Practical Accounting Problem 2

PRACTICAL ACCOUNTING 2 PROBLEM 1 (ACTIVITY-BASED COSTING) Gion Corporation has identified activity centers to which overhead costs are assigned. The cost pool amounts for these centers and their selected activity drivers for 2015 follow: Activity Centers Set-ups Utilities No. of parts

Costs P620,000 P950,000 P320,000

Activity Drivers 24,800 set-ups 125,000 machine hours 16,000 parts

Direct costs of producing product GG amounted to P75,000. The said product took 17,000 direct labor hours and 15,000 machine hours to finish. Also, the product needed 7,500 set-ups and 550 parts to complete. 25,000 units of product GG were produced during 2015. How much was the full cost per unit of product GG using ABC? A. B. C. D.

P12.50 P15.50 P16.07 P19.07

PROBLEMS 2 – 3 (JOB ORDER COSTING) Problem 2. During April 2015, Faithfully Inc. incurred the following costs for Job 522 (450 drum sets): Direct materials Direct labor Factory overhead

P42,500 P65,250 P78,300

45 units of drum sets were found to be defective and Faithfully Inc. had to incur the following to remedy the said defects:

Direct materials Direct Labor

P13,550 P15,250

If the rework cost is normal but specific to Job 522, the cost per finished unit is: A. B. C. D.

P497.75 P484.22 P518.11 P575.68

Problem 3. Superhuman Co. provided the following data: Direct materials Direct labor Overhead rate without spoilage Overhead rate with spoilage Units produced

P450,000 P520,000 P5.50 per unit P7.50 per unit 120,000

Superhuman do not typically expect spoilage in its production process. On Job 912, the cost of the spoiled units is P52,200, but the disposal value of these units were determined to be P24,000 and P17,000 were found to be abnormal costs of spoilage. How much is the total cost of good units? A. P1,846,000 B. P1,577,800 1

C. P1,817,800 D. P1,606,000 Problems 4 – 5 (PROCESS COSTING) Problem 4. IDOL Inc. adds materials at the beginning of the process in department UST. Conversion costs were 70% complete as to the 9,500 work-in-process units on September 1 and 40% incomplete as to the 7,000 work-in-process units on September 30. During September, 12,000 units were completed and transferred to the next department. An analysis of the cost relating to work-in-process on September 1 and to production activity for September is as follows:

Work-in-process, September 1 Costs incurred during September

Materials P10,000 P42,750

Costs Conversion P7,500 P52,525

The total cost per equivalent unit for September under FIFO and average: A. B. C. D.

P11.84 ; P5.49 P10 ; P5.49 P10 ; P6.49 P11.84 ; P6.49

Problem 5. Silent Sanctuary Corporation manufactures a product through a continuous process in different departments. As their cost accountant, you are given the production data of Department A to accumulate costs and prepare the necessary reports: Work-in-process, May 1, 2015 (30% to complete) Units started and completed Work-in-process, May 31, 2015 (50% complete) Normal lost units discovered at the end of process

Units 15,000 60,000 3,000 2,000

Materials Conversion Work-in-process cost, May 1, 2015

Costs P78,000 P85,000 P45,000

Materials are added at the start of the production while conversion costs are evenly distributed during the production process. Compute the current total unit cost for materials and conversion: A. B. C. D.

P2.45 P2.53 P3.14 P2.23

Compute the cost per unit of completed unitsas of May 1, 2015: A. B. C. D.

P2.56 P2.34 P2.70 P2.64

PROBLEMS 6 – 7 (JOINT AND BY-PRODUCTS) 2

Problem 6. Analog Heart Inc. makes three products from mangoes it harvests: Units of output Mango shake Dried mangoes Ice candy

5,250 2,000 750

Selling price at Incremental split-off processing costs P3 P2 P1.50 P2.50 P2.50 P0.50

Final selling price P7.50 P3 P3

Which of the following is false regarding processing the three products beyond split-off point?

A. The company can either sell the ice candy at split-off or process it further and sell it at P3 because the incremental profit is zero B. If the dried mangoes are processed beyond split-off, the company will have an incremental profit of P1 C. The company should process the mango shake further because an incremental profit of P2.50 would be realized D. None of the statements is false Problem 7. Breakout Co. produces two products which go through a single process. The same amount of disposal cost is incurred whether the products are sold at split-off or after further processing. On May 2015, the joint cost of the production process amounted to P105,000 Products A B Remnants

Units produced 4,000 12,000 4,000

Net realizable value P5 P2.50 P4

Remnants are considered a by-product of the process and are sold to other factories. If the company accounts for the by-product using the NRV method, and if it costs the company an additional P1.50/unit to process product A, how much is the total cost of producing product A? A. B. C. D.

