iCARE AFAR Special Handout With Solution

No. 125 Brgy.
San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : icarecpareview@gmail.com
RODIEL FERRER / REGINALD LACO / PAUL DE JESUS / RAIN SORIANO
First Pre-Board Topics
PARTNERSHIP ACCOUNTING
Theory of Accounts
1. In the absence of partnership agreement to the contrary, what is the obligation of the partners as regards
to capital contribution?
a. They shall contribute equally.
b. They shall contribute based on their profit agreement.
c. They shall contribute based on their loss agreement.
d. They shall contribute based on their withdrawal agreement.
2. In the absence of partnership agreement to the contrary, the non-cash assets contributed by the partners
shall be measured initially at
a. Book value
b. Present value of future cash flows
c. Fair value
d. Historical cost
3. How shall the partnership profits or losses be distributed among the partners?
a. Based on original capital contribution ratio
b. Based on profit or loss agreement of partners
c. Based on ending capital contribution ratio
d. Equally
4. In the absence of partnership profit agreement to the contrary, how shall industrial partner share in
partnership’s profit?
a. Equal to the share of the least capitalist partner
b. Equal to the share of the highest capitalist partner
c. Just and equitable share
d. Equal to the average share capitalist partners
5. In the absence of partnership profit agreement to the contrary, how shall the remaining partnership’s
profit be distributed to the capitalist partners after distributing the share of industrial partner?
a. Based on capital contribution ratio
b. Based on loss agreement ratio
c. Equally
d. Equal to share of industrial partner
6. In the absence of partnership loss agreement to the contrary, how shall industrial partner share in
partnership’s loss?
a. Equal to the share of the least capitalist partner
b. Based on profit agreement ratio
d. None
No. 125 Brgy. San Sebastian
Mobile : 0927 283 8234
Telephone : (043) 723 8412
7. In the absence of partnership loss agreement to the contrary, how shall capitalist partners share in
partnership’s loss?
a. Based on capital contribution ratio
b. Based on profit agreement ratio
d. Equally
8. Which of the following transactions will decrease the capital balance of a partner?
a. Additional investment by said partner
b. Share in partnership’s profit
c. Drawings by said partner
d. Receipt of bonus from other partners
9. Which of the following will not result to dissolution of a general partnership?

a. Death of a partner
b. Retirement of a partner
c. Insolvency of a partner
d. Assignment of a partner’s interest to a third person
10. What is the effect of admission of a new partner to an existing partnership through the purchase of
interest of an existing partner?
a. It will result to partnership gain or loss.
b. It will increase the partnership total assets by the cash paid to the existing partner.
c. It will not change the total capital of the partnership.
d. It will decrease the capital of the partnership by the capital to be transferred to the new partner.
11. If the total contributed capital of all the partners is equal to the total agreed capitalization of new
partnership in admission of new partner by investment, which is true?
a. Asset revaluation is recognized.
b. Impairment loss is recognized.
c. Bonus to or from new partner is recognized.
d. Any of the above.
12. In admission of new partner by investment, the total contributed capital of all the partners is more than
the total agreed capitalization of new partnership but the capital credit of new partner is less than his
capital contribution. Which of the following statements is correct?
a. There has been asset revaluation with bonus to new partner.
b. There has been asset impairment with bonus to old partners.
c. There has been bonus given to old partners without any revaluation or impairment.
d. There has been asset revaluation with bonus to old partners.
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13. At the time of retirement of a partner, he receives more than his capital balance before retirement but the
capital balances of the remaining partners also increase. Which of the following is the most valid reason
under Philippine GAAP?
a. There has been asset revaluation before retirement.
b. Goodwill arising from partner’s retirement has been recognized.
c. There has been asset impairment before retirement.
d. Bonus has been given to retiring partner.
14. The existing partnership has been incorporated but the capital balances of the partners exceed the total
par value of the shares to be issued. The difference shall be credited to
a. Retained earnings
b. Gain as part Profit or loss
c. Income as part Other comprehensive income
d. Share premium
15. At the time of liquidation of general partnership, which of the following claims shall be settled first?
a. Those from capital contribution of partners
b. Those from share in profits of partners
c. Those from advances made by partners to the partners
d. Those from loans made by third persons
Answer in Theory of Accounts

14. D
1. A
15. D
2. C
3. B
4. C
5. A
6. D
7. C
8. C
9. D
10. C
11. C
12. B
13. A
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A, B and C decided to form ABC Partnership. It was agreed that A will contribute an equipment with assessed
value of P100,000 with historical cost of P800,000 and accumulated depreciation of P600,000.
B will contribute a land and building with book value of P1,200,000 and fair market value of P1,500,000. The
land and building is subject to a mortgage payable amounting to P300,000 to be assumed by the partnership.
The partners agreed that B will have 60% capital interest in the partnership. They agreed that C will contribute
sufficient cash to the partnership. A day after the partnership formation, the equipment was sold for P 300,000.
16. What is the total agreed capitalization of the ABC Partnership?

a. P1,500,000
b. P2,000,000
c. P2,500,000
d. P3,000,000
17. What is the capital credit of A in the ABC Partnership after the formation?
a. P100,000
b. P200,000
c. P300,000
d. P400,000
18. What is the capital credit of B in the ABC Partnership after the formation?
a. P900,000
b. P1,500,000
c. P1,400,000
d. P1,200,000
19. What is the cash to be contributed by C in the ABC Partnership?

a. P500,000
b. P600,000
c. P700,000
d. P800,000
On January 1, 2021, A, B and C formed ABC Partnership with total agreed capitalization of P1,000,000. The
capital interest ratio of the ABC Partnership is 5:1:4 while the profit or loss ratio is 3:2:5, respectively for A, B
and C.
During 2021, A and B made additional investments of P200,000 and P500,000, respectively. At the end of 2021,
B and C made drawings of P300,000 and P100,000, respectively.
On December 31, 2021, the capital balance of B is reported at P200,000.
20. What is the net income or net loss of ABC Partnership for the year ended December 31, 2021?
a. (P500,000)
b. (P1,000,000)
c. P800,000
d. P1,200,000
21. What is the capital balance of A on December 31, 2021?

a. P450,000
b. P350,000
c. P550,000
d. P400,000
4|Pa g e FARAP – BATCH 9 (SAMUEL)
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Telephone : (043) 723 8412
22. What is the capital balance of C on December 31, 2021?

a. P150,000
b. P50,000
c. P200,000
d. P250,000
On January 1, 2018, A, B and C formed ABC Partnership with original capital contribution of P300,000, P500,000
and P200,000. A is appointed as managing partner.
During 2018, A, B and C made additional investments of P500,000, P200,000 and P300,000, respectively. At the
end of 2018, A, B and C made drawings of P200,000, P100,000 and P400,000, respectively.
At the end of 2018, the capital balance of C is reported at P320,000.
The profit or loss agreement of the partners is provided below:

 10% interest on original capital contribution of the partners.
 Quarterly salary of P40,000 and P10,000 for A and B, respectively.
 Bonus to A equivalent to 20% of Net Income after interest and salary to all partners
 Remainder is to be distributed equally among the partners.
23. What is C’s share in the partnership profit for the year ended December 31, 2018?
a. P120,000
b. P320,000
c. P180,000
d. P220,000
24. What is the partnership profit for the year ended December 31, 2018?
a. P900,000
b. P1,020,000
c. P1,050,000
d. P960,000
25. What is the bonus given to A as managing partner for the year ended December 31, 2018?
a. P120,000
b. P150,000
c. P60,000
d. P100,000
26. What is the capital balance of A on December 31, 2018?

a. P1,140,000
b. P1,110,000
c. P1,050,000
d. P1,200,000
27. What is the capital balance of B on December 31, 2018?

a. P850,000
b. P840,000
c. P890,000
d. P940,000

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On December 31, 2020, the Statement of Financial Position of ABC Partnership provided the following data with
profit or loss ratio of 1:6:3:
Current Assets P1,000,000 Total Liabilities P600,000

