CPAR_Batch_94_AFAR_First_Preboard_with_Answers_Solutions__1_.pdf.pdf

CPA REVIEW SCHOOL OF THE PHILIPPINES
MANILA
ADVANCED FINANCIAL ACCOUNTING AND REPORTING Sunday, July 16, 2023
First Preboard Examination 1:00 p.m to 4:00 p.m.
Numbers 1 and 2
AAA Corp. had the following data ascertained before liquidation: Total book value of the assets were
P250,000. The book value of the inventories, P80,000 had an excess in the amount of P26,000 over its
estimated fair value. The equipment’s estimated fair value had an excess in the amount of P2,500 over its
book value of P120,000. Included in the book value of the assets was prepaid expenses of P18,000 which
was considered worthless. Other assets not mentioned above have an estimated fair value which was
P15,000 less than its book value. Total liabilities were P200,000. The accounts payable in the amount of
P70,000 was secured by the inventories while the notes payable in the amount of P95,000 was secured by
the equipment. Other liabilities not mentioned include salaries and taxes in the amount of P12,500.
1. What is the amount of the net free assets?
A. 44,500
B. 32,000
C. 93,000
D. 50,000
2. What is the estimated recovery for the partially secured creditors?
A. 67,299
B. 67,506
C. 67,128
D. 66,962
Numbers 3 and 4
The following data were ascertained for the month of September in the Statement of realization and
liquidation of BBB Corp.: Assets to be realized at the beginning of October were P18,000. Assets realized
during the month were P338,000. Unrecorded assets during the month were P25,000. Assets not sold or
collected at the end of August were P380,000. Liabilities assumed were P28,000. Liabilities not liquidated
at the end of August were P350,000. Liabilities paid were P268,800. Liabilities to be liquidated at the
beginning of October were 109,200. Supplementary charges were 86,350 and supplementary credits were
P59,700. Equity at the end of August was P40,500.
3. What is the gain or loss in the statement of realization and liquidation?
A. 75,650
B. (75,650)
C. 19,650
D. (19,650)
4. What is the beginning cash balance?
A. 10,500
B. 56,050
C. 131,700
D. 65,150
Number 5
A bookkeeper debited Work-in-Process Inventory and credited the Manufacturing Overhead account. The
company uses a normal costing accumulation method . The bookkeeper was
A. Recognizing actual overhead incurred during the period.
B. Recognizing job completed.
C. Applying a predetermined overhead amount to production.
D. Adjusting the amount of under-applied overhead

Numbers 6, 7, and 8
On January 1, 2024, AAA Builders Inc. accepted a long-term construction project to build a bridge. The
following data are provided by the accountant and project manager concerning the contract price and
construction costs for the three years of construction:
12/31/2024 12/31/2025 12/31/2026
Contract price as of the end of the year P10,000,000 P15,000,000 P20,000,000
Costs incurred during the year P1,000,000 P5,000,000 P8,000,000
Estimated cost to complete at the end of the year P3,000,000 P4,000,000 P2,000,000
Billings to date 2,000,000 10,000,000 16,000,000
6. Under IFRS 15, what is the realized gross profit/(loss) for the year ended December 31, 2024?
A. 6,000,000
B. 2,500,000
C. 1,000,000
D. 1,500,000
7. Under IFRS 15, what is the Excess CIP / (Excess billings) as of December 31, 2025?
A. 2,000,000 contract asset
B. 2,000,000 contract liability
C. 1,000,000 contract liability
D. 1,000,000 contract asset
8. Under IFRS 15, what is the Construction revenue for the year ended December 31, 2026?
A. 17,500,000
B. 8,500,000
C. 5,500,000
D. 6,000,000
Numbers 9 and 10
On January 1, 2024, AAA Corp. accepted a long-term construction project to build a condominium at a
fixed contract price of P100,000,000. The following data are provided by the accountant and project
manager concerning the construction costs for the two years of construction:
12/31/2024 12/31/2025
Cumulative costs incurred as of the end of the year P40,000,000 P50,000,000
Estimated cost to complete at the end of the year P90,000,000 P60,000,000
9. Under IFRS 15, what is the realized gross profit/(loss) for the year ended December 31, 2025?
A. (10,000,000)
B. (30,000,000)
C. 20,000,000
D. (40,000,000)
10. Under IFRS 15, what is the Construction-in-Progress balance as of December 31, 2025?
A. 40,000,000
B. 70,000,000
C. 50,000,000
D. 80,000,000

