Compiled by: Hanni Nichs, CPA ^^

Solutions at the end of the file

Page 1 of 17 | Final Preboards

ADVANCED FINANCIAL ACCOUNTING AND REPORTING (AFAR)

MAY 2025 BATCH

REO CPA REVIEW

ADVANCED FINANCIAL ACCOUNTING AND REPORTING
FINAL PREBOARDS – MAY 2025 BATCH

1. The partnership of Alec and Boy reported profits of ₱1,200,000 in 20x1 and divided
the same to their profit-sharing ratio of 40:60, respectively. An examination
conducted on the books revealed the following:
• An equipment costing ₱300,000 which should have depreciated for 4 years was
expensed on January 2, 20x1.
• Supplies of ₱50,000 was omitted on the records.
___________ __________
• An inventory costing ₱150,000 was omitted from the records. The purchase was not
_________
recorded because the invoice was in transit as of the end of reporting period.
Not considered a capital adjustment It does not affect net income — the
What is the net adjustment to the Capital account of Alec? question is about adjusting capital based
A. ₱170,000 increase on misstated profits.
B. ₱110,000 increase Since this inventory purchase only affects
the Balance Sheet (Inventory up,
C. ₱110,000 decrease Accounts Payable up), and not the
D. ₱170,000 decrease Income Statement

2. The partnership of Bing, Cony and Winnie is to be liquidated as soon as possible

________

w
after December 31, 20x0, and all cash on hand except for ₱20,000 contingency
balances is to be distributed at the end of each month until liquidation is
__________
completed. Profits and losses are shared 50%,
respectively.
ie
30% and 20% to Bing, Cony and Winnie,
ev
A statement of financial position of the partnership on December 31, 20x0 contains
the following accounts and balances:
Cash ₱ 240,000 Accounts Payable ₱ 300,000
R

Accounts Receivable 280,000 Notes Payable 200,000

Loan to Winnie 40,000 Loan from Cony 20,000
PA

Inventories 400,000 Bing, Capital 340,000

Land 100,000 Cony, Capital 340,000
Equipment 300,000 Winnie, Capital 200,000
Goodwill 40,000 .
C

₱ 1,400,000 ₱ 1,400,000
On January 31, 20x1, the loan of Winnie was offset against his capital balance and
___ ________
the goodwill is written off. ₱200,000 is collected on account, inventory items that
_____________
EO

cost ₱160,000 are sold for ₱200,000, and cash is distributed.

If available cash is distributed on January 31, 20x1, Bing Cony, and Winnie,
respectively, should receive:
R

A. ₱ 0; ₱132,000; and ₱ 6,000

B. ₱ 0; ₱100,000 and ₱ 0
C. ₱ 0; ₱120,000; and ₱ 0
D. ₱ 0; ₱120,000; and ₱8,000

3. The following condensed statement of financial position is presented for the

partnership of Carlsen and Caruana, who share profits and losses in the ratio of
60:40, respectively:
Cash ₱ 450,000
Other assets 6,250,000
Caruana, loan 300,000
₱7,000,000

Accounts payable ₱1,200,000

Carlsen, capital 3,480,000
Caruana, capital 2,320,000
₱7,000,000

The assets and liabilities are fairly valued on the statement of financial
position. Carlsen and Caruana decide to admit Chess as a new partner with 20%
___________________
interest. No revaluation or bonus is to be recorded. What is the value of the
Net investment method
REO.CPA.ACADEMICS.F1.02.00REO CPA REVIEW
 Page 2 of 17 | Final Preboards

ADVANCED FINANCIAL ACCOUNTING AND REPORTING (AFAR)

MAY 2025 BATCH

_________
noncash assets contributed by Chess assuming it includes a mortgage of ₱450,000
assumed by the partnership? Carlsen 3,480,000
A. ₱1,900,000 Caruana 2,320,000
Ches (20%)
B. ₱1,000,000
C. ₱1,450,000
D. ₱1,160,000 (3,480,000 + 2,320,000) / 80% x 20% = 1,450,000 + mortgage assumed 450,000 = 1,900,000

4. Arc Warden, Brood Mother, and Chaos Knight have formed a partnership. Arc Warden
invested ₱20,000, Brood Mother, ₱40,000, and Chaos Knight, ₱60,000. Arc Warden will
manage the store, Brood Mother will work in the store three quarters of the time,
and Chaos Knight will not work in the business.