Noncurrent Assets 2,000,000 A, Capital 900,000
B, Capital 800,000
C, Capital 700,000
On January 1, 2021, D is admitted to the partnership by purchasing 40% of the capital interest of B at a price of
P500,000.
28. What is the capital balance of B after the admission of D on January 1, 2021?
a. P540,000
b. P480,000
c. P420,000
d. P300,000
On December 31, 2018, ABC Partnership’s Statement of Financial Positions shows that A, B and C have capital
balances of P500,000, P300,000 and P200,000 with profit or loss ratio of 1:3:6. On January 1, 2019, C retired
from the partnership and received P350,000. At the time of C’s retirement, an asset of the partnership is
undervalued.
29. What is the capital balance of A after the retirement of C?

a. P462,500
b. P537,500
c. P562,500
d. P525,000
On December 31, 2020, ABC Partnership’s Statement of Financial Position shows that A, B and C have capital
balances of P400,000, P300,000 and P100,000 with profit or loss ratio of 1:4:5. On January 1, 2021, C retired
from the partnership and received P80,000. At the time of C’s retirement, the assets and liabilities of the
partnership are properly valued.
30. What is the capital balance of B after the retirement of C?

a. P284,000
b. P308,000
c. P316,000
d. P320,000
Current Assets P1,300,000 Total Liabilities P 300,000
Noncurrent Assets 2,000,000 A, Capital 1,400,000
B, Capital 700,000
C, Capital 900,000
On January 1, 2021, D is admitted to the partnership by investing P1,000,000 to the partnership for 20% capital
interest.

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31. If the all the assets of the existing partnership are properly valued, what is the capital balance of C after
the admission of D?
a. P960,000
b. P900,000
c. P840,000
d. P1,200,000
32. If an existing asset of ABC partnership is not properly valued, what is the capital balance of B after the
admission of D?
a. P820,000
b. P1,300,000
c. P960,000
d. P780,000
Current Assets P 1,500,000 Total Liabilities P 500,000
Noncurrent Assets 2,000,000 A, Capital 1,100,000
B, Capital 1,200,000
C, Capital 700,000
On January 1, 2019, D is admitted to the partnership by investing P500,000 to the partnership for 10% capital
interest. The total agreed capitalization of the new partnership is P3,000,000.
33. What is the share of A in the asset impairment?

a. P120,000
b. P80,000
c. P150,000
d. P250,000
34. What is the amount of bonus given by D to the existing partners?

a. P200,000
b. P300,000
c. P100,000
d. P150,000
35. What is the capital balance of D after his admission to the partnership?
a. P500,000
b. P300,000
c. P350,000
d. P400,000
36. What is the capital balance of C after the admission of D to the partnership?
a. P580,000
b. P820,000
c. P500,000
d. P780,000

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Telephone : (043) 723 8412
On December 31, 2019, the Statement of Financial Position of ABC Partnership with profit or loss ratio of 6:1:3
is presented as follows:
Cash P1,000,000 Other Liabilities P2,000,000

Receivable from A 500,000 Payable to B 1,000,000
Other noncash assets 2,000,000 Payable to C 100,000
A, Capital 700,000
B, Capital (650,000)
C, Capital 350,000
On January 1, 2020, the partners decided to liquidate the partnership. All partners are legally declared to be
personally insolvent. The other noncash assets were sold for P1,500,000. Liquidation expenses amounting to
P100,000 were incurred.
37. How much cash was received by B at the end of partnership liquidation?
a. P250,000
b. P150,000
c. P290,000
d. P270,000
38. How much cash was received by C at the end of partnership liquidation?
a. P270,000
b. P150,000
c. P350,000
d. P220,000
Cash P1,200,000 Total Liabilities P1,500,000

Noncash asset 800,000 A, Capital 150,000
B, Capital 300,000
C, Capital 50,000
On January 1, 2020, the partners decided to liquidate the partnership. All partners are legally declared to be
personally insolvent. The other noncash assets were sold at a specific price. Liquidation expenses amounting to
P50,000 were incurred. At the end of liquidation, A received P80,000.
39. What is the amount of cash received by B at the end of liquidation?

a. P40,000
b. P30,000
c. P10,000
d. P20,000
40. What is the net proceeds from the sale of noncash asset during partnership liquidation?
a. P450,000
b. P350,000
c. P400,000
d. P500,000

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Cash P1,600,000 Total Liabilities P2,000,000

Noncash asset 1,400,000 A, Capital 100,000
B, Capital 500,000
C, Capital 400,000
On January 1, 2021, the partners decided to liquidate the partnership in installment. All partners are legally
declared to be personally insolvent.
As of January 31, 2021, the following transactions occurred:

 Noncash assets with a book value P1,000,000 were sold at a gain of P100,000.
 Liquidation expenses for the month of January amounting to P50,000 were paid.
 It is estimated that liquidation expenses amounting to P150,000 will be incurred for the month of February,
2021.
 20% of the liabilities to third persons were settled.
 Available cash were distributed to the partners.
As of February 28, 2021, the following transactions occurred:

 Remaining noncash assets were sold at a loss of P100,000.
 The final liquidation expenses for the month of February amounted to P100,000.
 The remaining liabilities to third persons were settled at a compromise amount of P1,500,000.
 Remaining cash were finally distributed to the partners.
41. What is the amount of cash received by partner C on January 31, 2021?
a. P260,000
b. P240,000
c. P300,000
d. P350,000
42. What is the share of B in the maximum possible loss on January 31, 2021?
a. P275,000
b. P110,000
c. P120,000
d. P165,000
43. What is the amount of total cash withheld on January 31, 2021?
a. P550,000
b. P1,600,000
c. P1,750,000
d. P1,700,000
44. What is the amount of cash received by A on February 28, 2021?

a. P75,000
b. P25,000
c. P50,000
d. None

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Solution in Problem Solving
Fair Market Value of Land and Building contributed by B P1,500,000

Less: Mortgage Payable to be assumed by ABC Partnership (300,000)
Capital Credit of B in ABC Partnership P1,200,000
Divided by B’s Capital Interest Ratio /60%
Total Agreed Capitalization of ABC Partnership P2,000,000
Capital Credit of A in ABC Partnership (Proceeds from sale of equipment) P 300,000
Fair Market Value of Land and Building contributed by B P1,500,000

Less: Mortgage Payable to be assumed by ABC Partnership (300,000)
Capital Credit of B in ABC Partnership P1,200,000
Total Agreed Capitalization of ABC Partnership P2,000,000

Less: Total Capital Credit of A and B (P300,000 + P1,200,000) 1,500,000
Cash to be contributed by C in ABC Partnership P 500,000
January 1, 2021 B’s Capital Balance (P1,000,000 x 10%) P 100,000

Add: B’s additional investment during 2021 500,000
Less: B’s drawings at the end of 2021 (300,000)
Less: B’s capital balance on December 31, 2021 (200,000)
B’s Share in Net Loss for the year ended December 31, 2021 (P 100,000)
Divided by B’s interest in profit or loss /20%
Net loss of ABC Partnership for the year ended December 31, 2021 (P 500,000)
January 1, 2021 A’s Capital Balance (P1,000,000 x 50%) P 500,000

Add: A’s additional investment during 2021 200,000
Less: A’s Share in Net Loss during 2021 (P500,000 x 30%) (150,000)
December 31, 2021 Capital Balance of A P 550,000
January 1, 2021 C’s Capital Balance (P1,000,000 x 40%) P 400,000

Less: C’s Share in Net Loss during 2021 (P500,000 x 50%) (250,000)
Less: C’s drawings at the end of 2021 (100,000)
December 31, 2021 Capital Balance of C P 50,000
December 31, 2018 C’s Capital Balance P 320,000

Add: C’s drawings at the end of 2018 400,000
Less: C’s additional investment during 2018 (300,000)
Less: C’s capital balance on January 1, 2018 (200,000)
C’s share in partnership profit for the year ended December 31, 2018 P 220,000
C’s share in profit for the year 2018 P 220,000

Less: Interest on original capital contribution of C (200,000 x 10%) (20,000)
C’s share in the remaining profit after interest, salary and bonus P 200,000
Multiply by number of partners x 3
Remaining profit after interest, salary and bonus P 600,000
Divided by 80% / 80%
Net profit after salary and interest but before bonus to managing partner P 750,000
Add: Total interest and salary (100,000 + 200,000) 300,000
Partnership profit for the year ended December 31, 2018 P1,050,000
10 | P a g e FARAP – BATCH 9 (SAMUEL)