Numbers 11 and 12
On January 1, 2024, X Co. entered into a franchise agreement with Y Co. to sell merchandise. Stated in the
contract was a down payment of P50,000 and the balance of P480,000 was payable by a 5% interest
bearing note to be paid annually for 3 years every December 31. On July 31, 2024, the franchisor already
satisfied the performance obligation with a franchise cost of P180,000 and indirect costs were P20,000.
Stated also in the terms of the contract was a 12% continuing franchise fee on its gross sales. Gross sales
from January 1 to July 31, 2024 was P32,000.
11. Under IFRS 15, what is the total revenue for the seven months ended July 31, 2024?
A. 452,261
B. 439,552
C. 533,840
D. 547,840
12. What is the net income for the seven months ended July 31, 2024?
A. 347,840
B. 333,840
C. 239,552
D. 252,261
Numbers 13 and 14
On February 1, 2024, a franchisor entered into a franchise agreement with a franchisee which requires the
latter to pay a non-refundable upfront fee of P800,000 at the signing of the contract and on-going payment
of royalty equal to 5% of the sales of the franchisee. On the date of the signing of the contract, the
franchisee paid the non-refundable upfront fee. As part of the franchise agreement, the franchisor shall
render the following performance obligations which are considered separate and distinct from one another:
a) Training ten personnel of the franchisee with a stand alone selling price of P100,000.
b) Construction of the franchisee's building and landscape with a stand alone selling price of P400,000.
c) Delivery of 1,000 units of raw materials to franchisees with a stand alone selling price of P300,000.
d) Allowing the franchisee to access the franchisor's trademark and tradename for a term of 10 years
starting from January 1, 2024 with stand alone. selling price of P200,000.
As of the end December 31, 2024, the accounting department of franchisor obtained the following
information:
a) The franchisor was able to train seven out of ten personnel of the franchisee.
b) The percentage of completion of construction of the franchisee's building and landscape was estimated
by the engineer and architect at 90% although the building was fully completed because the landscape
was not yet started.
c) 400 units of raw materials were still undelivered to the franchisee. For the year ended December 31,
2024, the franchisor reported sales revenue amounting to P100,000 because it already started operation
upon the construction of the building on October 1, 2024.
13. Under IFRS 15, what is the total revenue to be reported by the franchisor for the year ended
December 31, 2024?
A. 507,667
B. 509,000
C. 502,667
D. 539,667
14. Under IFRS 15, what is the unearned revenue of the franchisor for the year ended December 31,
2024?
A. 296,000
B. 265,333
C. 264,000
D. 297,333

Numbers 15, 16 and 17
Entity A consigned 25 products to Entity B and the unit cost of each product was P620. Entity A paid the
freight cost of P1,000 to ship the products to Entity B. The selling price of each product was P1,000 and
the terms of the payment from the customer was P200 per product in the month of sale, and P40 per
product each month after the month of sale.
Entity B sold 15 products during January and 5 products during February. The agreed payment terms from
the customers were made during those months and the cash remittance to Entity A have been sent at the
said months. The agreed commission of Entity B was 20% of sales.
15. What is the cost of the consigned inventory at the end of February?
A. 3,500
B. 3,300
C. 4,900
D. 3,100
16. What is the net income of Entity A at the end of February?
A. 4,000
B. 6,800
C. 2,800
D. 3,600
17. What is the total net remittance to Entity A at the end of February?
A. 600
B. 4,600
C. 3,680
D. 0
Numbers 18, 19, 20 and 21
AAA Company employs normal costing for its production. The following data are provided during the
current year:
Net purchases of raw materials during the year 1,000,000
Total labor costs during the year 2,000,000
Depreciation of factory assets during the year 300,000
Utilities on the factory during the year 600,000
Salary of the store manager 200,000
Raw materials inventory 200,000 increase
Work in process inventory 600,000 decrease
Finished goods inventory 600,000 decrease
● The entity uses a single account for its direct material and indirect materials. Indirect material used is
one-fifth of the total material used
● The indirect labor cost is one-fourth of the total labor costs
● The overhead application rate is 120% of direct labor costs
● Any over or under application of overhead is considered immaterial
18. What is the total manufacturing cost?
A. 5,040,000
B. 4,260,000
C. 5,360,000
D. 3,940,000

19. What is the cost of goods manufactured?
A. 3,340,000
B. 4,540,000
C. 4,860,000
D. 3,660,000
20. What is the under or overapplied overhead?
A. 900,000 over
B. 840,000 over
C. 240,000 over
D. 40,000 over
21. What is the adjusted cost of goods sold?
A. 5,100,000
B. 4,240,000
C. 5,140,000
D. 4,900,000
Numbers 22 and 23
VVV Co. manufactures electric motor drills. During November 2024, Job 108 for the production of 600
motor drills was completed at the following costs:
Direct Materials 2,100,000
Direct Labor 1,200,000
Applied Factory Overhead (P60,000 allowance included) 510,000
Final inspection of Job 108 disclosed 15 defective units and 45 spoiled units. It was the company's policy
to apply overhead based on direct labor cost.
The defective drills were reworked with the following costs:
Direct materials P6,500
Direct labor P20,000
Overhead ?
And the spoiled drills were sold for P152,000.
22. If the Rework cost and Spoilage is attributable to internal failure and charged to all production,
what is the total cost transferred to the Finished Goods Inventory of Job 108?
A. 3,693,000
B. 3,524,250
C. 3,468,750
D. 3,633,000
23. If the Rework cost and Spoilage is attributable to exacting specifications and charged to a specific
job, what is the unit cost of Job 108?
A. 6,545.95
B. 6,654.05
C. 6,544.14
D. 6,727.78
Number 24
During corporate liquidation, which of the following types of creditors will always receive full settlements
of his claims?
A. Unsecured creditors with priority
B. Unsecured creditors with priority
C. Partially secured creditors
D. Fully secured creditors

Numbers 25 and 26
BPI had the following data available:
Activities Traceable cost Budgeted cost drivers
Open new accounts P50,000 1,000 accounts
Process deposits P36,000 400,000 deposits
Process withdrawals P15,000 200,000 withdrawals
Process loan applications P27,000 900 applications
The above activities were used by the Quezon City branch and the Makati branch:
Quezon City Makati
New accounts 200 400
Deposits 40,000 20,000
Withdrawals 15,000 18,000
Loan applications 100 160
25. What is the amount of traceable cost of opening new accounts assigned to the Quezon City
branch?
A. 10,000
B. 16,667
C. 20,000
D. 33,333
26. What is the amount of traceable cost of processing loan applications assigned to the Makati
branch?
A. 16,615
B. 10,385
C. 3,000
D. 4,800
Number 27
AAA Company adopted the Just-in-Time system and used Backflush costing. The following data were
extracted from the Raw and in-process account:
Materials requisitioned to production P1,200,000
Increase in Raw and in-process P450,000
What is the amount debited in the Raw and in-process account during the period?
A. 750,000
B. 1,200,000
C. 1,650,000
D. 0
Number 28
Statement 1: Joint costs occur after the split-off point in a production process.
Statement 2: The point at which individual products are first identifiable in a joint process is referred to as
the split-off point.
A. Statement 1 is TRUE and Statement 2 is FALSE
B. Statement 1 is FALSE and Statement 2 is TRUE
C. Both statements are TRUE
D. Both statements are FALSE