P41,600 P59,400 P53,400 P35,600

PROBLEMS 8 – 9 (STANDARD COSTING) Problem 8. Ganaremos Inc.’s capacity for a month is 40,000 machine hours. Overhead is 40% variable and 60% fixed. During June 2015, Ganaremos produced 3,500 units of its product and incurred 38,000 machine hours. Each unit of a product requires 12 machine hours. Unfavorable non-controllable variance for the month of June is P28,500. What is the company’s variable overhead rate? A. B. C. D.

P23.75 P19.75 P14.25 P9.50

Problem 9. Emoted Inc. purchased 80,000 ounces of materials needed to produce its perfume at a cost of P5 per ounce. During April, Emoted used 70,000 ounces to produce 3,500 bottles of perfume. The standard price of the materials used is P4.75 per ounce and Emoted expects to use 15 ounces of the material to produce 1 bottle of perfume. How much is the (1) material price variance and (2) material quantity variance? A. B. C. D.

P20,000 F ; P130,625 U P20,000 U ; P83,125 U P20,000 U ; P130,625 F P17,500 U ; P83,125 U

PROBLEMS 10 – 11

(INSTALLMENT SALES) 3

Problem 10. The following data were taken from the records of Sweet Serendipity Co. before the accounts are closed for the year ended December 31, 2015 . The company uses the installment method of recognizing revenue and it sells goods exclusively on installment basis.

Installment Sales Cost of Goods Sold Installment AR, 2013 Installment AR, 2014 Installment AR, 2015 DGP, 2013 DGP, 2014 DGP, 2015

For the year ended: December 31, 2014 P500,000 ? Balances as of: December 31, 2014 P125,000 P307,500

December 31, 2013 ? P300,000 December 31, 2013 P350,000 P122,500

P43,750 P123,000

December 31, 2015 P600,000 ? December 31, 2015 P35,000 P140,000 P490,000 P43,750 P120,000 P210,000

On January 2015, a customer defaulted and Sweet Serendipity repossessed the merchandise. The merchandise was assessed to have a cost of P4,200 after costs of reconditioning amounting to P800. The repossessed merchandise was purchased by the customer in 2014 and the said customer still owed the company a certain amount at the date of repossession. How much was the realized gross profit and loss on repossession in 2015? A. B. C. D.

P134,000 ; P300 P134,000 ; P1,100 P137,000 ; P3,300 P137,000 ; P4, 100

Problem 11. Muro Co. is a dealer of refrigerators. The company gives trade discounts of 25%. On May 1, 2015, Ami purchased a refrigerator with an invoice price of P97,500. The refrigerator costs P65,000. Muro granted an allowance of P15,000 to Ami’s old refrigerator as trade-in, the current market value of which is P17,500. The balance is payable as follows: 30% at the time of purchase, while the rest is payable in five installments at the end of each month commencing at the end of the month of sale. Ami defaulted on her payments starting August 31, 2015 and the refrigerator sold to her was repossessed. The fair value of the repossessed refrigerator is P15,000 before reconditioning costs of P2,500. What is the resulting net income from the foregoing transactions? A. B. C. D.

P26,915 P24,875 P26,900 P24,400

PROBLEMS 12 – 13 (LONG TERM CONSTRUCTION CONTRACTS) Problem 12. BREAKEVEN Corp. was contracted to construct a warehouse for a price of P34,000,000. Information below were provided by BREAKEVEN: Costs incurred to date Estimated cost at completion

2013 P14,625,000 P32,500,000

2014 P25,687,500 P34,250,000

How much is the realized gross profit/lossduring 2014? A. B. C. D.

P(925,000) P250,000 P(250,000) P925,000

4

2015 P33,750,000 -

Problem 13. Mabi Corp. was contracted by Mr. Tristan P. to construct 35 condominium units. The estimated total cost of construction was P28,000,000. Mabi bills its clients at 120% of total costs estimated to complete a project. Details regarding the contract are given below:

2013 2014 2015

Units finished 10 18 7

Costs incurred to date P8,412,500 P20,735,000 P31,500,000

Estimated cost at completion P33,650,000 P31,900,000 ?

What is the RGP during 2014 using the output measures? A. B. C. D.

P1,700,000 P1,360,000 P1,410,000 P1,105,000

PROBLEMS 14 – 15

(FRANCHISE)

Problem 14. On August 28, 2015, Mabeth Inc. entered into a franchise agreement with HP Inc., franchisee. The initial franchise fee agreed upon is P1,750,000, of which, P850,000 is payable upon signing the contract and the balance to be covered by a 12% interest bearing note payable in five equal annual installments starting December 31, 2015.Initial services by Mabeth amounted to P912,100 direct costs and P50,000 indirect costs. The collectability of the note is not reasonably assured. A 5% continuing franchise fee is to be paid monthly by HP based on its monthly gross sales. The franchisee’s operations commenced on September 28, 2015 and gross sales for the first months amounted to P575,000. How much is the net income for the year ended December 1, 2015? A. B. C. D.

