net income of the branch is being reported to the home office:
a. Dr. – Home Office Current / Cr. – Profit and Loss
b. Dr. – Profit and Loss / Cr. - Branch Current
c. Dr. – Branch Current / Cr. – Profit and Loss
d. Dr. - Profit and Loss / Cr. – Home Office

69
Charito Corporation retails merchandise through its home office store and through a branch store in a distant
city. Separate ledgers are maintained by the home office and the branch. The branch store purchases
merchandise from the home office (at 120% of home office cost), as well as from outside suppliers. Selected
information from the December 31, 20x4 trial balances of the home office and branch is as follows:

Additional information:
a. The entire difference between the shipment account is due to the practice of billing the branch at cost
plus 20%.
b. The December 31, 20x4 inventories are P40,000 and P20,000 for the home office and the branch,
respectively. (The branch purchased 16% of its ending inventory from outside suppliers.)
c. Branch beginning and ending inventories include merchandise acquired from the home office as well as
from outside suppliers. Merchandise acquired from home office is inventoried at 120% of home office cost.
Compute the:
Overvaluation of
Cost of Goods Sold Adjusted Branch Net Income
a. P 4,400 P 50,200
b. P 2,800 P 10,600
c. P 7,200 P 15,000
d. P 4,400 P 12,200

Reconcile interoffice accounts.

70
Tillman Textile Company has a single branch in Bulacan. On March 1, 2019, the home office accounting
records included an Allowance for Overvaluation of Inventories - Bulacan Branch ledger account with a credit
balance of P32,000. During March, merchandise costing P36,000 was shipped to the Bulacan Branch and
billed at a price representing a 40% markup on the billed price. On March 31, 2019, the branch prepared an
income statement indicating a net loss of P11,500 for March and ending inventories at billed prices of P25,000.
What is the amount of adjustment for Allowance for Overvaluation of Inventories to reflect the true branch net
income?
a. P39,257 debit c. P39,333 debit
b. P46,000 credit d. P46,000 debit

Aldrin Lee Home Office ships merchandise to the branch at 30% above cost. The allowance for overvaluation
at the beginning of the year was P24,000 and at the end of the year, the balance before adjustment was
P264,000, and after the adjustment, the balance is P27,000. For the first time this year, the branch purchased,
from outside suppliers, merchandise worth P72,500 and reported unsold P25,000 at year-end.

71
The cost of goods available for sale on the books of the branch is:
a. P880,000 c. P1,144,000
b. P1,040,000 d. P1,216,500

72
The merchandise inventory at the end on the books of the branch is:
a. P90,000 c. P142,000
b. P117,000 d. P800,000

Prepare combined financial statements of a home office and its branch.

73
The cost of goods sold for the year ended as far as the home office is concerned:
a. P790,000 c. P1,040,000
b. P837,500 d. P1,074,500

74
The after-closing balances of Carler Corporation’s home office and its branch at January 1, 2028 were as
follows:
A summary of the operations of the home office and branch for 2028 follows:
1. Home office sales: P100,000, including P33,000 to the branch. A standard 10% markup on cost applies to
all sales to the branch. Branch sales to its customers totaled P50,000.
2. Purchases from outside entities: home office, P50,000; branch P7,000.
3. Collections from sales: home office P98,000 (including P30,000 from branch); branch collections, P51,000.
4. Payments on account; home office, P51,500; branch P4,000.
5. Operating expenses paid: home office, P20,000; branch, P6,000
6. Depreciation on plant assets: home office, P4,000; branch P1,000.
7. Home office operating expenses allocated to the branch, P2,000.
8. At December 31, 2028, the home office inventory is P11,000 and the branch inventory is P6,000, of which
P1,050 was acquired from outside suppliers.

The combined net income amounted to:

a. P 0 c. P21,000
b. P4,550 d. P25,550

"Insurance Contracts
State the scope and applicability of PFRS 17."
75
Insurance risk includes which of the following?
0. lapse or persistency risk
0. expense risk
0. financial risk
0. pure risk

Define an insurance contract.

76
Mr. Pyromaniac obtained two fire insurances for his house. During the year, Mr. Pyromaniac’s house was
burned. The legal principle that prohibits Mr. Pyromaniac from relaxing and just watch the house burn is
0. Principle of proximate cause.
0. Principle of contribution.
0. Principle of loss minimization .
0. Principle of indemnity.

Describe the level of aggregation and measurement of insurance contracts.

77
Water Insurance Co. issues a group of insurance contracts on Dec. 19, 20x1. On that day, the entity
determines that the group of insurance contracts is onerous. The coverage period of the group starts on Jan. 1,
20x2 and the first premium from a policyholder in the group is due Dec. 30, 20x2. When is the recognition date
of the group of insurance contract issued?
0. Dec. 19, 20x1
0. Dec. 30, 20x1
0. Jan. 1, 20x2
0. Jan. 4, 20x2

"Accounting for Build-operate-transfer (BOT)

Define a “build-operate-transfer” (BOT) arrangement that is within the scope of the PFRSs."
78. Which of the following statements is correct?
0. “Build-operate-transfer” is not common in the Philippines.
0. The operator recognizes the public infrastructure in a BOT contract as property, plant and equipment
before it is relinquished to the grantor.
0. IFRIC 12 applies only to construction or upgrade services but not to operation services.
0. The consideration in a BOT contract is an intangible asset if the operator receives a right to
collect fees from users of the public service.

Account for BOT arrangements.

Foggy Friday Co. (FFC), a private entity, enters into a service concession arrangement. The terms of the
agreement require FFC to:
● Construct an underground railway system – completing construction within two years;
● Maintain and operate the railway for 8 years after the completion;
● Recondition the railway at the end of the 9th year; and
● Turnover the railway to the government at the end of the 10th year.

As consideration, the government pays the operator ₱80M per year in Years 3 to 10. FFC makes the following
estimates at contract inception:
Year Contract costs Stand-alone selling price
Construction services 1 50 Forecast cost + 20%
2 50 Forecast cost + 20%
Operation services 3-10 20 Forecast cost + 40%
Reconditioning 9 10 Forecast cost + 10%

All cash flows are assumed to take place at the end of the year. FFC determines that the implied interest rate
in the contract is 33.05%.

79. How many performance obligations are there in the contract?

0. one
0. two
0. three
0. four

80. What is the nature of the consideration in the contract?

0. financial asset
0. intangible asset
0. partly financial asset and partly intangible asset
0. property, plant and equipment