____ ____ ____ ______

Net income for the year ended September 30, 20x1 is ₱81,000. The first ₱42,000 is
_________ _____ __
allocated based on partner’s capital contribution. The next ₱30,000 is based on
service, with ₱20,000 going to Arc Warden and ₱10,000 going to Brood Mother. Any
___________
remainder is shared equally.

Compute the partner’s share of profits:

A. Arc Warden, ₱27,000; Brood Mother, ₱27,000; and Chaos Knight, ₱27,000
B. Arc Warden, ₱26,667; Brood Mother, ₱23,667; and Chaos Knight, ₱30,667
C. Arc Warden, ₱27,000; Brood Mother, ₱24,000; and Chaos Knight, ₱30,000

w
D. Arc Warden, ₱30,000; Brood Mother, ₱27,000; and Chaos Knight, ₱24,000

ie
5. Five individuals who are previously sole proprietors form a partnership. Each
partner contributes inventory and equipment for use by the partnership. What basis
should the partnership use to record the contributed assets?
ev
A. Equipment at lower of cost or net realizable value.
B. Equipment at each proprietor’s carrying amount.
R

C. Inventory at agreed value.

D. Inventory at the lower of FIFO cost or average cost.
PA

6. In the absence of partnership profit agreement to the contrary, how shall

industrial partner share in partnership profit?
A. Equal to the share of the least capitalist partner
B. Equal to the share of the highest capitalist partner
C

C. Just and equitable share

D. Equal to the average share capitalist partners
EO

7. Evaluate the following statements:

__________
Statement 1: The final cash distribution to the partners in a partnership in
_____ ____ ________
liquidation should be made in accordance with balances of the partners’ capital
accounts.
____________ ___________
R

Statement 2: The use of cash priority program will result in a higher amount of
distribution as compared to the safe payments schedule. equal
A. The first statement is true, and the second statement is false.
B. The first statement is false, and the second statement is true.
C. Both statements are true
D. Both statements are false

8. On January 1, 20x1, the statement of Financial Position of DEF Partnership with

profit or loss ratio of 6:1:3 of partners Dante, Emong and Fabian respectively,
revealed the following data:

Cash ₱3,000,000 Other Liabilities ₱6,000,000

Receivable from Dante 1,500,000 Payable to Emong 3,000,000
Other noncash assets 6,000,000 Payable to Fabian 300,000
Dante, Capital 2,100,000
Emong, Capital (1,950,000)
Fabian, Capital 1,050,000

_________ _____
On January 1, 20x1, the partners decided to liquidate the partnership. All partners
are legally declared personally insolvent. The Other noncash assets were sold for
₱4,500,000. Liquidation expenses amounting to ₱300,000 were incurred.

________________
How much cash was received by Emong at the end of partnership liquidation?

REO.CPA.ACADEMICS.F1.02.00
 Page 3 of 17 | Final Preboards

ADVANCED FINANCIAL ACCOUNTING AND REPORTING (AFAR)

MAY 2025 BATCH

DANTE EMONG FABIAN TOTAL

A. ₱750,000 TITE 600,000 1,050,000 1,350,000 3,000,000
Less: ToLE 1,080,000 180,000 540,000 1,800,000
B. ₱450,000
CAFD (480,000) 870,000 810,000 1,200,000
C. ₱870,000 Absorption 480,000 (120,000) (360,000)
D. ₱810,000 CAFD 0 750,000 450,000 1,200,000

________ ____
9. The capital deficiency of an insolvent partner shall be allocated based on?
A. Profit and loss ratio of the absorbing partners
B. Profit and loss ratio of all partners
C. Capital ratio of the absorbing partners
D. None of the choices

10. On January 1, 20x1, Firouzja and Grischuk formed FG Partnership and the articles
of co-partnership provides that profit or loss shall be distributed accordingly:
• 10% interest on average capital balance.
•
•
_______
₱150,000 and ₱300,000 quarterly salary for Firouzja and Grischuk, respectively.
The remainder shall be distributed in the ratio of 3:2 for Firouzja and
Grischuk, respectively.

The following transactions regarding the capital balance of the partners year 20x1
are provided:
Firouzja Grischuk

w
Capital Capital
January 1, 20x1 investment ₱3,000,000 ₱1,500,000
March 31, 20x1 investment
July 1, 20x1 withdrawal (600,000)
300,000
ie
ev
September 30, 20x1 withdrawal (600,000)
October 1, 20x1 investment 2,100,000
R

The chief accountant of the partnership reported net income of ₱3,000,000 for year
20x1.