P498,914 P412,730 P507,914 P462,730

Problem 15. On December 31, 2015, Dewyze Inc. authorized Cook to operate as a franchise for an initial franchise fee of P3,400,000. P900,000 was received upon signing the contract, and the balance is to be paid by a non-interest bearing note, due in five equal annual installments beginning December 31, 2016. Prevailing market rate is 12%. PV factor is 3.60478. The down payment is nonrefundable and it represents a fair measure of the services already performed by Dewyze, however, with regards to the balance, substantial future services are still required. How much is the deferred revenue to be recognized as of December 31, 2015? A. B. C. D.

P1,802,390 P1,518,677 P2,500,000 P2,702,390

PROBLEM 16 (SALES AGENCY) On June 1, 2015, Infatuation Co. established an agency in Manila, sending samples costing P80,000 which are useful until May 31, 2016 and have a salvage value of 10% of cost. A working fund of P65,000 is to be maintained using the imprest basis. During 2015, the agency submitted to the home office sales order amounting to P675,000. Sales per invoice were P525,000 which were duly approved by the home office. Collections during the year amounted to P280,330, net of 3% sales discount. The cost of merchandise sold during the year is equal to 75% of the selling gross selling price. Vouchers for expenses amounted to P35,000. How much net income would be reported by the Manila agency on December 31, 2015? A. P51,580 B. P(13,420) C. P83,080 5

D. P45,580 Problem 17 (HOME OFFICE – INTERBRANCH) On September 1, 2015, BETTER IN TIME Co. established two branches: Manila and Quezon City branches. The home office transferred P80,000 worth of cash and P350,000 worth of inventory to its Manila branch and instructed Manila to transfer ¾ of the goods and cash received to Quezon City. In addition, on November 1, 2015, shipments from home office were received by Manila amounting to P125,000 and the branch paid freight costs amounting to P6,500. 3/5 of the said shipments were sold to outsiders. On December 1, 2015, Manila transferred half of the remaining November shipments from the home office to Quezon City, with Quezon City branch paying freight costs of P2,500. Had the merchandise been shipped from the home office to Quezon City branch, only P1,900 worth of freight would have been incurred. How much is the balance of the Quezon City branch account in the home office books? A. B. C. D.

P206,200 P348,800 P346,900 P349,400

Problem 18 (HOME OFFICE – RECON) Artemus Co. operates a branch in Manila City. On December 31, 2015, the Manila branch in the home office books showed a debit balance of P522,110. The interoffice accounts were in agreement at the beginning of the year. For purposes of reconciling the interoffice accounts, the following facts were given: 

Shipments from home office to Manila branch costing P72,500 were in transit as of yearend. Manila recorded the said transfer twice at cost: one on December 31, 2015 and the other on January 1, 2016.



The home office allocated to the Manila branch ¾ of the rent expenses it paid for the year ended 2015. The rent expense was P24,000. The home office sent a debit memo to Manila for the allocated amount, but the branch recorded the said debit memo by debiting the home office – current account and crediting rent payable.



The branch wrote-off uncollectible accounts amounting to P10,120. The allowance for doubtful accounts is maintained in the books of the home office. The home office recorded the write-off as a write-off of its own accounts receivable.



The branch collected accounts receivable from home office’s customers amounting to P52,920, net of 2% cash discount. The branch treated the said transaction as if it was a collection from its own customers. The home office was not yet notified of the said collection.

It is the policy of the home office to bill its branches at 20% above cost. What is the unadjusted balance of the home office-current account in the books of Manila branch on December 31, 2015? A. B. C. D.

P463,650 P461,490 P459,070 P475,990

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PROBLEMS 19 – 20 (HOME OFFICE – BILLED PRICE) Problem 19. PROF Co. operates a branch in Manila. The following are selected accounts taken from December 31, 2015 financial statements of PROF and its branch: HOME OFFICE P7,500,000 P1,250,000

Sales Shipments to branch Shipments from home office Inventory, Jan. 1, 2015 Inventory, Dec. 31, 2015 Purchases Allowance for overvaluation before adjustment Operating expenses

P750,000 P630,000 P6,200,000 P337,500 P300,000

BRANCH P3,750,000 P1,562,500 P375,000 P270,000 P950,000 P270,000

The ending inventory of the branch includes P120,000 purchased from outside suppliers. What is the combined cost of ending inventory? A. B. C. D.

P942,500 P900,000 P868,110 P870,000

The combined net income is: A. B. C. D.

P3,300,000 P2,962,500 P2,992,500 P3,305,000

Problem 20. The home office bills AMV branch at a mark-up above cost. During the year 2015, goods costing P225,000 were shipped from the home office. The unrealized mark-up account has a balance of P78,750 before any adjustments. The net income of the branch is understated by P35,000. How much is the ending inventory of the branch to be reported in its separate books? AMV gets its inventories exclusively from its home office. A. B. C. D.