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Telephone : (043) 723 8412
Partnership profit for the year ended December 31, 2018 P1,050,000
Less: Total interest and salary (100,000 + 200,000) (300,000)
Net profit after salary and interest but before bonus to managing partner P 750,000
Multiply by Bonus percentage x 20%
Bonus to A as managing partner P 150,000
January 1, 2018 A’s capital balance P 300,000

Add: Additional investment of A during 2018 500,000
Less: Drawings of A during 2018 (200,000)
Add: A’s share in partnership profit during 2018 (30,000+160,000+150,000+200,000) 540,000
December 31, 2018 A’s capital balance P1,140,000
January 1, 2018 B’s capital balance P 500,000

Add: Additional investment of B during 2018 200,000
Less: Drawings of B during 2018 (100,000)
Add: B’s share in partnership profit during 2018 (50,000+40,000+200,000) 290,000
December 31, 2018 B’s capital balance P 890,000
Capital Balance of B before the admission of D P 800,000

Less: Capital to be transferred to D (P800,000 x 40%) ( 320,000)
Capital Balance of B after the admission of D P 480,000
Capital Balance of A before the retirement of C P 500,000

Add: Share of A in asset revaluation (P150,000/60%x10%) 25,000
Capital Balance of A after the retirement of C P 525,000
Capital Balance of B before the retirement of C P 300,000

Add: Share of B from Bonus given by C (P20,000 x 4/5) 16,000
Capital Balance of B after the retirement of C P 316,000
Capital Balance of C before the admission of D P 900,000

Add: Share of C in bonus given by D (P200,000 x 30%) 60,000
Capital Balance of C after the admission of D P 960,000
Capital Balance of B before the admission of D P 700,000

Add: Share of B in Asset Revaluation (P1,000,000 x 60%) 600,000
Capital Balance of B after the admission of D P1,300,000
Total contributed capital of all partners (P3,000,000 + P500,000) P3,500,000

Less: Total agreed capitalization of new partnership 3,000,000
Asset impairment to be shared by old partners only P 500,000
Share of A in asset impairment (P500,000 x 50%) P 250,000

Contributed capital by D to the new partnership P 500,000
Less: Capital credit to D in the new partnership (P3,000,000 x 10%) 300,000
Bonus given by D to the existing partners P 200,000
Capital credit of D to the new partnership (P3,000,000 x 10%) P 300,000
Capital Balance of C before the admission of D P 700,000

Less: C’s share in asset impairment (P500,000 x 40%) (200,000)
Add: C’s share in bonus given by D (P200,000 x 40%) 80,000
Capital Balance of C after the admission of D P 580,000

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Capital Balance of B before liquidation (P 650,000)

Add: Payable to B 1,000,000
Capital Balance of B after the right of offset P 350,000
Less: Share of B in Total Loss on Liquidation ((500,000+100,000) x 10%) 60,000
Capital Balance of B after loss on liquidation but before absorption of A’s insolvency P 290,000
Less: Share of B in A’s debit capital balance (P160,000 x 1/4) (40,000)
Cash received by B at the end of partnership liquidation P 250,000
Capital Balance of C before liquidation P 350,000

Add: Payable to C 100,000
Capital Balance of C after the right of offset P 450,000
Less: Share of C in Total Loss on Liquidation ((500,000+100,000) x 30%) 180,000
Capital Balance of C after loss on liquidation but before absorption of A’s insolvency P 270,000
Less: Share of C in A’s debit capital balance (P160,000 x 3/4) (120,000)
Cash received by C at the end of partnership liquidation P 150,000
Capital Balance of B before liquidation P 300,000

Less: Share in presumed total loss in liquidation (P70,000/10% x 40%) 280,000
Cash received by B at the end of partnership liquidation P 20,000
Cash received by partners at the end of liquidation ((P80,000 (A) + P20,000 (B)) P 100,000
Add: Cash paid for liquidation expenses 50,000
Add: Cash paid for total liabilities 1,500,000
Less: Cash balance before the start of liquidation (1,200,000)
Net proceeds from the sale of noncash assets P 450,000
Capital Balance of C before liquidation P 400,000

Less: Share of C in Total Loss in Liquidation during January (P500,000* x 20%) (100,000)
Capital Balance of C after loss on liquidation but before absorption of A’s insolvency P 300,000
Less: Share of C in A’s debit balance (P150,000 x 2/5) (60,000)
Cash received by C at the end of partnership liquidation P 240,000
Cash balance before start of liquidation P1,600,000

Add: Net proceeds from sale of noncash asset during January (P1,000,000 + P100,000) 1,100,000
Less: Cash paid for liquidation expenses during January (50,000)
Less: Cash paid for liabilities to third person during January (P2,000,000 x 20%) (400,000)
Less: Cash withheld for unpaid liabilities to third person (P2,000,000 x 80%) (1,600,000)
Less: Cash withheld for estimated future liquidating expenses (150,000)
Cash available for distribution to partners P 500,000
Less: Total capital of all partners (100,000+500,000+400,000) (1,000,000)
Total loss on liquidation for the first month of installment P 500,000*
Estimated future liquidating expenses on January 31, 2021 P 150,000

Add: Book value of remaining noncash assets on January 31, 2021 400,000
Maximum possible loss on January 31, 2021 P 550,000
B’s share in maximum possible loss (P550,000 x 30%) P 165,000
Cash withheld for future liquidating expenses P 150,000

Add: Cash withheld for remaining unpaid liabilities to third persons (P2,000,000 x 80%) 1,600,000
Total cash withheld on January 31, 2021 P1,750,000
Capital Balance of A on January 31, 2021 P 100,000

Add: Share of A in total loss in liquidation during February (P50,000* x 50%) (25,000)
Cash received by A on February 28, 2021 during final liquidation P 75,000
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Cash balance on January 31, 2021 P1,750,000

Add: Net proceeds from sale of noncash asset during January (P400,000 - P100,000) 300,000
Less: Cash paid for liquidation expenses during February (100,000)
Less: Cash paid for liabilities to third person during February (1,500,000)
Cash available for final distribution to partners P 450,000
Less: Total capital of all partners (100,000+240,000+160,000) (500,000)
Total loss on liquidation for the first month of installment P 50,000*
45. What is the term used for retained earnings with debit balance?
a. Deficit
b. Deficiency
c. Discount
d. Secret reserve
46. At the time of corporate liquidation, which of the following unsecured claims with priority shall be
settled first?
a. Liability for taxes
b. Liability for corporate crime
c. Liability for employee benefits
d. Liability for corporate torn
47. In every corporate liquidation, which type of credits shall always be fully settled?
a. Unsecured claims with priority
b. Fully secured claims
c. Unsecured claims without priority
d. Partially secured claims
48. In every corporate liquidation, which type of credits will not share from the free assets of the corporate?
a. Unsecured claims with priority
b. Fully secured claims
c. Unsecured claims without priority
d. Partially secured claims
49. In corporate liquidation of a closed bank, which of the following unsecured credits is classified as
without priority?
a. Claims of bank depositors
b. Claims of bank employees
c. Claims of local government for local taxes
d. Claims for violation of Anti-Money Laundering Law
45. A
46. C
47. B
48. B
49. A

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An entity is experiencing financial problems which resulted to its ultimate bankruptcy. The statement of financial
position of the said entity before its liquidation is presented below:
Cash P100,000 Income tax payable P 200,000
Inventory 300,000 Salaries payable 300,000
Land 200,000 Notes payable 800,000
Mortgage payable 100,000
Accounts payable 400,000
Contributed capital 500,000
Deficit (1,700,000)
The following additional data are provided:

 The notes payable is secured by the inventory with net realizable value of P250,000.
 The mortgage payable is secured by the land with fair market value of P120,000.
50. What is the amount received by the holder of the notes payable at the end of corporate liquidation?
a. P320,000
b. P300,000
c. P250,000
d. P260,000
51. What is the amount received by the holder of the mortgage payable at the end of corporate liquidation?
a. P120,000
b. P200,000
c. P150,000
d. P100,000
52. What is the amount received by the employees at the end of corporate liquidation concerning their
salaries?
a. P100,000
b. P120,000
c. P72,000
d. P300,000
53. What is the amount received by the national government concerning its income tax claim?
a. P200,000
b. P120,000
c. P48,000
d. None
A bankrupt entity has undergone corporate liquidation. Presented below is its statement of financial position
before the start of liquidation:
Cash P 300,000 Accounts Payable P 100,000
Machinery 500,000 Salaries Payable 200,000
Building 1,200,000 Income tax Payable 300,000
Loans Payable 400,000
Mortgage payable 500,000
Contributed capital 800,000
Deficit (300,000)

