October 2016 Advanced Financial Accounting Reporting Final Pre board PDF

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CPA REVIEW SCHOOL OF THE PHILIPPINESMANILAADVANCED FINANCIAL ACCOUNTING AND REPORTINGFINAL PREBOARD EXAMINATION Sunday, September 11, 2016, 4:00 pm to 7:00 pmNumbers 1, 2, 3, and 4On January 2, 2016, Domus Corporation purchased 80% of the outstanding shares of Caritate Companyfor a consideration of ...

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CPA REVIEW SCHOOL OF THE PHILIPPINES MANILA

ADVANCED FINANCIAL ACCOUNTING AND REPORTING FINAL PREBOARD EXAMINATION Sunday, September 11, 2016, 4:00 pm to 7:00 pm

Numbers 1, 2, 3, and 4 On January 2, 2016, Domus Corporation purchased 80% of the outstanding shares of Caritate Company for a consideration of P19,000,000. Including in the price paid is control premium in the amount of P500,000. The acquisition-related cost amount to P45,000. At that date, Caritate had P16,000,000 of ordinary shares outstanding and retained earnings of P6,400,000. Caritate's equipment with a remaining life of 5 years had a book value of P9,000,000 and a fair value of P10,520,000. Caritate's remaining assets had book values equal to their fair values. All intangibles except goodwill are expected to have remaining lives of 8 years. The income and dividend figures for both Domus and Caritate are as follows: Net income of Domus in 2016 is P3,600,000 ; 2017 is P4,400,000. Net income of Caritate in 2016 is P1,360,000 ; 2017 is P2,040,000. Dividends declared by Domus in 2016 is P880,000 ; 2017 is P1,560,000. Dividends declared by Caritate in 2016 is P280,000 ; 2017 is P520,000. Domus' retained earnings balance at the date of acquisition was P13,800,000.

1. What is the consolidated retained earnings attributable to controlling interest in 2017? A. 20,953,600 B. 20,929,600 C. 21,089,600 D. 21,332,800 2. What is the consolidated profit in 2017? A. B. C. D.

5,720,000 5,856,000 5,372,800 5,752,000

3. What is the non-controlling interest in net assets in 2017? A. B. C. D.

5.000,000 5,209,600 5,158,000 5,182,400

4. What is the non-controlling interest in net income in 2016? A. B. C. D.

211,200 238,400 272,000 347,200

Page 2 Numbers 5 and 6 Parco Corporation acquired an 80% interest in Slack Company on January 2, 2016 for P10,800,000. On this date, the share capital and retained earnings of the two companies follows: Share Capital Retained Earnings

Parco Corp. P24,000,000 12,000,000

Slack Co. P9,000,000 P1,800,000

On January 2, 2016 the asset and liabilities of Slack Co. were stated at their fair values except for machinery which is undervalued by P900,000 (remaining life is 3 years). On September 30, 2016, Slack sold merchandise to Parco as an inter-company profit of P600,000; 1/4 was still unsold at year end. Likewise, on October 1, 2017, Slack purchased merchandise from Parco for P14,400,000. The selling affiliate included a 20% mark-up on cost on this sale. Only 3/4 of these purchases had been sold to unrelated parties as of December 31, 2017. As of December 31. 2017, goodwill was determined to be impaired by P240,000. The following is the summary of the 2017 transactions of the affiliated companies Parco Corp. Slack Co. Net Income P6,000,000 P2,400,000 Dividends declared and paid 2,400,000 720,000 5. What is the net income attributable to parent shareholders' equity in the 2017 consolidated financial statements? A. 6,432.000 B. 6,744,000 C. 6,552,000 D. 6,834,000 6. What is the non-controlling interest in net income in the 2017 consolidated financial statements? A. 330,000 B. 342,000 C. 282,000 D. 402,000 Numbers 7, 8, and 9 On January l, 2016, Rapids Company purchased 80% of the outstanding shares of Mock Corporation at book value. The stockholders' equity of Mock Corporation on this date showed: Ordinary shares – P4,560,000 and Retained earnings – P3,920,000. On April 30, 2016, Rapids Company acquired a used machinery for P672,000 from Mock Corp. that was being carried in the latter's books at P840, 000. The asset still has a remaining useful life of 5 years. On the other hand, on August 31, 2016, Mock Corp. purchased an equipment that was already 20% depreciated from Rapids Co. for P2,760,000. The original cost of this equipment was P3,000,000 and had a remaining life of 8 years. Net Income of Rapids Co. and Mock Corp. for 2016 amounted to P2,880,000 and P 1,240,000. Dividends paid totaled to P920,000 and P420,000 for Rapids Co. and Mock Corp., respectively. 7. What is the net income in the consolidated financial statements in 2016? A. 3,920,600 B. 3,775,000 C. 3,584,600 D. 3,307,480 8. What is the net income attributable to parent’s shareholders' equity in the consolidated financial statements in 2016? A. 3,336,600 B. 3,307,480 C. 3,643 480 D. 3,584,600 9. What is the non-controlling interest in net assets in the consolidated financial statements in 2016? A. 1,696,000 B. 1,860,000