P135,000 P168,750 P125,000 P138,750

PROBLEM 21 (PARTNERSHIP FORMATION) On January 1, 2015, 4A1 and Quadribatch agreed to form a partnership. The following are their assets and liabilities:

Accounts Cash Accounts Receivable Inventories Machinery Accounts Payable Notes Payable

4A1 P34,000 P22,000 P76,000 P120,000 P54,000 P35,000

Quadribatch P19,000 P12,000 P91,000 P110,000 P36,000 P15,000

4A1 decided to pay-off his notes payable from his personal assets. It was also agreed that Quadribatch’s inventories were overstated by P6,000 and 4A1’s machinery was over depreciated by P5000. Quadribatch is to invest/withdraw cash in order to receive a capital credit that is 20% more than 4A1’s total net investment in the partnership. How much cash will be presented in the partnership’s statement of financial position? 7

A. B. C. D.

P 90,600 P112,600 P102,600 P121,600

PROBLEMS 22 – 23 (PARTNERSHIP OPERATIONS) Problem 22. CC Partnership began operations on June 1, 2015. On that date, Caloy and Chris have capital credits of P35,000 and P48,000, respectively. The partnership has the following profit-sharing plan: a. 10% interest on partners’ capital balances at the end of the year b. P12,000 and P15,000 annual salaries for Caloy and Chris, respectively c. Remaining profit will be divided to Caloy and Chris on a 3:2 ratio, respectively During the year, Caloy invested P30,000 worth of merchandise and withdrew P8,000 cash, while Chris invested P24,000 cash. The partnership earned a profit of P53,275 during the year. How much is Caloy’s capital balance at the end of 2015? A. B. C. D.

P84,475 P88,965 P85,325 P82,725

Problem 23. Aubrey and Ann are partners who have the agreement to share profit and loss in the following manner:

Annual Salaries Interest on ave. balances Bonus (based on net income after salaries and interest) Remainder

Aubrey P 52,200 5% 10%

Ann P 51,800 10%

50%

50%

During the year ended December 31, 2015, the partnership generated a profit of P115,000 before any deductions. Aubrey’s and Ann’s average capital balances for the year are P120,000 and P60,000, respectively. Income is distributed to the partners only as far as it is available. How much is the total share of Ann in the net income for the year ended 2015? A. B. C. D.

P57,300 P57,700 P57,500 P59,133

PROBLEMS 24 – 25 (PARTNERSHIP DISSOLUTION) Problem 24. Thaddeus decided to withdraw from his partnership with Simon and Mari. Before his withdrawal, Thaddeus’ capital balance was P58,000, while Simon’s was P64,000 and Mari’s was P77,000. Also, the partnership’s total assets amounted to P450,000, but the partners agreed that a fixed asset was under depreciated by P15,000. Thaddeus, Simon and Mari share profits and losses in the ration of 2:4:4, respectively. If Thaddeus was paid P53,200 upon his retirement, how much is the remaining partnership net assets after Thaddeus’ withdrawal? A. B. C. D.

P182,800 P160,800 P197,800 P130,800

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Problem 25. James and Patrick, having capital balances of P140,000 and P75,000 respectively, decided to admit Castle into their partnership. Castle is to invest sufficient amount in order to have a 25% interest in the partnership. If James and Patrick share profit in a proportion of 3:1, respectively, and Patrick’s capital balance after Castle’s investment is P84,250, how much was invested by Castle? A. B. C. D.

P121,000 P121,250 P167,750 P84,000

Problem 26 (LUMPSUM LIQUIDATION) Elaine, Bee, and Chua share profits and losses as follows: Elaine 20%, Bee 30%, and Chua 50%. The partnership’s Statement of Financial Position is presented below: EBC Company Statement of Financial Position As of December 31, 2014 Assets Cash Noncash Assets

P 91,200 P450,800

Total Assets

P542,000

Liabilities and Equity Liabilities Loan from Bee Elaine, Capital Bee, Capital Chua, Capital Total Liabilities and Equity

P153,500 P 15,000 P 60,000 P 88,500 P225,000 P542,000

The partners decided to liquidate on January 2, 2015. All partners are personally solvent except for Elaine. If Chua received P52,500 for her interest, how much were the noncash assets sold for? A. B. C. D.

P105,800 P336,000 P345,000 P114,800

PROBLEM 27 (INSTALLMENT LIQUIDATION) The Statement of Financial Position of RRD’s partnership as of December 31, 2014 is given below: RRD Company Statement of Financial Position As of December 31, 2014 Assets Cash Noncash Assets Loan to Rae

P 30,000 P520,000 P 10,000

Total Assets

P560,000

Liabilities and Equity Liabilities Loan from Din Rom, Capital (50%) Rae, Capital (30%) Din, Capital (20%) Total Liabilities and Equity

P 80,000 P 10,000 P123,400 P203,000 P143,600 P560,000

On January 1, 2015, the partners decided to liquidate. For the month of January, assets with a book value of P250,000 were sold and liabilities to outsiders were fully paid. How much were the noncash assets sold if Din received the amount priority to him? A. P223,200 9

B. P296,800 C. P273,200 D. P269,800 PROBLEMS 28 – 29 (JOINT VENTURE) Problem 28. Ruvi, Kris, and Jeremy formed a joint venture during 2015 to sell beauty products. Ruvi is assigned to manage the venture. The three of them agreed to divide profits and losses equally. After seven months, the joint venture was terminated and there were unsold beauty products. Ruvi’s trial balance contains the following: Joint Venture cash Joint Venture Kris, Capital Jeremy, Capital

Dr(Cr) P 34,000 P 15,000 P 9,000 P(21,000)

Jeremy received P22,200 as settlement for her interest in the venture while Ruvi agreed to be charged for the unsold products. What is the cost of the unsold merchandise at the termination of the venture? A. B. C. D.