AAA Company produced two main products jointly, X and Y. Z was a by-product. X and Y were
produced from the same raw material. The joint cost was P500,000 and the company opted to use the net
realizable value method in allocating the joint cost to the main products.
The following were the data available for the month of July:
Number of lbs
produced
Number of lbs sold
Final Sales price
per lbs
Further processing cost
per lbs
X 3,000 1,950 P95.00 P45.00
Y 1,800 1,350 P185.00 P60.00
Z 150 120 P30.00 P10.00
29. Assuming the net realizable value of the by-product is accounted for as additional sales revenue
for the sale of Product Y, what is the gross profit/(loss) of Product Y?
A. (56,250)
B. (53,850)
C. 171,150
D. 27,150
30. Assuming the net realizable value of the by-product is accounted for as a reduction from the
joint cost, what is the gross profit/(loss) of Product X?
A. (31,720)
B. (31,876)
C. 97,500
D. (32,500)
31. Assuming the net realizable value of the by-product is accounted for as a reduction from the joint
cost, what is the cost of goods not sold by Product Y?
A. 304,650
B. 306,000
C. 101,550
D. 102,000
Number 32
Statement 1: The assets realized are those assets that were realized through sale only.
Statement 2: In the statement of realization and liquidation, when the total debit is greater than the total
credit, the result is a loss.
A. Statement 1 is TRUE and Statement 2 is FALSE
B. Statement 1 is FALSE and Statement 2 is TRUE
C. Both statements are TRUE
D. Both statements are FALSE
Number 33
In accounting for spoilage in job order, whether it is spoiled units or defective units due to internal failure,
in recording the loss from spoiled units and rework cost from defective units, it involves a
A. Debit to Work-in-process
B. Credit to Spoiled goods inventory
C. Debit to Defective goods inventory
D. Debit to Manufacturing overhead control

Number 34
Which is the best reason for using activity-based costing?
A. to keep better track of the overhead costs
B. to more accurately assign overhead costs to cost pools so that these costs are better controlled
C. to accurately assign overhead costs to products
D. to assign indirect service overhead costs to direct overhead cost pools
Number 35
In a Just-in-Time system and Backflush costing, if the company has one trigger point, point of sale, to
record the sale, it involves a
A. Debit to Cost of goods sold
B. Credit to Finished goods inventory
C. Debit to Raw and in-process
D. Credit to Raw and in-process
Number 36
On July 1, 2024, A, B and C formed ABC Partnership with original capital contribution of P240,000,
P400,000 and P160,000. A is appointed as managing partner. During 2024, A, B and C made additional
investments of P400,000, P160,000 and P240,000, respectively. Also in 2024, A, B and C made drawings
of P160,000, P80,000 and P320,000, respectively. At the end of 2024, the capital balance of C is reported
at P256,000. The profit or loss agreement of the partners is as follows:
● 10% interest on original capital contribution of the partners.
● Quarterly salary of P32,000 and P8,000 for A and B, respectively.
● Bonus to the managing partner equivalent to 20% of net income after interest and salary to all partners
● Remainder is to be distributed equally among the partners.
The capital balance of A on December 31, 2024
A. 824,800
B. 808,000
C. 850,000
D. 926,000
Number 37 and 38
PQR and CDE formed a partnership on January 1, 2024 by contributing capital of P1,050,000 and
P150,000, respectively. They agreed to share profits and losses 70% and 30% respectively. CDE manages
the partnership and is given a salary of P20,000 per month and a bonus of 20% of net income. Interest of
5% of the beginning capital is to be provided to each partner and any remainder is to be divided according
to their profit and loss ratio. For the year ended December 31, 2024, the partnership generated a net
income of P192,000 after salaries, interests and bonus to partner(s).
37. What is the amount received by PQR in the distribution of profit?
A. 186,900
B. 134,400
C. 309,900
D. 182,900
38. What is the amount received by CDE in the distribution of profit?
A. 305,100
B. 309,100
C. 428,100
D. 420,600

Numbers 39 and 40
Partners RS, CD and AB decided to liquidate their partnership. The partnership’s statement of financial
position reveals the following:
Cash P 200,000 Liabilities P 240,000
Other assets 2,000,000 RS, Capital 720,000
CD, Capital 960,000
AB, Capital 280,000
The partners share profits and losses in a 4:4:2 ratio and all partners are personally solvent. The following
are two independent cases:
39. Assuming AB received P392,000 in cash in full settlement of his share of the partnership. What
were the proceeds on sale of the other assets?
A. 2,760,000
B. 2,560,000
C. 1,440,000
D. 1,640,000
40. Assuming CD received P580,000 in cash in full settlement of his share of the partnership. What
is the amount received by AB?
A. 90,000
B. 204,000
C. 280,000
D. 0
Numbers 41 and 42
JKL Partnership engaged in steel manufacturing business had the following condensed financial position
prior to liquidation:
Assets Liabilities and Capital
Cash P 480,000 Liabilities P1,400,000
Non Cash assets 7,200,000 Loan payable to J 600,000
J, Capital (50%) 1,800,000
K, Capital (30%) 2,800,000
_________ L, Capital (20%) 1,080,000
Total P7,680,000 Total P7,680,000
Assuming assets with a book value of P2,800,000 were sold for P2,000,000 and that all available cash was
distributed. The following are two independent cases:
41. What amount would the remaining assets have to be sold in order for Partner K to receive a
total of P3,160,000 cash after liquidation?
A. 6,200,000
B. 6,400,000
C. 6,000,000
D. 6,600,000
42. What amount would the remaining assets have to be sold in order for Partner J to receive a total
of P1,980,000 cash after liquidation?
A. 4,380,000
B. 4,440,000
C. 4,360,000
D. 4,840,000