_______
PA

What is the capital balance of Firouzja on December 31, 20x1?

A. ₱5,854,500
B. ₱4,354,500
C. ₱6,454,500
C

D. ₱3,754,500
EO

11. The following statements are based on corporate liquidation:

Statement I: Unsecured liabilities without priority have no legal priority nor a
security interest in specific property.
______
Statement II: In corporate liquidation, notes payable is always classified as
_______________ ___
R

unsecured non-priority liabilities.

A. The first statement is true, and the second statement is false.
B. The first statement is false, and the second statement is true.
C. Both statements are true
D. Both statements are false

12. Raptor Company is currently experiencing severe financial difficulties and is

considering the possibility of liquidation. At this time, the company has the
following assets at estimated realizable value and liabilities:

Assets (pledged against liabilities of ₱350,000) ₱ 580,000

Assets (pledged against liabilities of ₱650,000) 250,000
Other Assets 400,000
Liabilities with priority 210,000
Unsecured without priority 1,000,000

Compute the estimated payment to partially secured creditors

A. ₱1,000,000 NFA 420,000
B. ₱650,000 -------------- = 30% of recovery
ACP 250,000
C. ₱370,000 recovered 120,000 (400,000 x 30%) TUSCWOP 1,400,000
D. ₱250,000 total 370,000

REO.CPA.ACADEMICS.F1.02.00
 Page 4 of 17 | Final Preboards

ADVANCED FINANCIAL ACCOUNTING AND REPORTING (AFAR)

MAY 2025 BATCH

13. ___ ________

Which of the following statements is correct about Statement of Affairs?
A. The accounting statement of affairs is prepared at the end of the liquidation
process
B. Advertising expense incurred after the company became insolvent is a liability
that has priority in corporate liquidation
C. Fully secured creditors may not fully recover their claims from the liquidating
corporation
D. Taxes would be the first to be paid out of the unsecured liabilities w/ priority

14. _______
If the balancing figure
liquidation, there will be a
is __
debit in the statement of realization and

A. Net loss
B. Net income
C. Net revenue
D. Nothing

15. ___________
Two real estate companies (the parties) set up a separate vehicle (entity X) for
the purpose of acquiring and operating a shopping center. The contractual
arrangement between the parties establishes joint control of the activities that
are conducted in entity X. The main feature of entity X's legal form is that the
_______________________
entity, not the parties, has rights to the assets, and obligations for the

w
liabilities, relating to the arrangement. These activities include the rental of
the retail units, managing the car park, maintaining the center and its equipment,

ie
such as lifts, and building the reputation and customer base for the center as a
whole.
ev
The terms of the contractual arrangement are such that:
• Entity X owns the shopping center. The contractual arrangement does not specify
R

that the parties have rights to the shopping center.

• The parties are not liable in respect of the debts, liabilities or obligations
of entity X. If entity X is unable to pay any of its debts or other liabilities
PA

or to discharge its obligations to third parties, the liability of each party to

any third party will be limited to the unpaid amount of that party's capital
contribution.
• The parties have the right to sell or pledge their interests in entity X.
C

• Each party receives a share of the income from operating the shopping center
(which is the rental income net of the operating costs) in accordance with its
EO

interest in entity X.

Based on the preceding information, the joint arrangement is classified as:

A. Joint venture to be accounted under PAS 28
R

B. Joint venture to be accounted under PFRS 11

C. Joint operation to be accounted under PAS 28
D. Joint operation to be accounted under PFRS 11

16. On January 1, 20x1, Naka-Alice Inc., a small and medium enterprise (SME),
________
invested ₱4,350,000 cash in a joint venture for 50% interest with a transaction
cost of ₱150,000. For the year ended December 31, 20x1, the joint venture reported
a net income of ₱1,800,000 and distributed cash dividend in the amount of ₱540,000.
As of December 31, 20x1, the fair value of the investment in joint venture is
₱5,100,000 and the estimated cost of disposal is 15% of fair value. The value in
use of the investment is estimated at ₱4,950,000.