C. 1.820,120

Page 3 D. 1,889,120 Condensed Statements of Financial Position of Love Corp. and You Corp. as of December 31,2016 are as follows: Current Assets Noncurrent Assets Total Assets Liabilities Ordinary Shares, P20 par Share Premium Retained Earnings

Love P 175,000 725,000 900,000

You P 65,000 425,000 490,000

65,000 550,000 35,000 250,000

35,000 300,000 25,000 130,000

On January 1, 2017, Love Corp. issued 35,000 shares 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. 10. What is the combined total assets after the acquisition? A. 1,742,000 B. 1,825,000 C. 1,772,000 D. 1,567,000 11. Which of the following consolidation items will affect only the Consolidated Net Income Attributable to the Parent's Shareholders but not the Non controlling Interest in Net Income? A. Amortization of difference between fair value over book value of the assets or liabilities of the subsidiary. B. Impairment loss of the total goodwill arising from business combination C. Gain on bargain purchase arising from business combination D. Unrealized or realized gain/loss on upstream transactions 12. Which of the following business combination transactions will affect the goodwill or gain on bargain purchase arising from business combinations? A. Payment for legal, audit and broker's fees directly connected with the business combination B. Incurring costs related to the issuance of ordinary shares given as consideration for the acquisition of the 51-100% of ordinary shares of subsidiary corporation. C. Measurement adjustments during measurement period which shall not exceed 12 months from the date of acquisition date. D. Payment of costs directly related to the issuance of bonds payable given as consideration for the acquisition of the net assets of the acquired corporation. 13. Which of the following statements concerning preparation of consolidated financial statements of a group or separate financial statements of a parent corporation is incorrect? A. IAS 27 does not mandate which entities are required to present separate financial statements. B. IFRS 10 requires an entity (parent) that controls one or more other entities (subsidiaries) to present consolidated financial statements including all its subsidiaries regardless of industries except when the parent is an (1) investment entity or (2) a non-public entity which is partially or wholly owned by another entity which prepares consolidated financial statements. C. In preparing consolidated financial statements, IFRS 10 provides that the parent corporation shall recognize and measure at fair value all the identifiable assets and liabilities of subsidiaries including contingent liability provided it is a present obligation and can be estimated reliably. D. In preparing consolidated financial statements, IFRS 10 requires the parent to present noncontrolling interest (NCI) as part of consolidated shareholder’s equity separately from the equity of the owners of the parent and IFRS 3 requires non-controlling interest to be measured initially

Page 4 as the higher between NCI's Fair Value or NCI's Proportionate Share of the fair value of the net assets of the subsidiary.

Numbers 14, 15 and 16 On December 1, 2016, KLM Corporation acquired 4,600 shares of QRS Company at a cost of P28 per share. KLM classifies them as available-for-sale securities. On this same date, KLM decides to hedge against a possible decline in the value of the securities by purchasing, at a cost of P11,900, an at-themoney put option to sell the 4,600 shares. The option expires on April l, 2017. The fair values of the investment and the options follow:

QRS Co. Cost per share Put Option (Fair Value)

12/01/16

12/31/16

04/01/17

28.00 ?

26.50 15,400

23.50 ?

14. What is the net foreign exchange gain/(loss) in the hedging activity in 2016? A. (6.900) B. 3.500 C. 5,300 D. (3,400) 15. What is the foreign exchange gain/(loss) on the option contract due to change in intrinsic value in 2017 if split accounting is used in the assessment of hedge effectiveness? A. (5,300) B. 5,300 C. 13,800 D. (13,800) 16. What is the net foreign exchange gain/(loss) in the hedging activity in 2017? A. B. C. D.