P3,600 P11,400 P18,600 P12,000

Problem 29. Alyzza and Bravo formed a merchandising joint venture. The following transactions occurred during 2015: Cash investment by the venturers: Alyzza (55%) Bravo (45%) Sales on account (70% was not yet collected, GP rate = 30%) Purchases of merchandise on account Expenses paid

P 135,000 P 65,000 P 312,000 P 250,000 P 31,000

Under the proportionate method, how much is the proportionate share of Alyzza in the joint venture’s assets? A. B. C. D.

P281,600 P264,550 P402,050 P281,930

PROBLEMS 30 – 31 (CORPORATE LIQUIDATION) Problem 30. The ELI Corporation is undergoing liquidation and its Statement of Financial Position as of January 2, 2015 is as follows: ELI Corporation Statement of Financial Position As of January 2, 2015 Assets Cash Receivables, net Inventory Prepaid Expenses PPE, net Goodwill

P124,200 P340,800 P 70,000 P 22,500 P360,000 P 82,000

Total Assets

P999,500

Liabilities and Equity Accounts Payable Salaries Payable Bank Loan Payable Note Payable Bonds Payable Ordinary Shares Capital Deficit Total Liabilities and Equity 10

P118,500 P 50,000 P222,000 P 80,000 P450,000 P120,000 P (41,000) P999,500

The inventory has a realizable value of P53,000. Of the accounts payable, P60,000 is secured by 25% of the receivable which is 70% collectible. The balance in the book value of the receivables which has a realizable value of P235,000 is used to secure the bank loan payable. The bonds payable is secured by the PPE having a book value of P360,000 and a realizable value of P375,000. Unrecognized liabilities as of Jan. 2, 2015 are as follows: accrued interest on bonds payable and taxes amounting to P4,000 each, and trustee’s salary amounting to P9,500. (Use two decimal places for the recovery percentage) How much will be paid to the partially secured creditors of ELI corporation? A. B. C. D.

P478,349 P480,669 P477,595 P479,102

Problem 31. On November 1, 2015, Goodbye To You (GTY) Inc.’s trustee prepares a Statement of Affairs with the following information: 

P340,000 cash will be received by the unsecured creditors whose claims totaled P1,360,000



A received a 12% note of P124000 from GTY on March 1, 2015, secured with machinery with a market value of P115,000



GTY issued to B a 12%, 1-year note of P136,000 on January 1, 2015. Nothing has been pledged to this note.



C holds a note of P137,500 on which interest of P7,452 is accrued, secured with equipment with a book value of P153,000. The fair value of the equipment is determined to be P173,250



GTY still owes D, its cashier, with her salary worth P12,220

Which of the following statements about the creditors of Goodbye To You is false? A. B. C. D.

The unsecured creditor without priority will receive P37,400 The unsecured creditor with priority will receive P3,055 The fully secured creditor will be paid an amount of P144,952 The partially secured creditor will be paid an amount of P119,730

PROBLEMS 32 - 33 (GOVERNMENT ACCOUNTING) Problem 32. Agency AA’s allotment and Notice of Cash Allocation (NCA) for the year were P5,000,000 and P3,000,000, respectively. Checks issued amounted to P1,500,000. What closing entry should be made for the unused NCA as of year-end?

A. Cash – National Treasury, MDS Subsidy income from National Government B. Subsidy income from National Government Cash – National Treasury, MDS C. Subsidy income from National Government Cash – National Treasury, MDS D. Memorandum entry

P (1,000,000) P (1,000,000) P 1,500,000 P 1,500,000 P 3,500,000 P 3,500,000

Problem 33. LTO collected motor vehicles registration fees amounting to P250. These were remitted to the Bureau of Treasury. To record the remittance by LTO in the National Government books, the entry would be:

11

A. Cash – National Treasury, MDS Registration fees B. Registration fees Cash – National Treasury, MDS C. Registration fees

P 250

P 250

P 250

P 250

P 250

Cash – Collecting Officer D. Cash – Disbursing Officer Cash – Collecting Officer

P 250

P 250

P 250

PROBLEMS 34 – 35 (NONPROFIT ORGANIZATIONS) Problem 34. Bleeding Love Hospital has the following account balances: Interest income Bad debt expense Unrestricted gifts Charity care Amounts charged to patients Contractual adjustments Revenue from parking spaces

P25,000 P15,000 P70,000 P75,000 P384,000 P90,000 P52,000

What is the hospital’s net patient service revenue? A. B. C. D.