Numbers 43 and 44
CDE and FGH formed a partnership. CDE invested cash worth P340,000 and a machine. On the other
hand, FGH contributed cash worth P220,000 and equipment which has a mortgage of P140,000 which the
partners agreed to assume. The total agreed capital after formation was P1,440,000. They also further
agreed to reflect a 55:45 ratio as to their capital balances respectively. CDE’s capital was increased by
P32,000 to conform with their capital ratio agreement. In relation, the capital account of FGH decreased
also by P32,000 to conform with their capital ratio agreement. No other transfer occurred other than those
mentioned.
43. How much is the fair value of the machine?
A. 452,000
B. 420,000
C. 428,000
D. 460,000
44. How much is the fair value of the equipment?
A. 536,000
B. 428,000
C. 600,000
D. 568,000
On December 31, 2023, the Statement of Financial Position of ABC Partnership provided the following
data with profit or loss ratio of 1:6:3:
Current Assets 8,000,000 Total Liabilities 4,800,000
Noncurrent Assets 16,000,000 A, Capital 7,200,000
B, Capital 6,400,000
C, Capital 5,600,000
The following are three independent cases:
45. Case A. On January 1, 2024, D was admitted to the partnership by purchasing 40% of the capital
interest of B at a price of P4,000,000.
What is the capital balance of B after the admission of D on January 1, 2024?
A. 4,320,000
B. 3,840,000
C. 3,360,000
D. 2,400,000
46. Case B. On January 1, 2024, D was admitted to the partnership by investing P4,200,000 to the
partnership for a 20% capital interest.
If all the assets of the existing partnership are properly valued, what is the capital balance of C
after the admission of D?
A. 5,600,000
B. 5,744,000
C. 5,456,000
D. 5,120,000
47. Case C. On January 1, 2024, D was admitted to the partnership by investing P3,500,000 to the
partnership for a 30% capital interest and total agreed capitalization of P25,000,000.
What is the capital balance of A after the admission of D?
A. 7,030,000
B. 7,370,000
C. 6,800,000
D. 7,430,000

Numbers 48 and 49
On December 31, 2023, ABC Partnership’s Statement of Financial Position shows that A, B and C have
capital balances of P3,200,000, P2,400,000 and P800,000 with profit or loss ratio of 1:4:5. On January 1,
2024, C retired from the partnership and received P640,000.
The following are two independent cases:
48. At the time of C’s retirement, the assets and liabilities of the partnership are properly valued.
What is the capital balance of B after the retirement of C?
A. 2,272,000
B. 2,464,000
C. 2,528,000
D. 2,560,000
49. At the time of C’s retirement, an asset of the partnership is to be revalued. What is the capital
balance of A after the retirement of C?
A. 3,168,000
B. 3,184,000
C. 3,136,000
D. 3,232,000
Number 50
Upon retirement of a partner, the retiring partner receives an amount more than his capital balance. Which
of the following statements is true?
A. If there is no asset revaluation at the time of retirement, the capital balances of the remaining partners
will not change.
B. If there is no asset revaluation at the time of retirement, the capital balances of the remaining partners
will decrease.
C. If there is an asset revaluation at the time of retirement, the capital balances of the remaining partners
will decrease.
D. If there is an asset revaluation at the time of retirement, impairment loss of existing assets is
recognized.
Number 51
When a new partner is admitted to an existing partnership through purchase of interest of an old partner(s),
which of the following statements is false?
A. The total capital of the old and new partnership is the same.
B. The partnership will not recognize any bonus on the difference between the amount paid by the new
partner and the capital transferred by the old partner(s).
C. In admission by purchase of interest, the new partner is also the buying partner.
D. There is an increase in the total assets of the partnership equivalent to the amount paid by the newly
admitted partner.
Number 52
If the partnership assumes a liability of a partner, the journal entry upon formation in the partnership books
involves a
A. Credit to Loan to Partner account
B. Credit to Capital account of that partner
C. Debit to Due to Partner account
D. Debit to Capital account of that partner