(8,500) (13,800) 5,300 13,800

Numbers 17 and 18 On December l, S company entered into a firm commitment to acquire a machinery from United Arab Emirates Company. Delivery and passage of title would be on January 31, 2017 at the price of 37,800 dirhams, accounted for as fair value hedge. On the same date, to hedge against unfavorable changes in the exchange rate, S entered into a 60-day forward contract with a bank for 37,800 dirhams. Exchange rate were as follows: Dec. 01, 2016 Dec. 31, 2016 Jan. 31, 2017

Spot Rate P96.50 97.25 99.70

Forward Rate P94.30 96.50 99.70

17. What is the foreign exchange gain/(loss) on the hedging instrument on December 31, 2016? A. 83,160 B. (83,160 C. (28,350) D. 28,350 18. Which of the following statements is correct? A. The total amount of accounts payable to be recorded on December l, 2016 is P3,564,540. B. The firm commitment account will be debited for P83,160 on December 31, 2016

Page 5 C. The firm commitment account will be debited for P204,120 upon purchase of machinery on January 31, 2017 D. On January 31, 2017, the company will recognize P120,960 forex loss on the forward contract.

Numbers 19, 20 and 21 R company acquired machine for 169,200 lira from a vendor in Turkey on December 1, 2016. Payment in Turkey lira was due on March 31, 2017. On the same date, to hedge this foreign currency exposure R entered into a futures contract to purchase 169,2000 lira from a bank for delivery on March 31, 2017. Exchange rates for pounds on different dates are as e follows: Strike Price Buying spot rate Selling spot rate 30-day futures 60-day futures 90-day futures 120-day futures

12/01 41.50 41.60 41.40 42.30 41.80 40.60 42.20

12/31 41.50 42.50 42.30 41.80 42.20 42.50 42.80

03/31 41.50 43.40 43.70 43.20 42.60 43.40 42.90

19. What is the reported value of the receivable to the vendor at December 31, 2016? A. 7,004,800 B. 7,021,800 C. 7,157,160 D.

0

20. What is the foreign exchange gain/(loss) due to the hedging instrument on December 31, 2016? A. 50,760 B. (50,760) C. 16,920 D. (16,920) 21. What is the net impact in R Co.'s income in 2016 as a result of this hedging activity? A. B. C. D.

33,840 (33,840) 101,520 (101,520)

Numbers 22 and 23 On January l, 2016 an entity purchased a tract of vacant land that is situated overseas for Baht 90,000. The entity classified the land as an investment property. The fair value of the land at December 31, 2016 is Baht 100,000 The entity's functional currency is the Php (Peso) Spot currency exchange rates: January l, 2016: 1 Baht = P2 Weighted average exchange rate in 20X0: 1 Baht = P2.04 December 31, 2016: 1 Baht = P2.1. 22. What is the carrying amount of the investment property at December 31, 2016 and what amount/s would be presented in profit or loss for the year ended December 31, 2016? A. Carrying amount of investment property = P210 000. Profit for the year includes P30,000 increase in the fair value of investment property. B. Carrying amount of investment property = P210,000. Profit for the year includes P20,400 increase in the fair value of investment property and P9,600 foreign exchange gain.

Page 6 C. Carrying amount of investment property = P180, 000. Profit for the year includes no amount in respect of the investment property. D. Carrying amount of investment property = P189,000. Profit for the year includes P9,000 foreign exchange gain.

23. Assuming the entity cannot, without undue cost or effort, determine the fair value of its investment property reliably on an ongoing basis. What is the carrying amount of the investment property at December 31, 2016 and what amount/s would be presented in profit or loss for the year ended December 31, 2016? A. Carrying amount of investment property = P210,000. Profit for the year includes P30,000 increase in the fair value of investment property. B. Carrying amount of investment property = P210,000. Profit for the year includes P20,400 increase in the fair value of investment property and P9,600 foreign exchange gain. C. Carrying amount of investment property = P180,000. Profit for the year includes no amount in respect of the investment property. D. Carrying amount of investment property = P189,000. Profit for the year includes P9,000 foreign exchange gain. 24. Which of the following comprehensive income items are classified as part of "Other Comprehensive Income" with reclassification adjustment in the Statement of Comprehensive Income? I. II. III. IV.

Unrealized gain or loss on changes of fair value of derivates designated as fair value hedge. Unrealized gain or loss on changes of fair value of derivates considered as undesignated hedge. Gain or loss arising from foreign currency transaction. Unrealized gain or loss on changes of fair value of derivates designated as cash flow hedge when it refers to effective portion or the change in intrinsic value. V. Translation adjustment gain or loss arising from translation of financial statements of subsidiary in foreign operation.