Under PFRS for SMEs, what is the book value of the Investment in Joint Venture to
be reported by Naka-Alice Inc. as of December 31, 20x1, if the SME elects to use
(1) the equity method, (2) the cost method, and (3) the fair value method,
respectively? Equity Method:
Initial Measurement: 4,350,000 + 150,000 = 4,500,000
Equity Fair value + Share in net income: 1,800,000 x 50% = 900,000 5,130,000
Cost method
method method - Share in the dividends: 540,000 x 50% = - 270,000
A. ₱4,800,000 ₱4,500,000 ₱4,950,000 - Impairment Loss: 5,130,000- 4,950,000 = - 180,000
B. ₱4,950,000 ₱4,500,000 ₱5,100,000 Carrying Amount = 4,950,000
C. ₱4,800,000 ₱4,200,000 ₱5,100,000 Cost Method:
D. ₱4,950,000 ₱4,350,000 ₱4,950,000 4,350,000 + 150,000 = 4,500,000

Fair Value Method:

REO.CPA.ACADEMICS.F1.02.00
@FV at Balance sheet date; 5,100,000

disregard cost to sell/value in use

 Page 5 of 17 | Final Preboards

ADVANCED FINANCIAL ACCOUNTING AND REPORTING (AFAR)

MAY 2025 BATCH

17. _______
On January 1, 20x1, Alice in the Wonderland Co. entered into a joint arrangement
______
classified as a joint venture. For an investment of ₱2,000,000, Alice in the
Wonderland Co. obtained 30% interest in Apollo the Impossible Mission Joint
Venture, Inc. During the year, Apollo the Impossible Mission Joint Venture, Inc.
reported profit of ₱4,000,000 and other comprehensive income of ₱800,000, i.e., a
total comprehensive income of ₱4,800,000. Apollo the Impossible Mission Joint
Venture, Inc. declared dividends of ₱2,400,000. How much is the carrying amount of
the investment in joint venture on December 31, 20x1?
A. ₱2,720,000
B. ₱2,000,000 2,000,000 + (4,800,000 x 30%) - (2,400,000 x 30%) = 2,720,000
C. ₱2,480,000
D. ₱4,160,000

18. On January 1, 20x0, Wilkins, Inc. and Xylo, Inc. (the parties) agreed to combine
their businesses by establishing a separate vehicle (Bremm, Inc.). Wilkins believes
that the arrangement could enable it to achieve its strategic plans to increase its
size, offering an opportunity to exploit its full potential for organic growth
through an enlarged offering of products and services. Xylo expects the arrangement
to reinforce its business opportunities by marketing more products.

_____
As a result, Wilkins, Inc. acquired 20% of the outstanding common stock of Bremm,
____

w
Inc. for ₱700,000. This investment gave Wilkins joint control over Bremm. Bremm’s
assets on that date were recorded at ₱3,900,000 with liabilities of ₱900,000. Any
____________ ________
remaining useful life at 10 years.
undervalued patent ie
excess of cost over book value of the investment was attributed to patent having a
ev
In 20x0, Bremm reported net income of ₱170,000. In 20x1, Bremm reported net income
of ₱210,000. Dividends of ₱70,000 were paid in each of these two years. What is the
R

equity method balance of Wilkin’s investment in Bremm, Inc. at December 31, 20x1?
A. ₱776,000
B. ₱756,000
PA

C. ₱748,000
D. ₱728,000

19. Cassandra Company consigned five office equipment, with cost of ₱40,000 each, to
C

Ong Inc. which was to sell these goods for the account and risk of the former for a
________________ ________________
commission of 15% of selling price. Cassandra Company paid trucking costs of
₱10,000 on the shipment. Correspondingly, Ong Inc. paid ₱16,000 on the freight of
EO

the shipment.

On the last day of the year, Ong Inc. reported that it sold three of the office
equipment: two for cash at ₱75,000 each and one on credit at ₱90,000 of which 25%
R

was collected as downpayment. Ong Inc. remitted all cash due.

The amount remitted by Ong Inc. is:

A. ₱67,500 Cash Collections: 2 x 75,000 = 150,000
B. ₱120,500 1 x 90,000 x 25% = 22,500
Less: Commission = 36,000 (150,000 + 90,000 x 15%)
C. ₱172,500 Less: Freight paid by Ong = 16,000
D. ₱88,000 Total Cash Remittance = 120,500

20. On January 1, 20x1, Pogo Co. entered into a franchise agreement with Sogo Co.
__________________
which required the latter to pay a non-refundable upfront fee of ₱1,600,000 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.