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The following additional data are provided:

 Liquidation expenses amounting to P600,000 were paid.
 The loans payable is secured by the machinery which has fair value of P300,000.
 The mortgage payable is fully secured by the building.
 At the end of liquidation, the holder of loans payable received P340,000.
54. What is the recovery percentage of unsecured creditors without priority?

a. 15%
b. 85%
c. 60%
d. 40%
55. What is the amount received by the holder of accounts payable at the end of liquidation?
a. P85,000
b. P15,000
c. P40,000
d. P60,000
56. What is the amount of net free assets available at the end of liquidation?
a. P80,000
b. P40,000
c. P120,000
d. P200,000
57. What is the fair value or realizable value of building?

a. P880,000
b. P1,380,000
c. P1,300,000
d. P1,100,000
Amount received by holder of note payable (NRV of Inventory) P 250,000

Note: Only the net realizable value of collateral inventory will be received since there is no available net free
asset.
Amount received by holder of mortgage payable (Fair value of Land) P 100,000

Note: The mortgage payable will be fully collected because it is fully secured credit.
Cash P 100,000
Add: Free assets from fully secured mortgage payable (P120,000 – P100,000) 20,000
Total Free assets for unsecured credits with priority P 120,000
Amount received by employees for their salary P 120,000
Note: Since only P120,000 free assets are available, it must all be given to employees who are preferred
over the government.
Amount received by national government for income taxes None

Note: Since only P120,000 free assets are available, it must all be given to employees for their salaries which are
preferred over the claims of the government for income taxes.

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Amount received by partially secured loans payable P 340,000

Less: Fair value of collateral – machinery (300,000)
Recovered amount from the unsecured portion of partially secured loans payable P 40,000
Divided by unsecured portion of partially secured loans payable (P400,000 – P300,000) /100,000
Recovery percentage on unsecured credits 40%
Amount received by holder of accounts payable (P100,000 x 40%) P 40,000
Accounts payable P 100,000

Add: Unsecured portion of partially secured loans payable (P400,000 – P300,000) 100,000
Total unsecured credits including unsecured portion of partially secured loans payable P 200,000
Multiply by recovery percentage of unsecured credits x 40%
Net free assets P 80,000
Net free assets P 80,000

Add: Liquidation expenses paid 600,000
Add: Salaries payable 200,000
Add: Income tax payable 300,000
Less: Cash (300,000)
Free assets from building used as collateral for fully secured mortgage payable P 880,000
Add: Book value of fully secured mortgage payable 500,000
Fair value of building used as collateral of mortgage payable P1,380,000
58. If the collection of the note receivable is reasonably assured, the gross profit shall be recognized under
a. Accrual basis
b. Installment method
c. Cost recovery method
d. Percentage of completion method
59. If the collection of the note receivable is remote, the gross profit shall be recognized under
a. Accrual basis
60. If the collection of the note receivable is neither remote nor reasonably assured, the gross profit shall be
recognized under
a. Accrual basis
61. Under generally accepted accounting principles, deferred gross profit shall properly be presented in the
statement of financial position as
a. Deferred revenue
b. Current liability
c. Contra installment receivable account
d. Share premium

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62. At the time of repossession of inventory by reason of defaulted installment receivable, the fair value of
repossessed inventory is less than the net of the defaulted installment receivable and its corresponding
deferred gross profit. The difference shall be recognize as
a. Deferred gain on repossession presented as current liability
b. Gain on repossession as part of other comprehensive income
c. Debit to retained earnings
d. Loss on repossession as part of profit or loss
63. When shall the consignor recognize revenue from consignment sales?
a. Upon delivery of the consigned goods to the consignee.
b. Upon signing of consignment contract.
c. Upon sale by the consignee to final customers.
d. Upon remittance by the consignee of collection to the consignor.
64. Under IFRS 15, when shall an entity recognize revenue from contracts with customers?
a. When it is probable that future economic benefits will flow to the entity and the revenue can be
measured reliably.
b. When or as the entity satisfies the performance obligation.
c. When the entity collected the cash from the customers.
d. When the entity and the customers sign the contracts.
65. Under IFRS 15, how does an entity satisfy the performance obligation on its contracts with customers?
a. Satisfaction of performance obligation over time.
b. Satisfaction of performance obligation at a point in time.
c. Either A or B.
d. Neither A nor B.
66. Under IFRS 15, in which of the following instances will the revenue from contracts with customers be
recognized at a point in time instead of over time?
a. When the customer simultaneously receives and consumes all of the benefits provided by the
entity as the entity performs.
b. When the entity’s performance creates or enhances an asset that the customer controls as the
asset is created.
c. When the entity’s performance does not create an asset with an alternative use to the entity and
the entity has an enforceable right to payment for performance completed to date.
d. When the entity has transferred physical possession and legal title to the asset to the customer.
67. Under IFRS 15, when shall the incremental cost of obtaining a contract with a customer be recognized
as an asset?
a. When it is probable that future economic benefits will flow to the entity and the cost can be
measured reliably.
b. When the entity expects to recover those costs.
c. When the costs will provide economic benefits for a period less than 12 months.
d. When the costs will decrease the revenue in the future periods.
68. Under IFRS 15, which of the following costs can be capitalized as an asset for being incremental cost of
obtaining a contract with customer?
a. Salaries of the legal counsel of the entity.
b. Advertising cost to create goodwill for the company.
c. Costs that the entity would not have incurred if the contract had not been successfully obtained
such as success fees’ paid to agents
d. Research and development costs to create a good name for the company

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69. Under IFRS 15, when will the practical expedient of expensing the incremental cost of obtaining a
contract with a customer be available?
a. When it is probable that future economic benefits will flow to the entity and the cost can be
measured reliably.
b. When the entity expects to recover those costs.
c. When the costs will provide economic benefits for a period less than 12 months.
d. When the costs will increase the revenue in the future periods.
70. Under IFRS 15, when will the costs incurred to fulfill a contract with a customer be recognized as an
asset?
a. When the costs relate directly to a contract (or a specific anticipated contract).
b. When the costs generate or enhance resources of the entity that will be used in satisfying
performance obligations in the future.
c. When the costs are expected to be recovered.
d. When all of the above criteria are present.
71. Under IFRS 15, where a contract with a customer has multiple performance obligations, what will be the
accounting treatment to the transaction price?
a. The transaction price shall be recognized as revenue to the most important performance
obligation.
b. The transaction price shall be allocated equally to the different performance obligations.
c. The transaction price shall be allocated to the different performance obligations by reference to
their relative standalone selling prices.
d. The transaction price shall be recognized as revenue only at the end of completion of all
performance obligations.
72. Under IFRS 15, where the standalone selling prices of the different performance obligations in a
contract with a customer are not available, what methods or approaches may be used to allocate the
transaction price?
a. Adjusted market assessment approach
b. Expected cost plus a margin approach
c. Residual approach but only permissible in limited circumstances
d. Any of the above
73. Under IFRS 15, what shall be presented by the entity in its statement of financial position in relation to
its contract with a customer where a customer has paid an amount of consideration prior to the entity
performing by transferring the related good or service to the customer?
a. Contract liability
b. Contract asset
c. Contract receivable
d. Contract equity
its contract with a customer where the entity has performed by transferring a good or service to the
customer and the customer has not yet paid the related consideration and the entity’s right to
consideration is conditional on something other than the passage of time , for example future
performance of the entity?
b. Contract asset
d. Contract equity

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its contract with a customer where the entity has performed by transferring a good or service to the
customer and the customer has not yet paid the related consideration and the entity’s right to
consideration is unconditional except for the passage of time?
b. Contract asset
d. Contract equity
76. Under IAS 18, what is the measurement of revenue?