P271,000 P219,000 P294,000 P204,000

Problem 35. Broken Heart University, a nonprofit university, received the following cash contributions from donors during the year 2015: Unrestricted contributions P250,000 Contributions restricted by donors for scholarship programs P100,000 Contributions from a donor who stipulated that the money be spent in P 75,000 accordance to the wishes of the hospital’s board of trustees Contributions restricted by donors for equipment acquisitions P125,000 Assuming the university spent P75,000 of the donors’ contributions for scholarship programs on financing this year’s scholars, how much should be included in its current funds revenue for the year ended December 31, 2015? A. B. C. D.

P350,000 P400,000 P325,000 P250,000

PROBLEMS 36 – 41 (FOREX) Problem 36. Cinco Corp. owns a subsidiary in Japan whose balance sheet in Japanese Yen for the last years follow: Assets Cash and Cash equivalents

December 31, 2014

December 31, 2015

¥ 30,000

¥ 25,000 12

Receivables Inventory Property and Equipment, net Total Assets Liabilities and Equity Accounts Payable Long-term debt Common stock Retained earnings Total Liabilities and Equity

122,500 160,000 255,000 ¥ 567,500

147,500 170,000 230,000 ¥ 572,500

¥ 55,000 322,500 115,000 75,000 ¥ 567,500

¥ 75,000 285,000 115,000 97,500 ¥ 572,500

Relevant exchange rates are:

January 1, 2014 December 31, 2014 December 31, 2015 September 12, 2014

¥ 1 = P 45 ¥ 1 = P 42.50 ¥ 1 = P 47.50 ¥ 1 = P 40

Cinco formed the subsidiary on January 1, 2014. Income of the subsidiary was earned evenly throughout the years and the subsidiary declared dividends worth ¥15,000 on September 12, 2014 and none were declared during 2015. How much is the cumulative translation adjustment for 2015? A. B. C. D.

P568,750 P625,000 P1,006,250 P875,000

Problem 37. On December 1, 2014, The Script Co. entered into a futures contract to sell 7,850 pieces of door knobs on January 1, 2015. The futures price is P11.50 per piece. The future contract is managed through an exchange so The Script does not know the party on the other side of the contract. This derivative contract will be settled by an exchange of cash on January 1, 2015 based on the price of door knobs on that date. If the price of a door knob on January 1, 2015 is P10.75, what is the gain or loss in relation with this futures contract on December 31, 2014? A. B. C. D.

P5,887.50 P(7,850) P(5,887.50) No gain/loss

Problem 38. On October 31, 2014, Pyramid Philippines took delivery from a British firm of inventory costing £725,000. Payment is due on January 31, 2015. At the same time, Pyramid paid P8,250 cash to acquire a 90-day call option for £725,000. Strike Price Spot Rate Forward Rate Fair Value of Call Option

October 31, 2014 P 3.60 3.61 3.72 P 8,250

December 31, 2014 P 3.60 3.62 3.77 P 17,000

January 31, 2015 P 3.60 3.64 3.78 ?

Given the information above, compute for the following: Foreign exchange gain or loss on option contract due to change in time value on December 31, 2014 if changes in the time value will be excluded from the assessment of hedge effectiveness, and foreign exchange gain or loss due to change in intrinsic value on January 31, 2015 if changes in the time value will be excluded from the assessment of hedge effectiveness.

13

A. B. C. D.

P1,500 gain ; P14,500 gain P5,50 loss ; P7,250 gain P5,250 loss ; P14,500 gain P1,500 gain ; P7,250 gain

Problem 39. On May 1, 2015, PERFECT Co. anticipated the purchase of 85,000 units of merchandise from a foreign vendor. The purchase would probably occur on October 28, 2015 and require the payment of 1,250,000 foreign currencies (FC). On May 1, 2015, the company purchased a call option to buy 1,250,000FC at a strike price of 1FC = P0.27. An option premium of P14,000 was paid. Changes in the value of the option will be excluded from the assessment of hedge effectiveness. For the year 2015, the following rates are as follows: Spot Rate Strike Price FV of call option

May 1 P 0.25 0.27 P14,000

May 31 P 0.28 0.27 P17,500

June 30 P 0.30 0.27 P39,000

October 28 P 0.32 0.27 ?

The foreign exchange gain (loss) on option contract to be recognized in (1) equity and (2) earnings on June 30: A. B. C. D.