Performance Obligation Stand-Alone

Selling Price
Training ten personnel of the franchisee ₱200,000
Construction of the franchisee’s building and landscape 800,000
Delivery of one thousand units of raw materials to the franchisee 600,000
Allowing the franchisee to access the franchisor’s trademark and 400,000
tradename for a term of 10 years starting Jan. 1, 20x1

REO.CPA.ACADEMICS.F1.02.00
 Page 6 of 17 | Final Preboards

ADVANCED FINANCIAL ACCOUNTING AND REPORTING (AFAR)

MAY 2025 BATCH

At the end of 20x1, the accounting department of Pogo Co. found out that they were
able to train 7 out of 10 personnel of Sogo Co. In addition, the percentage of
completion of the 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. Delivery of 600 units of raw
materials were also accomplished by Pogo Co. For the year ended, December 31, 20x1,
Pogo Co. reported sales revenue amounting to ₱200,000 because it already started
operations upon the construction of the building on October 1, 20x1.

What is the total franchise fee revenue to be reported by Pogo Co. for the year
ended December 31, 20x1?
A. ₱1,018,000
B. ₱1,270,000
C. ₱976,000
D. ₱1,064,000

Use the following data to answer the next two questions:

In 20x1, Destruct Co. enters into a fixed-price construction contract with a
customer. At contract inception, Destruct Co. assesses its performance obligations
in the contract and concludes that it has a single performance obligation that is
________

w
satisfied over time. Destruct Co. determines that the measure of progress that best
depicts its performance on the contract is the input method based on costs ______
incurred.

Information on the contract follows: ie

ev
20x1 20x2
_____
_____
Cumulative contract costs incurred ₱2,250,000 ₱4,800,000
R

Cumulative profits recognized 750,000 1,200,000

Progress billings 2,400,000 3,600,000
Collections on progress billings 2,000,000 4,000,000
PA

The contract is completed in 20x2.

21. What amount of revenue is recognized in 20x2?

C

A. ₱2,800,000 Costs for 20x2 (4,800,000 - 2,250,000) = 2,550,000

B. ₱3,000,000 + Profits for 20x2 (1,200,000 - 750,000) = 450,000
C. ₱4,800,000 Revenue for 20x2 = 3,000,000
EO

D. ₱6,000,000

22. How much is the transaction price in the contract?

A. ₱5,000,000
R

B. ₱6,000,000 Cumulative Cost Incurred 4,800,000

C. ₱7,000,000 + Cumulative Profits 1,200,000
Transaction Price 6,000,000
D. ₱9,000,000

23. Determined Company sold a machine to the Committed Company for ₱200,000. The
Committed Company will pay ₱100,000 upon delivery and ₱100,000 after 1 year. The
discount rate is 5% and the discount factor for 1 year is 0.952. How shall
______
Determined Company recognize the transaction?
A. Debit Cash: ₱200,000, Credit Revenues: ₱200,000
B. Debit Cash: ₱100,000 and Debit Receivables: ₱100,000, Credit Revenues: ₱200,000
C. Debit Cash: ₱100,000 and Debit Receivables: ₱95,200, Credit Revenues: ₱195,200;
the difference of ₱4,800 is recognized as interest income
D. Debit Cash: ₱100,000 and Debit Receivables: ₱105,000, Credit Revenues: ₱205,000;
the difference of ₱5,000 is recognized as interest expense

24. The Mahirap sells a machine to the Pero Kakayanin for ₱100,000 (cost of machine
________ ___
is ₱95,000). The company can return the machine to the Mahirap within 90 days and
________
in such a case, the Mahirap will refund ₱98,000 to the Pero Kakayanin. What journal
entries does the Mahirap need to make initially?
A. Debit Cash: ₱100,000, Credit Revenues: ₱2,000 and Credit Refund liability:
₱98,000; Debit Cost of sales: ₱95,000, Credit Inventories: ₱95,000
B. Debit Cash: ₱100,000, Credit Revenue from sales: ₱100,000; Debit Cost of sales:
₱95,000, Credit Inventories: ₱95,000

REO.CPA.ACADEMICS.F1.02.00
 Page 7 of 17 | Final Preboards

ADVANCED FINANCIAL ACCOUNTING AND REPORTING (AFAR)

MAY 2025 BATCH

C. Debit Cash: ₱100,000, Credit Refund liability: ₱100,000; Debit Asset – the right
to recover the machine: ₱95,000, Credit Inventories: ₱95,000
D. Debit Cash: ₱100,000, Credit Revenues: ₱2,000 and Credit Refund liability:
₱98,000; Debit Asset – the right to recover the machine: ₱95,000, Credit
Inventories: ₱95,000

25. Which of the following factors would indicate that an entity's promise to

____ __________
transfer a good or service to a customer is separately identifiable?
A. The good or service does not depend on another promised good or service.
B. The good or service significantly modifies another good or service promised in
the contract.
C. The good or service is highly interrelated with other promised goods or
services.
D. The good or service is being used as an input to produce the combined output
specified by the customer.