a. Fair value of the consideration received or receivable
b. Book value of the consideration received or receivable
c. Historical cost of the consideration received or receivable
d. Present value of cash flows of the consideration received or receivable
77. Under IAS 11, which of the following costs shall not form part of contract costs of long-term
construction contract?
a. Depreciation of idle plant and equipment that is not used on a particular contract
b. Costs of materials used in construction
c. Costs of moving plant, equipment and materials to and from the contract site
d. Site labour costs, including site supervision
78. Under IAS 11, which of the following costs shall form part of contract costs of long-term construction
contract?
a. general administration costs for which reimbursement is not specified in the contract
b. selling costs such as broker’s commission
c. research and development costs for which reimbursement is not specified in the contract
d. construction overheads including costs such as the preparation and processing of construction
personnel payroll
79. Under IAS 11, when the outcome of a construction contract can be estimated reliably, how shall the
long-term construction revenue and contract costs be recognized?
a. They shall be recognized as revenue and expenses respectively by reference to the stage of
completion of the contract activity at the end of the reporting period.
b. Construction revenue shall be recognized only to the extent of contract costs incurred that it is
probable will be recoverable and contract costs shall be recognized as an expense in the period in
which they are incurred.
c. They shall be recognized as revenue and expenses at the end of completion of project.
d. They shall be recognized as revenue and expenses at the period of collection.
80. Under IAS 11, when the outcome of a construction contract cannot be estimated reliably, how shall the
long-term construction revenue and contract costs be recognized?
a. They shall be recognized as revenue and expenses respectively by reference to the stage of
completion of the contract activity at the end of the reporting period.
b. Construction revenue shall be recognized only to the extent of contract costs incurred that it is
probable will be recoverable and contract costs shall be recognized as an expense in the period in
which they are incurred.
c. They shall be recognized as revenue and expenses at the end of completion of project.
d. They shall be recognized as revenue and expenses at the period of collection.

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81. Under IAS 11, when it is probable that total contract costs will exceed total contract revenue in a long-
term construction contract, what is the treatment of expected loss?
a. The expected loss shall be recognized as an expense immediately regardless of the outcome of
construction contract.
b. The expected loss shall be recognized as expense by reference to the stage of completion of the
contract activity at the end of the reporting period.
c. The expected loss shall be recognized as an expense immediately only if the outcome of the
construction contract cannot be estimated reliably.
d. The expected loss shall be recognized as expense by reference to the stage of completion of the
contract activity at the end of the reporting period if the outcome of the construction contract can
be estimated reliably.
82. Under IAS 11, when the outcome of a construction contract can be estimated reliably, how shall the
change in percentage of completion be accounted for every year?
a. It shall be accounted for as a change in accounting estimate to be applied prospectively.
b. It shall be accounted for as a change in accounting policy to be applied retrospectively.
c. It shall be accounted for as a prior period error to be treated by retroactive restatement.
d. It shall be accounted for as a counterbalancing error to be applied prospectively.
83. Which of the following changes shall be considered as change in accounting policy to be treated
retroactively?
a. Change of the estimated cost to complete the project.
b. Change of the percentage of completion.
c. Change of the contract price.
d. Change from cost recovery method to percentage of completion
84. Under IAS 11, long-term construction revenue shall comprise of

a. The initial amount of revenue agreed in the contract.
b. Variations in the contract work, claims and incentive payments
c. Both A and B.
d. Neither A nor B.
85. Under IAS 11, when may variations in the contract work, claims and incentive payments be allowed to
be recognized as additional long-term construction revenue?
a. When it is probable that they will result in revenue.
b. When they are capable of being reliably measured.
c. Either A or B.
d. Both A and B.
86. A
87. C
88. B
89. C
90. D
91. C
92. B

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93. C
94. D
95. B
96. C
97. C
98. D
99. C
100. D
101. A
102. B
103. C
104. A
105. A
106. D
107. A
108. B
109. A
110. A
111. D
112. B
113. D
On January 1, 2020, an entity granted a franchise to a franchisee. The franchise agreement requires the franchisee
to pay a nonrefundable upfront fee in the amount of P400,000 and on-going payment of royalties equivalent to
5% of the sales of the franchisee. The franchisee paid the nonrefundable upfront fee on January 1, 2020.
In relation to the nonrefundable upfront fee, the franchise agreement requires the entity to render the following
performance obligations:
 To construct the franchisee’s stall with stand-alone selling price of P200,000.
 To deliver 10,000 units of raw materials to the franchisee with stand-alone selling price of P250,000.
 To allow the franchisee to use the entity tradename for a period of 10 years starting January 1, 2020 with
stand-alone selling price of P50,000.

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On June 30, 2020, the entity completed the construction of the franchisee’s stall. As of December 31, 2020, the
entity was able to deliver 3,000 units of raw materials to the franchisee. For the year ended December 31, 2020,
the franchisee reported sales revenue amounting to P100,000.
The entity determines that the performance obligations are separate and distinct from one another.
114. What is the amount of nonrefundable upfront fee to be allocated to the construction of the
franchisee’s stall?
a. P200,000
b. P160,000
c. P250,000
d. P120,000
115. What is the amount of revenue to be recognized in relation to the use of delivery of raw materials
for the year ended December 31, 2020?
a. P75,000
b. P200,000
c. P60,000
d. P100,000
116. What is the amount of revenue to be recognized in relation to the use of entity’s tradename for the
year ended December 31, 2020?
a. P5,000
b. P4,000
c. P50,000
d. P10,000
117. What is the total revenue to be recognized by the entity for the year ended December 31, 2020?
a. P229,000
b. P220,000
c. P285,000
d. P224,000
On January 1, 2020, an entity granted a franchise agreement to a franchisee. The contract provides that the
franchisee shall pay an initial franchise fee of P500,000 and on-going payment of royalties equivalent to 8% of
the sales of the franchisee.
On January 1, 2020, the franchisee paid downpayment of P200,000 and issued a 3-year non-interest bearing note
for the balance payable in three equal annual installments starting December 31, 2020. The note has present value
of P240,183 with effective interest rate of 12%.
As of June 30, 2020, the entity completed the performance obligation of the franchise at a cost of P352,146. Aside
from that, the entity incurred indirect cost of P22,009.
The franchisee started operation on July 1, 2020 and reported sales revenue amounting to P50,000 for the year
ended December 31, 2020. The franchisee paid the first installment on its due date.
118. If the collection of the note receivable is reasonably assured, what is the gross profit to be
recognized by the entity for the year ended December 31, 2020 in relation to the initial franchise fee?
a. P66,028
b. P44,014
c. P22,009
d. P88,037

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119. If the collection of the note receivable is reasonably assured, what is the net income to be reported
by the entity for the year ended December 31, 2020?
a. P98,850
b. P94,850
c. P70,028
d. P92,037
120. If the collection of the note receivable is not reasonably assured, what is the gross profit to be
recognized by the entity for the year ended December 31, 2020 in relation to the initial franchise fee?
a. P60,028
b. P54,236
c. P56,009
d. P45,037
121. If the collection of the note receivable is not reasonably assured, what is the net income to be
reported by the entity for the year ended December 31, 2020?
a. P62,850
b. P64,150
c. P65,049
d. P61,037
On January 1, 2021, an entity accepted a long-term construction project for an initial contract price of P1,000,000
to be completed on June 30, 2023. On January 1, 2022, the contract price was increased to P1,500,000 by reason
of change in the design of the project. The project was completed on December 31, 2023 which resulted to penalty
amounting to P200,000.
The entity provided the following data concerning the direct costs related to the said project:
Year 2021 Year 2022 Year 2023

Costs during the year P440,000 P680,000 P130,000
Remaining estimated P660,000 P280,000 -
costs to complete at the
end of the year
The outcome of the construction contract can be estimated reliably.
122. What is the construction revenue to be recognized by the entity for the year ended December 31,
2021?
a. P340,000
b. P400,000
c. P440,000
d. P360,000
123. What is the realized gross profit (gross loss) to be recognized by the entity for the year ended
December 31, 2022?
a. P200,000
b. P80,000
c. P180,000
d. (P20,000)

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124. What is the balance of construction in progress on December 31, 2022?