Number 53
Which of the following statements regarding partnership operation is true?
A. Withdrawal in anticipation of his share in the net income made by a partner during the year is treated
as a permanent withdrawal.
B. All partners shall be given a salary to ensure a just and equitable distribution of net income or net loss.
C. Only the managing partner shall be entitled to an interest based on his capital contribution in the
distribution of net income or net loss.
D. In the division of profit or loss, bonus may still be provided even if the total salary and interest given
to the partners already exceeded the amount of net income.
Number 54
Statement 1. The share of a partner in the maximum possible loss during the period affects his capital
account balance at the end of that period.
Statement 2. In a partnership installment liquidation, not all cash withheld is considered part of the
maximum possible loss during the period.
A. Only the first statement is true
B. Only the second statement is true
C. Both statements are true
D. Both statements are false
Number 55
Statement 1. A partner, with a pre-liquidation debit capital balance, may still receive cash distribution
from the partnership.
Statement 2. Gain or loss on sale of non-cash assets is distributed to all partners, even to partners with
debit capital balance, based on their profit and loss ratio.
A. Only the first statement is true
B. Only the second statement is true
C. Both statements are true
D. Both statements are false
Numbers 56 and 57
The home office in Mandaluyong shipped merchandise costing P86,760 to the Caloocan branch and paid
for the freight charges of P15,920. Caloocan Branch was subsequently instructed to transfer the
merchandise to Manila Branch wherein Manila branch paid for P5,000 freight. If the shipment was made
directly from Mandaluyong to Manila, the freight cost would have been P22,000.
The following are two independent cases:
56. How much is the amount of Investment in Branch account to be debited in the books of the home
office as a result of the inter branch transfer of merchandise.
A. 108,760
B. 103,760
C. 102,680
D. 107,680
57. Assuming shipments are made at a markup of 25% based on cost. What is the amount of excess
freight chargeable to the home office?
A. 1,080
B. 1,350
C. 0
D. (1,080)

Numbers 58 and 59
XYZ Corp. has a branch in Manila. On December 31, 2023, the home office showed a P1,368,000
balance in its Investment in Branch account. The following information has been gathered during the
reconciliation process:
A. The branch erroneously sent a credit memo amounting to P48,000 to the home office. The home
office made no entry.
B. A credit memo sent by the branch to the home office amounting to P12,000 was recorded by the home
office twice.
C. A credit memo sent by the home office to the branch amounting to P24,000 was not yet received by
the branch.
D. A credit memo sent by the home office to the branch amounting to 120,000 was recorded by the
branch as 12,000.
E. A debit memo sent by the branch to the home office amounting to P200,000 was recorded by the home
office as P2,000,000.
F. A debit memo sent by the home office to the branch amounting to P40,000 was recorded by the branch
58. What is the unadjusted balance of the Home Office Current account?
A. 2,976,000
B. 3,204,000
C. 3,336,000
D. 3,348,000
59. The net adjustment in the home office books is
A. 1,812,000 debit
B. 1,788,000 debit
C. 1,748,000 debit
D. 1,800,000 debit
Number 60
HIJ Company opened a sales agency in Caloocan. Pertinent information regarding the sales
agency transactions are found below:
Sales 2,612,000
Collections, net of 4% discount 1,935,360
Expenses paid from the agency working
fund
254,000
Expenses allocated by the home office 119,400
Agency samples:
Cost 136,000
Inventory, end 14,400
HIJ’s gross profit rate is 30% on net sales. The receivable balance is estimated to be 97%
collectible.
What is the net income of the Caloocan sales agency?
A. 246,528
B. 264,408
C. 288,600
D. 206,348

The trial balance before adjustment for the home office and branch of the ABC Company show the
following items on December 31. Differences in the shipments account balances result from the home
office policy of billing the branch at 20% based on cost in the current year.
Home Office books Branch books
Allowance for overvaluation of Branch merchandise P504,000
Shipments to branch ?
Purchases (outsiders) P 350,000
Shipments from Home Office 1,344,000
Merchandise Inventory, January 1 2,100,000
Sales 4,200,000
Expenses 252,000
The ending inventory per branch books amounted to P1,400,000, composed of merchandise from the home
office, with a cost of P980,000, and the remaining amount from outsiders. The beginning inventory of the
branch consisted of merchandise from outsiders in the amount of P1,120,000.
61. What is the markup on merchandise shipments from the home office to the branch last year?
A. 40%
B. 20%
C. 28.57%
D. 13.33%
62. In the books of the home office, what is the adjustment to Income Summary – Branch account at
the end of the year?
A. 196,000
B. 308,000
C. 1,554,000
D. 340,667
63. Before closing, what is the understatement in the Home Office Current account in the separate
books of the branch?
A. 308,000
B. 224,000
C. 1,554,000
D. 1,750,000
Number 64
Which of the following statements regarding accounting for home office and branch is correct?
A. The required balance of the Allowance for Overvaluation account is the mark-up in the ending
inventory of the branch from the home office.
B. The true income of the branch is debited to the Investment in Branch account in the separate books of
the home office.
C. The shipment of merchandise to the branch at billed price, will result to an understated retained
earnings of the branch
D. The Allowance for Overvaluation is presented as a contra-asset account in the combined statement of
financial position.
Number 65
In franchise accounting, the best evidence of the stand-alone selling price is
A. Cost of the goods or service plus a modest amount of profit
B. Observable price of the goods or service when sold separately
C. Adjusted market prices of similar products offered by competitors
D. The transaction price divided by the number of performance obligations