VI. Unrealized gain or loss on changes in fair value of derivatives designated as cash flow hedge when it refers to the ineffective portion or the change in time value. A. III and VI B. IV and V C. I and VI D. II and V 25. Which of the following statements concerning measurement of items of financial statements denominated in foreign currency is incorrect? A. In foreign currency denominated transaction, non-monetary items shall be subsequently measured at foreign currency exchange rate at the date of transaction. B. In translation of financial statements of a subsidiary foreign corporation, income and expense accounts shall be translated at foreign currency exchange rate at the end of reporting period. C. In translation of financial statements of a subsidiary foreign corporation, equity accounts shall be translated at foreign currency exchange rate at the date of the transaction. D. In foreign currency denominated transaction, monetary items shall be subsequently measured at foreign currency exchange rate at the end of reporting period. On January 1, 2016. Gawad Kalinga Inc., a non-stock non-profit charitable organization, received P1,000.000 cash donation from Mr. Pilantropo who imposed a condition that the fund shall be used for the acquisition of several service vehicles for the use of the organization. On December 31, 2016, Gawad Kalinga purchased a motor vehicle using the donated fund at an amount of P200,000. 26. Which of the following statements concerning the presentation of the transactions that transpired for in 2016 in Gawad Kalinga's financial statements is correct?

Page 7 A. Only the P200,000 spent for the acquisition of motor vehicle shall be presented as revenue in the Statement of Activities. B. The transactions will increase the total of assets of the organization for the year ended December 31, 2016 by P1,200,000 in the Statement of Financial Position. C. The 1,000,000 cash donation shall be presented as cash receipts from financing activities while the P200,000 shall be prepared as cash disbursement for investing activities in the Statement of Cash flows. D. The statement of activities of the organization will show net because in the net assets of the organization by P1 200,000. 27. Under the Government Accounting Manual issued by Commission on Audit, which of the following transactions will require journal entry in the accounting book of a national government agency or unit? A. Receipts of national budget allotment from Department of Budget and Management. B. Entering into a contract with a supplier for incurrence of obligation to acquire government supplies or equipment. C. Receipt or notice of a cash allocation from Department of Budget and Management. D. Receipts of appropriation from Department of Budget and Management bases on the General Appropriation Act. SM Inc. and Rob Inc entered into an arrangement which provides that parties will have joint control over a separate vehicle to be established called MOB Inc. for the operation of Universal Mall in Mindanao. The contractual arrangement provides that MOB Inc. will have title over the assets and liabilities of the Universal Mall and that the parties that have joint control the arrangement shall have rights to the net assets of the arrangement. 28. How shall SM Inc. and Rob Inc. classify and accounts their investments in joint arrangement in their consolidated financial statements? A. The investment in joint arrangement shall be classified joint venture to be accounted for using the equity method B. The investment in joint arrangement shall be classified as joint venture to be accounted for using proportionate consolidation. C. The investment in joint arrangement shall be classified joint operation to be accounted for using line by line method by recognizing their share in assets revenue expenses from the joint operation. D. The investment in joint. arrangement shall be classified as joint operation to be accounted for using fair value model under IFRS 9. Numbers 29, 30, 31, and 32 The following data were extracted in the second department of a three step process to complete the company's product and opted to use the FIFO method in accounting the process: Beginning inventory units were 8,000 (65% to complete as to direct materials and 60% complete as to conversion). Ending inventory units 12,500 (55% complete as to direct materials and 55% to complete as to conversion). Transferred-out units from the prior department were 79,000. Total normal and abnormal lost units were 1,500. Started and completed cost was P2,112,500. The current period cost for direct material was P855,525. The transferred-out cost from the prior department was P977,500. Total cost to account for was P2,723,750. Total cost per eup as to direct materials and conversion was P 20. 29. What is the equivalent units of production as to conversion? A. 73,825 B. 75,325 C. 74,525 D. 77,375 30. What is the ending inventory cost? A. 812,500 B. 282,500 C. 406,250 D. 293,750 31. What is the cost transferred-out goods to the next department?

A. 2.418,500

Page 8 B. 2,723,750 C. 2,441,250 D. 2,198,500 32. What is the current period cost to conversion? A. 677,925 B. 670,725 C. 677,925 D. 696,375 Numbers 33, 34, 35, and 36 The following data were ascertained during the year:

Work-in-process Finished goods

January 1

December 31

130,000 89,000

352.000 231,250

Raw materials used was P 504,950 and the direct labor rate was P15. Actual overhead was P156,500 of which P76,550 was indirect labor and the rest were indirect materials. Budgeted overhead cost and direct labor hours was P250,000 and 31,250 respectively. At the end of the year the overhead control account has a credit balance of P18,500. It was the company's policy to consi...