P(37,500) ; P21,500 P(25,000) ; P3,500 P25,000 ; P(21,500) P37,500 ; P(3,500)

Problem 40. UST Company bought merchandise for €125,000 from a French company on December 1, 2014. Payment in Euros was due on February 28, 2015. On the same date, UST entered into a 90-day futures contract to buy €125,000 from a bank. Exchange rates for Euros on different dates are as follows:

Spot Rate 30-day futures 60-day futures 90-day futures

December 1, 2014

December 31, 2014

February 28, 2015

P 91.40 92.30 91.80 90.60

P 92.70 92.50 92.20 92.60

P 91.90 93.20 92.60 93.40

How much is the forex gain/loss on the forward contract on February 28, 2015? A. B. C. D.

P100,000 loss P37,500 gain P37,500 loss P100,000 gain

Problem 41. Given the following information (For ¥1): SPOT RATES Bid Rate Offer Rate P 43 P 45 48 49 49 55

Inception Date Reporting Date Maturity Date

Inception Date Reporting Date Maturity Date

120-day futures P 43 42 45

FORWARD RATES 90-day futures 60-day futures

30-day futures

P 45 46 48

P 46 49 52

P 44 47 49 14

On October 1, 2014, KEL Co. sold merchandise worth ¥2,750 to a Japanese company, payable on January 31, 2015. To hedge this foreign currency exposure, KEL contracted to sell ¥2,750 on October 1, 2014 to be delivered on January 31, 2015. On the reporting date, how much is the net forex gain/loss from this hedging activity? A. B. C. D.

P2,750 loss P2,750 gain P30,250 gain P30,250 loss

Problems 42 – 43 (BUSINESS COMBINATION – ACQUISITION OF NET ASSETS) Problem 42. Condensed statements of financial position of Love Corp. and You Corp. as of December 31, 2014 are as follows: Current assets Noncurrent assets Total assets

Love P175,000 P725,000 P900,000

You P 65,000 P425,000 P490,000

Liabilities Ordinary Shares, P20 par Retained Earnings Retained earnings

P 65,000 P550,000 P 35,000 P250,000

P 35,000 P300,000 P 25,000 P130,000

On January 1, 2015, Love Corp. issued 35,000 stocks with a market value of P25/share for the assets and liabilities of You Corp. The book value reflects the fair value of the assets and liabilities, except that the noncurrent assets of You have fair value of P630,000 and the noncurrent assets of Love are overstated by P30,000. Contingent consideration, which is determinable, is equal to P15,000. Love also paid for the stock issuance costs worth P34,000 and other acquisition costs amounting to P19,000. How much is the combined total assets after the merger? A. B. C. D.

P1,742,000 P1,825,000 P1,772,000 P1,567,000

Problem 43. The following are the condensed statement of financial position of Ayiziel and Vianney on January 1, 2015: Total Assets

Ayiziel P4,100,000

Vianney P1,223,000

Liabilities Ordinary Shares Share Premium Retained Earnings

P1,110,000 P1,240,000 P 500,000 P1,250,000

P 320,000 P 518,000 P 40,000 P 345,000

Cido Corp. acquired the net assets of both Ayiziel and Vianney by issuing 81,250 shares to Ayiziel and 22,550 shares to Vianney. The par value of these shares is P35/share and market value as of January 1, 2015 is P40/share. Cido also paid for the following expenses: Ayiziel P 37,500 P 26,500 P137,500 P 50,000

Indirect costs Finder’s fee Acctg. And legal fees for SEC registration Printing costs of stock certificates

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Vianney P 40,500 P 14,000 P145,000 P 37,500

If Cido’s retained earnings has a balance of P4,300,000 on January 1, 2015, how much is the (1) goodwill and (2) adjusted retained earnings to be presented in the statement of financial position of Cido? A. B. C. D.

P260,000 ; P4,112,750 P0 ; P4,112,750 P260,000 ; P4,182,500 P259,000 ; P4,181,500

PROBLEM 44 (BUSINESS COMBINATION – ACQUISITION OF STOCKS) On April 1, 2014, Añonuevo Corp. acquired 80% of the outstanding stocks of Sy Corp. for P2,500,000. Sy Corp.’s stockholders’ equity at the end of 2011 is as follows:Ordinary shares, P80 par P2,000,000, Share premium P500,000, and Retained Earnings P750,000. The fair value of the non-controlling interest is P685,000. All the assets of Sy were fairly valued except for its inventories which are overvalued by P90,000, Land which is undervalued by P50,000, and Patent which is undervalued by P125,000. The said patent has a remaining useful life of five years. Both companies use the straight line method for depreciation and amortization. Shareholders’ equity of Añonuevo Corp. on December 31, 2014 is composed of: Ordinary shares, P50 par P3,500,000, Share premium P750,000, and Retained Earnings P2,460,000. Goodwill, if any, should be decreased by P22,500 every year-end. No additional issuance of capital stocks occurred. For the two years ended, December 31, 2014 and 2015 , Añonuevo Corp. and Sy Corp. reported the following:

Net income from own operations Dividends declared at year-end

Añonuevo Corp. 2014 2015 P525,000 P550,000 P 50,000

P 35,000

Sy Corp. 2014 2015 P485,000 (from P520,000 date of acquisition) P 35,000 P 50,000

On December 31, 2014, compute for: Non-controlling interest in net assets of subsidiary A. B. C. D.