Number 66
A. If the home office purchased equipment to be used by the branch but the record of the asset is
maintained by the home office for uniform depreciation policy, no entry is required on the part of the
branch.
B. A credit memo received by the branch may be a notification from the home office about allocation of
expenses incurred by the latter.
C. A debit memo received by the home office from the branch may be a notification regarding the
payment of the branch to the supplier of the home office.
D. The reciprocal accounts must be reconciled first before presenting both in the combined financial
statements.
Number 67
A. A branch may debit an Investment in “another” Branch account for purposes of inter branch
transactions.
B. The home office will credit Investment in Cebu Branch upon its instruction to Davao branch to
transfer cash to Cebu branch
C. The home office will debit Investment in Cebu Branch upon collection of Cebu branch from the
customer of Davao branch.
D. Transactions between branches have no effect in the books of the home office.
Number 68
Statement 1: The branch maintains its own books as a separate legal entity from the home office.
Statement 2: The home office and its branches may sell merchandise to one another.
A. Both statements are true
B. Both statements are false
C. Statement 1 is true, statement 2 is false
D. Statement 1 is false, statement 2 is true
Number 69
Which of the following is false regarding contract revenue by a contractor?
A. Variation in contract work as instructed by the customer regarding the scope of work to be performed
by the contractor decreases the contract price.
B. Claims that the contractor may seek to collect from the customer for customer caused delays or errors
in specification or design increases the contract price.
C. Incentive payments to be paid to the contractor if specified performance standards are met or exceeded
or for early completion of the contract increases the contract price.
D. A penalty decreases the contract price.
Number 70
Statement 1: The consignee may credit sales revenue only upon transfer of control relating to merchandise
held on consignment in some circumstances.
Statement 2: Freight-in and cartage cost related to returned goods previously held on consignment affects
the computation of net income of the consignor.
A. Both statements are true
B. Both statements are false
C. Statement 1 is true, statement 2 is false
D. Statement 1 is false, statement 2 is true
E N D

CPA REVIEW SCHOOL OF THE PHILIPPINES
Manila
ADVANCED FINANCIAL ACCOUNTING AND REPORTING
First Preboard Examination
SOLUTIONS
1. B
Est. realizable value inventory
(80,000 - 26,000)
54,000
Accounts payable (70,000)
Excess accounts payable (16,000)
Est. realizable value equipment
(120,000 + 2,500)
122,500
Note payable (95,000)
Excess equipment 27,500
Total book value assets 250,000
Book value inventory (80,000)
Book value equipment (120,000)
Book value prepaid exp (18,000)
Book value other assets 32,000
Excess of book over fair of other assets (15,000)
Est. realizable value of other assets 17,000
Est. realizable value of other assets 17,000
Excess equipment 27,500
Total free assets 44,500
Unsecured liab with priorities (12,500)
Net free assets 32,000
2. A
Total book value liabilities 200,000
Book value accounts payable (70,000)
Book value note payable (95,000)
Book value other liabilities 35,000
Salaries and taxes (12,500)
Book value other liabilities without priority 22,500
Book value other liabilities without priority 22,500
Excess accounts payable 16,000
Total unsecured liabilities without priority 38,500
Net free assets 32,000
Total unsecured liabilities without priority ÷ 38,500
Est. recovery percentage 83.12%
Est. realizable value inventory
(80,000 - 26,000)
54,000
Amount recovered from excess AP
(16,000 x 83.12%)
13,299
Est. recovered from partially secured AP 67,299

3. B
Statement of Realization and Liquidation FOR THE MONTH OF SEPTEMBER:
Assets to be realized at the
beginning of September
380,000
Assets realized during
September
338,000
Increase in assets during
September
25,000
Assets not realized at the end
of September
18,000
Liabilities liquidated during
September
268,800
Liabilities to be liquidated at
the beginning of September
350,000
Liabilities not liquidated at
the end of September
109,200 Liabilities assumed 28,000
Supplementary charges 86,350 Supplementary credits 59,700
TOTAL DEBITS 869,350 TOTAL CREDITS 793,700
LOSS 75,650
4. A
Estate equity beginning 40,500
Liabilities beginning of September 350,000
Total assets beginning of September 390,500
Non-cash assets beginning of September (380,000)
Cash beginning of September 10,500
5. C
6. D
2024
Cost incurred to date 1,000,000
Estimated cost to complete 3,000,000
Total estimated cost 4,000,000
2025
Cost incurred to date
(1,000,000 + 5,000,000)
6,000,000
2026
Cost incurred to date
(1,000,000 + 5,000,000 + 8,000,000)
14,000,000

2024 2025 2026
Cost incurred to date 1,000,000 6,000,000 14,000,000
Total estimated cost ÷ 4,000,000 ÷ 10,000,000 ÷ 16,000,000
Percentage of completion 25% 60% 87.5%
2024
Contract price 10,000,000
Total estimated cost (4,000,000)
Est. Gross profit / (loss) 6,000,000
x 25%
Gross profit / (loss) to date 1,500,000
Prior gross profit / (loss) -
Gross profit / (loss) for the year 1,500,000
7. C
2025
Contract price 15,000,000
Total estimated cost (10,000,000)
Est. Gross profit / (loss) 5,000,000
x 60%
2025
Construction-in-Progress to date 9,000,000
Progress billings to date (10,000,000)
Excess billings / Contract liability (1,000,000)
8. B
Construction revenue as of 2026
(20,000,000 x 87.5%)
17,500,000
Construction revenue as of 2025
(15,000,000 x 60%)
(9,000,000)
Construction revenue for the year 2026 8,500,000
9. C
2024 2025
Cost incurred to date 40,000,000 50,000,000
Estimated cost to complete 90,000,000 60,000,000
Total estimated cost 130,000,000 110,000,000
2024 2025
Contract price 100,000,000 100,000,000
Total estimated cost (130,000,000) (110,000,000)
Est. Gross profit / (loss) (30,000,000) (10,000,000)
x 100% x 100%
Gross profit / (loss) to date (30,000,000) (10,000,000)
Prior gross profit / (loss) - 30,000,000
Gross profit / (loss) for the year (30,000,000) 20,000,000