a. P1,200,000
b. P900,000
c. P1,120,000
d. P1,020,000
125. What is the realized gross profit (gross loss) to be recognized by the entity for the year ended
December 31, 2023?
a. P50,000
b. (P30,000)
c. P170,000
d. (P120,000)
On January 1, 2018, an entity started the construction of a building at a fixed contract price of P1,000,000. On
the same date, the customer paid a mobilization fee equal to 5% of contract price that will be deductible from the
first billing.
On 2018, the entity billed its customer equivalent to 30% of the contract price. On 2019, the entity billed again
its customer amounting to 20% of the contract price. On 2020, the entity billed again its customer amounting to
40% of the contract price. The remaining billing was made at the year of completion of the project.
The entity made collection from the customer at the end of year 2018, 2019 and 2020, in the amount of P120,000,
P450,000 and P180,000, respectively.
The outcome of construction contract cannot be estimated reliably.
The entity provided the following data concerning the direct costs related to the said project:

Cumulative costs P360,000 P800,000 P870,000
incurred as of the end of
the year
Remaining estimated P840,000 P250,000 P50,000
costs to complete at the
end of the year
126. What is the realized gross profit (loss) for the year ended December 31, 2019?
a. (P50,000)
b. (P200,000)
c. P150,000
d. None
127. What is the realized gross profit (loss) for the year ended December 31, 2020?
a. P80,000
b. P130,000
c. P50,000
d. None

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128. What is the excess of construction in progress over progress billings (progress billings over
construction in progress) on December 31, 2020?
a. (P30,000)
b. (P80,000)
c. P20,000
d. P50,000
129. What is the balance of accounts receivable on December 31, 2020?

a. P150,000
b. P100,000
c. P50,000
d. P120,000
130. On January 1, 2021, Entity A entered into a consignment arrangement with Entity B. The
consignment arrangement provides that Entity B is entitled to 5% commission based on sales. Entity A
manufactured 100 boxes of product at manufacturing cost of P200,000 On July 1, 2021, Entity A shipped
through a common carrier 30 boxes of consigned goods to Entity B. The common carrier collected the
freight amounting to P3,000 from Entity B. For the year ended December 31, 2021, Entity B sold on cash
20 boxes of consigned goods to final consumers at Entity A's predetermined price of P3,000 per box. What
is the net income to be reported by Entity A for the period ended December 31, 2021?
a. P15,000
b. P18,000
c. P16,400
d. P17,000
131. Using the same data in preceding number, what is the net remittance to be made by Entity B to
Entity A as of December 31, 2021?
a. P60,000
b. P57,000
c. P63,000
d. P54,000
Allocated revenue to construction of stall (P400,000 x 200,000/500,000) P 160,000
Revenue from delivery of raw materials

(P400,000 x 250,000/500,000) x 3,000/10,000 P 60,000
Revenue from use of entity’s trade name (P400,000 x 50,000/500,000)/10yrs P 4,000
Revenue from construction of franchisee’s stall (P400,000 x 200,000/500,000) P 160,000

Revenue from delivery of raw materials (P400,000 x 250,000/500,000) x 3,000/10,000 60,000
Revenue from the use of entity’s trade name (P400,000 x 50,000/500,000)/10 years 4,000
Revenue from contingent franchisee fee (P100,000 x 5%) 5,000
Total revenue for the year ended December 31, 2020 P 229,000
Cash downpayment P 200,000

Present value of note receivable 240,183
Initial franchise fee revenue P 440,183
Less: Direct cost of initial franchise fee 352,146
Gross profit under accrual basis P 88,037

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Add: Interest Income for year 2020 (P240,183 x 12%) 28,822
Add: Contingent franchise fee revenue (P50,000 x 8%) 4,000
Less: Indirect cost – Expense as incurred (22,009)
Net income under accrual basis P 98,850
Cash downpayment P 200,000

Present value of note receivable 240,183
Initial franchise fee revenue P 440,183
Less: Direct cost of initial franchise fee 352,146
Divided by initial franchise fee revenue /440,183
Gross profit rate of initial franchise fee revenue 20%
Realized gross profit under installment method

((P200,000) + (P100,000-28,822)) x 20% gross profit rate P 54,236
Realized gross profit under installment method P 54,236

Add: Interest Income for year 2020 (P240,183 x 12%) 28,822
Add: Contingent franchise fee revenue (P50,000 x 8%) 4,000
Less: Indirect cost – Expense as incurred (22,009)
Net income under installment method P 65,049
Costs incurred to date as of December 31, 2021 P 440,000

Divided by total cost as of 2021 (P440,000+P660,000) /1,100,000
Percentage of completion as of 2021 40%
Construction revenue for year 2021 (P1,000,000 x 40%) (13) (B) P 400,000
Costs incurred to date as of December 31, 2022 (P440,000+P680,000) P 1,120,000

Divided by total cost as of 2022 (P440,000+P680,000+P280,000) / 1,400,000
Percentage of completion as of 2022 80%
Cumulative gross profit as 2022 (P1,500,000-P1,400,000) x 80% P 80,000
Less: Realized gross loss on 2021 (P1,000,000 – P1,100,000) (100,000)
Realized gross profit for year 2022 P 180,000
Contract price as of December 31, 2022 P 1,500,000

Multiply by percentage of completion as of December 31, 2022 x 80%
Construction in Progress on December 31, 2022 P 1,200,000
Final contract price P 1,300,000

Less: Actual total construction costs incurred (P440,000+P680,000+130,000) 1,250,000
Actual cumulative gross profit from construction P 50,000
Less: Cumulative gross profit as of 2022 (80,000)
Realized gross loss for the year ended December 31, 2023 P 30,000
Contract price as of 2019 P 1,000,000

Less: Total costs as of 2019 (P800,000+P250,000) (1,050,000)
Cumulative gross loss as of 2019 (P 50,000)
Less: Realized gross loss on 2018 ((P1,000,000) – (P360,000+P840,000)) ( 200,000)

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Contract price as of 2020 P 1,000,000

Less: Total costs as of 2020 (P870,000+P50,000) (920,000)
Estimated gross profit as of 2020 P 50,000
Cumulative gross profit as of 2020 under cost recovery method P 0
Less: Cumulative gross loss as of 2019 ( 50,000)
Progress Billings as of December 31, 2020 (P1,000,000) x (30%+20%+40%) P 900,000

Less: Construction in Progress as of December 31, 2020 (Costs incurred to date) 870,000
Excess of Progress Billings over Construction in Progress on 12/31/2020 (P 30,000)
Cumulative billings as of December 31, 2020 (P1,000,000) x (30%+20%+40%) P 900,000

Less: Mobilization fee deductible from first billing (P1,000,000 x 5%) (50,000)
Less: Collection of receivables as of December 31, 2020 (120,000+450,000+180,000) (750,000)
Balance of Accounts Receivable on December 31, 2020 P 100,000
Sales Revenue (20 x P3,000) P 60,000

Less: Cost of Sales (P200,000 x 20/100) + (P3,000 x 20/30) (42,000)
Less: Commission Expense (P20 x P3,000 x 5%) (3,000)
Net Income of Consignor P 15,000
Cash Sales Collection by Consignee (P20 x P3,000) P 60,000

Less: Freight Collect paid by Consignee (3,000)
Less: Sales Commission by Consignee (P20 x P3,000 x 5%) (3,000)
Net Remittance by Consignee to Consignor P 54,000
132. Under IFRS 11, when the joint arrangement is not structured through a separate vehicle, it shall
be properly classified as
a. Always joint venture
b. Always joint operation
c. Joint venture or joint operation depending on the terms of the arrangement
d. Joint venture or joint operation depending on the substance of the arrangement
133. IFRS 11 defines it as a type of joint arrangement whereby the parties that have joint control of
the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement.
a. Joint venture
b. Joint operation
c. Jointly controlled entity
d. Jointly controlled asset
134. Under IFRS 11, the venturer in a joint venture shall account for its investment in joint venture
using
a. Equity method
b. Fair value model
c. Cost method
d. Any of the above
135. Under IFRS for SMEs, an SME-venturer in a joint venture shall account for its investment in
joint venture using
a. Equity method
b. Fair value model
c. Cost method
d. Any of the above