P781,150 P701,320 P781,150 P718,510

PROBLEM 45 - 46

(JOINT ARRANGEMENT)

On December 31, 2011 entity A acquired 30 per cent of the ordinary shares that carry voting rights of entity Z for CU100,000. In acquiring those shares entity A incurred transaction costs of CU1,000.

Entity A has entered into a contractual arrangement with another party (entity C) that owns 25 per cent of the ordinary shares of entity Z, whereby entities A and C jointly control entity Z. Entity A uses the cost model to account for its investments in jointly controlled entities. A published price quotation does not exist for entity Z. In January 2012 entity Z declared and paid a dividend of CU20,000 out of profits earned in 20X1. No further dividends were paid in 2012, 2013 or 2014. Problem 45. At December 31, 2011, 2012 and 2013, in accordance with Section 27 Impairment of Assets, management assessed the fair values of its investment in entity Z as CU102,000, CU110,000 and CU90,000 respectively. Costs to sell are estimated at CU4,000 throughout. Entity A measures its investment in entity Z on 31 December 20X1, 20X2 and 20X3 respectively at:

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A. P102,000, P110,000, P90,000. B. P101,000, P101,000, P90,000. C. P98,000, P106,000, P86,000. D. P98,000, P101,000, P86,000. Problem 46. Assuming, a published price quotation exists for entity Z. Entity A measures its investment in entity Z on 31 December 2011, 2012 and 2013 respectively at: A. P102,000, P110,000, P90,000. B. P101,000, P101,000, P90,000. C. P98,000, P106,000, P86,000. D. P98,000, P101,000, P86,000. PROBLEM 47

(BUSINESS COMBINATION)

The statements of financial position of Entity A and Entity B immediately before the business combination are (in thousands): Entity A

Entity B

Current assets Non-current assets Total assets

P500 1,300 1,800

P700 3,000 3,700

Current liabilities Non-current liabilities Total liabilities

P300 400

P600 1,100

700

Equity Retained earnings Issued equity 100,000 ordinary shares 60,000 ordinary shares Total shareholders’ equity Total liabilities and Equity

1,700 800 300 1,100 1,800

1,400 600 2,000 3,700

On September 30, 2011 Entity A issues 2.5 shares in exchange for each ordinary share of Entity B. All of Entity B’s shareholders exchange their shares in Entity B. Therefore, Entity A issues 150 ordinary shares in exchange for all 60 ordinary shares of Entity B. The fair value of each ordinary share of Entity B at September 30, 2011 is P40. The quoted market price of Entity A’s ordinary shares at that date is P16. The fair values of Entity A’s identifiable assets and liabilities at September 30, 2011 are the same as their carrying amounts, except that the fair value of Entity A’s non-current assets at September 30, 2011 is P1,500,000. Entity A is the legal parent and accounting acquiree. While Entity B is the legal subsidiary and accounting acquirer. What is the amount of goodwill to be reported in the consolidated financial statements? A. 200,000

PROBLEM 48

B. 300,000

C.400,000

D. 500,000

(DECONSOLIDATION)

Entity P has a 90% controlling interest in Entity S. On December 31, 2010, the carrying value of Entity S’s net assets in Entity P’s consolidated financial statements is P450,000 and the carrying amount attributable to the non-controlling interest’s in Entity S (including the non-controlling

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interest’s share of accumulated other comprehensive income) is 45,000. On January 1, 2011, Entity P sells 80% of the share in Entity S to a third party for cash proceeds of P540,000. As a result of the sale, Entity P loses control of Entity S but retains a 10% non-controlling interest in Entity S. The fair value of the retained interest on that date is P54,000. Determine the gain or loss on disposal (deconsolidation) A. P144,000 gain

C. P189,000 gain

B. P144,000 loss

D. P189,000 loss

PROBLEM 49 (INSURANCE CONTRACTS) An insurance contract can contain both deposit and insurance elements. An example might be a reinsurance contract where the cedent receives a repayment of the premiums at a future time if there are no claims under the contract. Effectively this constitutes a loan by the cedent that will be repaid in the future. IFRS 4 requires that A. Each payment by the cedent is accounted for as a loan advance and as a payment for insurance cover. B. The insurance premium is accounted for as a revenue item in the statement of income C. The premium is accounted for under PAS 18 D. The premium paid is treated purely as a loan, and it is accounted for under PAS 39 PROBLEM 50

(SERVICE CONCESSION ARRANGEMENT)

An operator builds a road at a cost of P100 M, the fair value of construction services is P110 M, the total operating costs of the road are P70 M and total cash inflows over the life of the concession are P200 M. Applying IFRIC 12, Service Concession Arrangement, by how much is total revenue under the intangible asset model higher or lower than the total revenue under the financial asset model over the life of the concession? A. No difference

B. P10 M

C. P110 M

-END-

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D. (P110M)