10. A
2025
Gross profit / (loss) to date (10,000,000)
Construction-in-Progress to date 40,000,000
11. D
Down payment 50,000
PV of Note 480,000
Initial franchise fee 530,000
Continuing franchise fee (32,000 x 12%) 3,840
Interest revenue (480,000 x 5% x 7/12) 14,000
Total revenue 547,840
12. A
Initial franchise fee 530,000
Direct cost of franchise (180,000)
Gross profit from initial franchise fee 350,000
Interest revenue (480,000 x 5% x 7/12) 14,000
Indirect cost (20,000)
Net income 347,840
13. A
Stand-alone
selling prices
1. Training 10 personnel 100,000 (10%)
2. Construction of franchise's building and landscape 400,000 (40%)
3. Delivery of 1,000 units of raw materials 300,000 (30%)
4. Access to franchisor's tradename and trademark 200,000 (20%)
1,000,000
Allocated IFF
1. Training 10 personnel (800,000 x 10%) 80,000
2. Construction of franchise's building and landscape (800,000 x 40%) 320,000
3. Delivery of 1,000 units of raw materials (800,000 x 30%) 240,000
4. Access to franchisor's tradename and trademark (800,000 x 20%) 160,000
Training 10 personnel (80,000 x 7/10) 56,000
Construction of franchise's building and landscape (320,000 x 90%) 288,000
Delivery of 1,000 units of raw materials (240,000 x 600/1,000) 144,000
Access to franchisor's tradename and trademark (160,000 x 1/10 x
11/12)
14,667
Revenue from initial franchise fee 502,667
Total revenue 507,667

14. D
Training 10 personnel (80,000 x 3/10) 24,000
Construction of franchise's building and landscape (320,000 x 10%) 32,000
Delivery of 1,000 units of raw materials (240,000 x 400/1,000) 96,000
Access to franchisor's tradename and trademark
(160,000 x 9/10) + (160,000 x 1/10 x 1/12)
145,333
Unearned revenue 297,333
15. B
Initial cost for 25 units of consigned products (620 x 25) 15,500
Freight from consignor to consignee 1,000
Total cost of consigned goods 16,500
Ratio of unsold goods x 5/25
Ending inventory cost of consigned goods 3,300
16. C
Sales (1,000 x 20) 20,000
Cost of goods sold (16,500 x 20/25) (13,200)
Gross profit 6,800
Sales commission expense (20,000 x 20%) (4,000)
Net income consignor 2,800
17. A
Collection from the sale in January during January (200 x 15) 3,000
Collection from the sale in January during February (40 x 15) 600
Collection from the sale in February during February (200 x 5) 1,000
Total collection from the sale of consigned goods 4,600
Sales commission (4,000)
Net remittance to consignor 600
18. D
Net purchases 1,000,000
Increase in RMI (200,000)
Raw materials used 800,000
Direct material (800,000 x 4/5) 640,000
Direct labor (2,000,000 x 3/4) 1,500,000
Overhead applied (1,500,000 x 120%) 1,800,000
Total manufacturing cost 3,940,000
19. B
Total manufacturing cost 3,940,000
Decrease in WIP 600,000
Cost of goods manufactured 4,540,000

20. C
Depreciation of factory assets during the year 300,000
Utilities on the factory during the year 600,000
Indirect material (800,000 x 1/5) 160,000
Indirect labor (2,000,000 x 1/4) 500,000
Total actual overhead 1,560,000
Overhead applied (1,800,000)
Over applied (240,000)
21. D
Cost of goods manufactured 4,540,000
Decrease in FG 600,000
Cost of goods sold 5,140,000
Over applied (240,000)
Adjusted cost of goods sold 4,900,000
22. B
Direct materials 2,100,000
Direct labor 1,200,000
Applied overhead inclusive of allowance 510,000
Total initial cost in WIP 3,810,000
÷ 600
Initial cost per unit 6,350
Cost of spoiled (45 x 6,350) (285,750)
Total cost transferred to FG 3,524,250
23. C
Direct materials 2,100,000
Direct labor 1,200,000
Applied overhead exclusive of allowance (510,000 - 60,000) 450,000
Applied overhead exclusive of allowance 450,000
Direct labor ÷ 1,200,000
Predetermined OH rate (exacting specifications) 37.5%
Direct materials 6,500
Direct labor 20,000
Applied overhead (20,000 x 37.5%) 7,500
Rework cost 34,000

NRV of spoiled (152,000)
Rework cost 34,000
Total cost transferred to FG 3,632,000
Good units (600 - 45) ÷ 555
Cost per good unit 6,544.14
24. D
25. A
Opening new account cost 50,000
Accounts ÷ 1,000
Cost per new account 50
Quezon City new accounts x 200
Opening new account cost assigned to Quezon City 10,000
26. D
Process loan application cost 27,000
Applications ÷ 900
Cost per processed loan application 30
Makati loan application x 160
Process loan application cost assigned to Makati 4,800
27. C
Materials requisitioned to production 1,200,000
Increase in Raw and in-process 450,000
Raw materials purchased 1,650,000
28. B
29. B
Alloc. base
NRV of Product X [(95 - 45) x 3,000] 150,000
NRV of Product Y [(185 - 60) x 1,800] 225,000
375,000
NRV of By-product Z [(30 - 10) x 150] 3,000
Joint cost allocated to Product Y (500,000 x 225/375) 300,000
Separable cost of Product Y (60 x 1,800) 108,000
Total cost of Product Y 408,000
Sales for Product Y (185 x 1,350) 249,750
Additional sales (3,000 x 120/150) 2,400
Total sales for Product Y 252,150
COS for Product Y (408,000 x 1,350/1,800) (306,000)
Gross loss (53,850)