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136. Under IFRS 11, when the joint arrangement is structured through a separate vehicle, it shall be
properly classified as
a. Always joint venture
b. Always joint operation
c. Joint venture or joint operation depending on the accounting policy of the venture.
d. Joint venture or joint operation depending the structure and form of the arrangement, the terms
agreed by the parties in the contractual arrangement and other facts and circumstances.
137. Under IFRS 11, how shall the cash or property dividend received by a joint venturer from its
venture be accounted for?
a. It shall be treated as dividend income presented in profit or loss.
b. It shall be treated as dividend income presented in other comprehensive income.
c. It shall be treated as addition to investment in joint venture account.
d. It shall be treated as deduction from investment in joint venture account.
138. Under IFRS for SMEs, in which model shall cash or property dividend received by an SME-joint
venturer from its venture be considered as dividend income?
a. Fair value model and cost method only
b. Fair value model only
c. Cost method only
d. Fair value model, cost method and equity method
139. IFRS 11 defines it as the contractually agreed sharing of control of an arrangement, which exists
only when decisions about the relevant activities require the unanimous consent of the parties sharing
control.
a. Control
b. Significant influence
c. Joint control
d. Joint influence
140. B
141. B
142. A
143. D
144. D
145. D
146. A
147. C

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Entity A and Entity B incorporated Entity C to manufacture a microchip to be used by the incorporating entities
as component for their final products of cellular phones and tablets.
The contractual agreement of the incorporating entities provides that the decisions on relevant activities of Entity
C will require the unanimous consent of both entities.
Entity A and Entity B have rights to the assets, and obligations for the liabilities, relating to the arrangement. The
capital stocks of Entity C will be owned by Entity A and Entity B in the ratio of 60:40. At the end of first operation
of Entity C, the financial statements provided the following data:
Inventory P1,000,000 Accounts payable P2,000,000

Land 3,000,000 Notes payable 1,000,000
Building 5,000,000 Loans payable 4,000,000
Share capital 1,000,000
Retained earnings 1,000,000
Sales revenue 5,000,000
The contractual agreement of Entity A and Entity B also provides for the following concerning the assets and
liabilities of Entity C:
 Entity A owns the land and incurs the loans payable of Entity C.
 Entity B owns the building and incurs the notes payable of Entity C.
 The other assets and liabilities are owned or owed by Entity A and Entity on the basis of their capital
interest in Entity C.
 The sales revenue of Entity C includes sales to Entity A and Entity B in the amount of P1,000,000 and
P2,000,000, respectively. As of the end of the first year, Entity A and Entity B was able to resell 30% and
60% of the inventory coming from Entity C to third persons.
148. What is the amount of total assets to be reported by Entity A concerning its interest with Entity C?
a. P5,400,000
b. P3,000,000
c. P3,600,000
d. P5,000,000
149. What is the amount of total liabilities to be reported by Entity B concerning its interest with Entity
C?
a. P1,800,000
b. P2,200,000
c. P2,800,000
d. P2,400,000
150. What is the amount of sales revenue to be reported by Entity A concerning its interest with Entity
C?
a. P2,300,000
b. P2,100,000
c. P3,000,000
d. P2,500,000
151. What is the amount of sales revenue to be reported by Entity B concerning its interest with Entity
C?
a. P2,000,000
b. P1,200,000
c. P1,600,000
d. P1,400,000

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On January 1, 2021, Entity A, a public entity and Entity B, a public entity incorporated Entity C which has its
fiscal and operational autonomy.
C will require the unanimous consent of both entities. Entity A and Entity B will have rights to the net assets of
Entity C.
Entity A and Entity B invested P1,000,000 and P1,500,000, respectively, equivalent to 40:60 capital interest of
Entity C.
The financial statements of Entity C provide the following data for its three-year operation:

Net Income (Net Loss) P200,000 (P3,000,000) P5,000,000
Dividends declared P100,000 - P1,000,000
152. What is the balance of Investment in Entity C to be reported by Entity A in its Statement of
Financial Position on December 31, 2021?
a. P1,000,000
b. P1,040,000
c. P1,080,000
d. P1,200,000
153. What is the investment loss to be reported by Entity B concerning its interest in Entity C for the
year ended December 31, 2022?
a. P1,560,000
b. P1,800,000
c. P1,620,000
d. P1,500,000
154. What is the investment income to be reported by Entity A concerning its interest in Entity C for
the year ended December 31, 2023?
a. P2,000,000
b. P1,900,000
c. P1,920,000
d. P1,840,000
155. What is the balance of Investment in Entity C to be reported by Entity B in its Statement of
Financial Position on December 31, 2023?
a. P2,400,000
b. P3,000,000
c. P2,760,000
d. P2,160,000
On January 1, 2020, Entity A, a public entity and Entity B, a public entity incorporated Entity C by investing
P3,000,000 and P2,000,000 for capital interest ratio of 60:40.
Entity C.

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The financial statements of Entity C provide the following data for its two-year operation:
 Entity C reported net income (net loss) in the amount of P1,000,000 and (P500,000) for year 2020 and
2021, respectively, and declared dividends in the amount of P400,000 and P100,000 for year 2020 and
2021, respectively.
 During 2020, Entity C sold inventory to Entity A with gross profit of P50,000. 80% of those inventories
were resold by Entity A to third persons during 2020 and the remainders were resold to third persons
during 2021.
 On July 1, 2020, Entity C sold a machinery to Entity B at a loss of P20,000. At the time of sale, the
machinery has remaining useful life of 2 years.
156. What is the investment income to be reported by Entity A for the year ended December 31, 2020?
a. P603,000
b. P606,000
c. P594,000
d. P597,000
157. What is the balance of Investment in Entity C to be reported by Entity B on December 31, 2020?
a. P2,242,000
b. P2,241,000
c. P2,238,000
d. P2,248,000
158. What is the investment loss to be reported by Entity B for the year ended December 31, 2021?
a. (P200,000)
b. (P196,000)
c. (P204,000)
d. (P202,000)
159. What is the balance of Investment in Entity C to be reported by Entity A on December 31, 2021?
a. P3,000,000
b. P2,940,000
c. P3,020,000
d. P3,120,000
On January 1, 2020, Entity A and Entity B, both SMEs, incorporated Entity C, a jointly controlled entity by
investing P500,000 each in exchange for 10,000 ordinary shares each of Entity C. Entity A and Entity B each
incurred P20,000 transaction costs.
Entity C.
For the year ended December 31, 2020, Entity C reported net income of P100,000 and declared dividends in the
amount of P30,000.
On December 31, 2020, the shares of stocks of Entity C are quoted at P56.
160. If Entity A elected fair value model to account its investment in Entity C, what is the net effect in
Entity A’s profit or loss for the year ended December 31, 2020?
a. P55,000 net profit
b. P60,000 net profit
c. P15,000 net profit
d. P40,000 net profit

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161. If Entity B elected equity method to account its investment in Entity C, what is the book value of
Entity B’s Investment in Entity C on December 31, 2020?
a. P520,000
b. P540,000
c. P535,000
d. P555,000
On January 1, 2018, Entity A and Entity B, both SMEs, incorporated Entity C, a jointly controlled entity by
investing P200,000 each in exchange for 20,000 ordinary shares each of Entity C. Entity A and Entity B each
incurred P10,000 transaction costs.
Entity C.
For the year ended December 31, 2018, Entity C reported net income of P50,000 and declared dividends in the
amount of P10,000.
On December 31, 2018, the investment in Entity C has value in use of P215,000.
162. If Entity A elected cost method to account its Investment in Entity C, what is the book value of
Entity A’s Investment in Entity C on December 31, 2018?
a. P210,000
b. P215,000
c. P230,000
d. P200,000
163. If Entity B elected equity method to account its Investment in Entity C, what is the net effect in
Entity B’s profit or loss for the year ended December 31, 2018?
a. P25,000 net profit
b. P5,000 net profit
c. P10,000 net profit
d. P15,000 net profit
Land owned by Entity A P3,000,000

Add: Interest of Entity A on co-owned inventory (P1,000,000 x 60%) 600,000
Total assets to be reported by Entity A concerning its interest in Entity C P3,600,000
Notes payable owed by Entity B P 1,000,000

Add: Interest of Entity B on co-owed accounts payable (P2,000,000 x 40%) 800,000
Total liabilities to be reported by Entity B concerning its interest in Entity C P 1,800,000
Sales revenue reported by Entity C P5,000,000

Less: Unsold inventory of Entity A coming from Entity C (P1,000,000 x 70%) (700,000)
Less: Unsold inventory of Entity B coming from Entity C (P2,000,000 x 40%) (800,000)
Sales revenue to third persons P3,500,000
Sales revenue to be reported by Entity A (P3,500,000 x 60%) P2,100,000
Sales revenue to be reported by Entity B (P3,500,000 x 40%) P1,400,000
Initial Measurement of Investment in Entity C (Entity A’s book) on January 1, 2021 P 1,000,000
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Add: 2021’s Share in net income of Entity C (Joint Venture) (P200,000 x 40%) 80,000
Less: 2021’s Dividend received from Entity C (P100,000 x 40%) 40,000
December 31, 2021 Book Value of Investment in Entity C P1,040,000
Initial Measurement of Investment in Entity C (Entity B’s book) on January 1, 2021 P 1,500,000
Add: 2021’s Share in net income of Entity C (Joint Venture) (P200,000 x 60%) 120,000
Less: 2021’s Dividend received from Entity C (P100,000 x 60%) (60,000)
December 31, 2021 Book Value of Investment in Entity C (Entity B’s book) P 1,560,000
Possible share in net loss for year 2022 for Entity B (P3,000,000 x 60%) (P1,800,000)
Maximum investment loss is the book value of Investment account P1,560,000
Possible share in net income for year 2023 for Entity A (P5,000,000 x 40%) P2,000,000
Less: Unrecognized share in net loss for year 2022 for Entity A
(P3,000,000 x 40%) – (P1,040,000) (160,000)
Investment income for year 2023 for Entity A P1,840,000
December 31, 2022 Book Value of Investment in Entity C (Entity B’s Book) P 0
Add: 2023’s share in net income (P5,000,000 x 60%) – P240,000 2,760,000
Less: 2023’s dividend received from Entity C (1,000,000 x 60%) (600,000)
December 31, 2023 Book Value of Investment in Entity C (B’s Book) P2,160,000
Unadjusted investment income of Entity A for year 2020 (P1,000,000 x 60%) P 600,000
Less: Unrealized gross profit in ending inventory of Entity A (P50,000 x 20% x 60%) (6,000)
Adjusted investment income of Entity A for year 2020 P 594,000
Initial measurement of Investment in Entity C (Entity B’s Book) P2,000,000

Add: Unadjusted investment income of Entity B for year 2020 (P1,000,000 x 40%) 400,000
Add: Unrealized loss on sale of machinery (P20,000 x 40%) 8,000
Less: Realized loss on sale of machinery (P20,000/2 x 6/12 x 40%) (6,000)
Less: 2020 dividend received from Entity C (P400,000 x 40%) (160,000)
December 31, 2020 Book Value of Investment in Entity C (B’s Book ) P2,242,000
Unadjusted investment loss for year 2021 (P500,000 x 40%) (P 200,000)

Add: Realized loss on sale of machinery (P20,000/2 x 40%) (4,000)
Adjusted investment loss of Entity B for year 2021 (P 204,000)
Initial measurement of Investment in Entity C (Entity A’s Book) P3,000,000

Add: 2020’s investment income 594,000
Less: 2020’s dividend received from Entity C (P400,000 x 60%) (240,000)
Less: Unadjusted investment loss of Entity A for year 2021 (P500,000 x 60%) (300,000)
Add: Realized gross profit on beginning inventory (P50,000 x 20% x 60%) 6,000
Less: 2021’s dividend received from Entity C (P100,000 x 60%) (60,000)
December 31, 2021 Book Value of Investment in Entity C (A’s Book) P3,000,000
Transaction costs – Expense as incurred under Fair Value Model (P 20,000)

Unrealized holding gain on changes in fair value (P560,000 – P500,000) 60,000
Dividend income (P30,000 x 50%) 15,000
Effect in net profit under Fair Value Model P 35,000
Initial measurement of Investment under Equity Method (P500,000 + P20,000) P 520,000

Add: Share in net income of Joint Venture (P100,000 x 50%) 50,000
Less: Dividend received from Joint Venture (P30,000 x 50%) (15,000)
Book value of Investment on December 31, 2020 under equity method (14) (D) P 555,000

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Note: There is no impairment loss because fair value less cost to sell of P560,000 is higher than book
value.
Book value of Investment under Cost Method (Cost) (P200,000 + P10,000) (15) (A) P 210,000
Share in net income of joint venture (P50,000 x 50%) P 25,000

Impairment loss of Investment under equity method (P230,000 – P215,0000) ( 15,000)
Effect in net profit under Equity Method P 10,000

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No. 125 Brgy.

RODIEL FERRER / REGINALD LACO / PAUL DE JESUS / RAIN SORIANO

First Pre-Board Topics

RODIEL FERRER / REGINALD LACO / PAUL DE JESUS / RAIN SORIANO

9. Which of the following will not result to dissolution of a general partnership?

RODIEL FERRER / REGINALD LACO / PAUL DE JESUS / RAIN SORIANO

Answer in Theory of Accounts

RODIEL FERRER / REGINALD LACO / PAUL DE JESUS / RAIN SORIANO

16. What is the total agreed capitalization of the ABC Partnership?

19. What is the cash to be contributed by C in the ABC Partnership?

On December 31, 2021, the capital balance of B is reported at P200,000.

21. What is the capital balance of A on December 31, 2021?

RODIEL FERRER / REGINALD LACO / PAUL DE JESUS / RAIN SORIANO

22. What is the capital balance of C on December 31, 2021?

At the end of 2018, the capital balance of C is reported at P320,000.

The profit or loss agreement of the partners is provided below:

26. What is the capital balance of A on December 31, 2018?

27. What is the capital balance of B on December 31, 2018?

5|Pa g e FARAP – BATCH 9 (SAMUEL)

RODIEL FERRER / REGINALD LACO / PAUL DE JESUS / RAIN SORIANO

Current Assets P1,000,000 Total Liabilities P600,000

29. What is the capital balance of A after the retirement of C?

30. What is the capital balance of B after the retirement of C?

6|Pa g e FARAP – BATCH 9 (SAMUEL)

RODIEL FERRER / REGINALD LACO / PAUL DE JESUS / RAIN SORIANO

33. What is the share of A in the asset impairment?

34. What is the amount of bonus given by D to the existing partners?

7|Pa g e FARAP – BATCH 9 (SAMUEL)

RODIEL FERRER / REGINALD LACO / PAUL DE JESUS / RAIN SORIANO

Cash P1,000,000 Other Liabilities P2,000,000

Cash P1,200,000 Total Liabilities P1,500,000

39. What is the amount of cash received by B at the end of liquidation?

8|Pa g e FARAP – BATCH 9 (SAMUEL)

RODIEL FERRER / REGINALD LACO / PAUL DE JESUS / RAIN SORIANO

Cash P1,600,000 Total Liabilities P2,000,000

As of January 31, 2021, the following transactions occurred:

As of February 28, 2021, the following transactions occurred:

44. What is the amount of cash received by A on February 28, 2021?

9|Pa g e FARAP – BATCH 9 (SAMUEL)

RODIEL FERRER / REGINALD LACO / PAUL DE JESUS / RAIN SORIANO

Solution in Problem Solving

Fair Market Value of Land and Building contributed by B P1,500,000

Capital Credit of A in ABC Partnership (Proceeds from sale of equipment) P 300,000

Fair Market Value of Land and Building contributed by B P1,500,000

Total Agreed Capitalization of ABC Partnership P2,000,000

January 1, 2021 B’s Capital Balance (P1,000,000 x 10%) P 100,000

January 1, 2021 A’s Capital Balance (P1,000,000 x 50%) P 500,000

January 1, 2021 C’s Capital Balance (P1,000,000 x 40%) P 400,000

December 31, 2018 C’s Capital Balance P 320,000

C’s share in profit for the year 2018 P 220,000

10 | P a g e FARAP – BATCH 9 (SAMUEL)

RODIEL FERRER / REGINALD LACO / PAUL DE JESUS / RAIN SORIANO

January 1, 2018 A’s capital balance P 300,000

January 1, 2018 B’s capital balance P 500,000

Capital Balance of B before the admission of D P 800,000

Capital Balance of A before the retirement of C P 500,000

Capital Balance of B before the retirement of C P 300,000

Capital Balance of C before the admission of D P 900,000

Capital Balance of B before the admission of D P 700,000