30. A
Alloc. base
NRV of Product X [(95 - 45) x 3,000] 150,000
NRV of Product Y [(185 - 60) x 1,800] 225,000
375,000
Joint cost allocated to Product X [(500,000 - 3,000) x 150/375)] 198,800
Separable cost of Product X (45 x 3,000) 135,000
Total cost of Product X 333,800
Sales for Product X (95 x 1,950) 185,250
COS for Product X (333,800 x 1,950/3,000) (216,970)
Gross loss (31,720)
31. C
Alloc. base
NRV of Product X [(95 - 45) x 3,000] 150,000
NRV of Product Y [(185 - 60) x 1,800] 225,000
375,000
Joint cost allocated to Product Y [(500,000 - 3,000) x 225/375)] 298,200
Separable cost of Product Y (60 x 1,800) 108,000
Total cost of Product Y 406,200
Ending inv of Product Y (406,200 x 450/1,800) 101,550
32. B
33. D
34. C
35. A
36. C
Share of C in the net income 176,000 [160,000 + 240,000 - 320,000 - 256,000]
Remainder based on the share in the net income of C [(160,000 x 10%) x 6/12] 8,000 interest of
C
176,000 - 8,000 = 168,000 share of C in the remainder
Total remainder 504,000 [168,000 x 3]
Bonus = 20%[504,000 + B]
Bonus = 126,000

Share of A in the net income 370,000 [(240,000 x 10% x 6/12) + (32,000 x 2) + 126,000 +
168,000]
Capital end of A [240,000 + 400,000 - 160,000 + 370,000] = 850,000
37. A
38. C
PQR CDE
Salary 240,000
Interest 52,500 7,500
Bonus 123,000 20% [192,000 + 240,000 + 60,000 + B]
Remainder 134,400 57,600 [192,000 x 70% ; 192,000 x 30%]
186,900 428,100
39. B
AB [280,000 - 392,000] 112,000 share in gain
112,000/20% = 560,000 total gain
Net proceeds (2,000,000 + 560,000) = 2,560,000
40. A
CD [960,000 - 580,000] 380,000 share in loss
380,000/40% = 950,000 total loss
Amount received by AB [280,000 - (950,000 x 20%)] = 90,000
41. B
K [2,800,000 - 3,160,000] 360,000 share of K in the net gain
360,000 + 240,000 (800,000 x 30%)
600,000 share of K in the gain
Proceeds of remaining non-cash [7,200,000 - 2,800,000] 4,400,000 + (600,000/30%) =
6,400,000
42. C
J [2,400,000 - 1,980,000] 420,000 share of J in the loss
420,000 - 400,000 (800,000 x 50%)
20,000 share of J in the loss
Proceeds of remaining non-cash [4,400,000 - (20,000/50%)] = 4,360,000
43. B
44. C
Fair value of machine: 1,440,000 x 55% = 792,000 - 340,000 - 32,000 = 420,000
Fair value of equipment: 1,440,000 x 45% = 648,000 - 220,000 + 140,000 +32,000 = 600,000
45. B
B [6,400,000 x 60%] = 3,840,000

46. C
TCC = 7,200,000 + 6,400,000 + 5,600,000 + 4,200,000 = 23,400,000 x 20% = 4,680,000
Bonus to new partner 480,000
C [5,600,000 - (480,000 x 30%)] = 5,456,000
47. A
TCC = 7,200,000 + 6,400,000 + 5,600,000 + 3,500,000 = 22,700,000 - 25,000,000
2,300,000 revaluation upward
Bonus to new partner [3,500,000 - (25,000,000 x 30%) 4,000,000
A [7,200,000 - (1,700,000 x 10%) = 7,030,000
48. C
C [800,000 - 640,000] 160,000 bonus to remaining
B [2,400,000 + (160,000 x ⅘) = 2,528,000
49. A
C [160,000/50%] 320,000 revaluation downward
A [3,200,000 - (320,000 x 10%) = 3,168,000
50. B
51. D
52. D
53. D
54. B
55. C
56. C
In the books of Manila branch upon receipt of merchandise:
Shipments fr HO 86,760
F-in 20,920
Cash 5,000
HOC 102,680
NOTE: Since the actual freight of 20,920 (15,920 + 5,000) was less than the should be freight of
22,000, under the concept of prudence, the Manila branch recorded the lower which is the actual
freight. And in the books of the Home Office, it will correspondingly debit the Investment in
Branch Manila account in the amount of P102,680
57. C
NOTE: Since the actual freight of 20,920 (15,920 + 5,000) was less than the should be freight of
22,000, under the concept of prudence also, there will be NO excess freight or freight loss

58. C
1,368,000 + 48,000 - 12,000 + 24,000 + 108,000 + 1,800,000 = 3,336,000
59. B
Net adjustment: (12,000) + 1,800,000 = 1,788,000 DR
60. A
2,612,000 - (1,935,360/96% x 4%) 2,531,360 x 30% = 759,408 gross profit
Net income: 759,408 - 254,000 - 119,400 - 121,600 - [(2,612,000 - 2,016,000) x 3%] = 246,528
61. A
SFHO 1,344,000/120% = 1,120,000 x 20% = 224,000
504,000 - 224,000 = 280,000 markup in the BI
2,100,000 - 1,120,000 = 980,000 from HO - 280,000 = 700,000 at cost
280,000/700,000 = 40%
62. B
Realized branch inventory allowance: [504,000 - (980,000 x 20%)] = 308,000
63. C
NI of branch [4,200,000 - (2,100,000 + 350,000 + 1,344,000 - 1,400,000) - 252,000] = 1,554,000
64. A
65. B
66. C
67. C
68. B
69. A
70. D
END

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