26. Momo Construction specializes in ____

designing and __________
installing customized
manufacturing equipment. On February 1, 20x1, it signs a contract to design a fully
automated wristwatch assembly line for ₱2 million, which will be settled in cash

________ ______
upon completion of construction. Momo Construction will install the equipment on
the client’s property, furnish it with a customized software package that is
____

w
integral to operations, and provide consulting services that integrate the
_________
equipment with Momo Construction’s other assembly lines. How many performance
_____
obligations exist in this contract?
A. None
B. 2 ie
ev
C. 1
D. 3
R

27. Queenie, Inc. manufactures and sells stereo systems that include an assurance-
______
type warranty for the first 90 days. Entertainment Tonight also offers an optional
____
PA

extended coverage plan under which it will repair or replace any defective part for
2 year beyond the expiration of the assurance-type warranty. The total transaction
price for the sale of the stereo system and the extended warranty is ₱3,000. The
standalone price of each is ₱2,200 and ₱800, respectively. The estimated cost of
C

the assurance-warranty is ₱350. The accounting for warranty will include a

A. Debit to Warranty Expense, ₱800.
B. Debit to Warranty Liability, ₱350 Cash 3,000
EO

Saes 2,200
C. Credit to Warranty Liability, ₱800 CL-warranty 800
D. Credit to Contract Liability - Warranty, ₱800

28. ___ _____

Which contract costs cannot be capitalized and amortized over the life of the
R

contract?
A. Costs of past performance that will be reimbursed by the client
B. General and administrative costs allocated on a reasonable basis
C. Direct labor and materials related directly to the contract
D. Energy costs related to more contracts and allocated on a reasonable basis

29. On December 31, 20x2, the branch manager of SOG Company submitted the following
data to the home office:

Petty Cash Fund ₱ 15,000

Accounts Receivable, Dec. 31, 20x2 150,000 No corresponding BDE 15,000
Merchandise Inventory, Dec. 31, 20x1 90,000 Allowance for Bad A/R 15,000
Debts Accounts.
Accounts Receivable, Dec. 31, 20x1 135,000
Probably used the
Merchandise Inventory, Dec. 31, 20x2 105,000 direct write-off method. Inventory:
Sales 846,000 Beginning 90,000
Sales Return 6,000 + SFHO 450,000
____________________
Accounts Receivable written off
Shipments from home office
15,000
450,000
- EI
COGS
105,000
435,000

Expenses (Paid by home office) 180,000

Net Sales 840,000
Less: CGS 435,000
All cash collections in 20x2 were remitted to the home office Less OPEX 180,000
Less: BDE 15,000
What is the net income of the branch? Net Income 210,000

REO.CPA.ACADEMICS.F1.02.00
 Page 8 of 17 | Final Preboards

ADVANCED FINANCIAL ACCOUNTING AND REPORTING (AFAR)

MAY 2025 BATCH

A. ₱405,000
B. ₱225,000
C. ₱216,000
D. ₱210,000

30. Which of the following reconciling transactions will require a credit to the
________
home office account in Branch Apollo's books?
___
remember, interbranch
A. Credit memo received by Branch Apollo from the home office transactions flow through
B. Collection by Branch Apollo of Branch Alice's accounts receivable the Home Office Account
C. Reshipment of goods received by Branch Apollo to Branch Alice
D. Payment of Branch Apollo of home office's accounts payable

31. ____ ____________

On December 31, 20x1, the unadjusted balance of Investment in Bamban branch
________
account is ₱165,920 in the home office’s book. The following data were found in
your examination of the books of the Home office and its Bamban branch.
a) Transfer of fixed assets from Home Office amounting to ₱53,960 was not booked by
Bamban Branch.
b) ₱10,000 covering marketing expense of Davao branch was charged by Home Office to
Bamban branch.
c) Bamban branch recorded a debit note on inventory transfers from Home Office of
₱75,000 twice.

w
d) Home Office recorded cash transfer of ₱65,700 from Bamban branch as coming from
Indonesia branch.

ie
e) Bamban branch reversed a previous debit memo from Bolinao branch amounting to
₱10,500. Home Office decided that this charge is appropriately for Indonesia
branch.
ev
f) Bamban branch recorded a debit memo from Home Office of ₱4,650 as ₱4,560.
________ ________________
How much is the unadjusted balance of the Home Office account in Bamban branch’s
R

books as of December 31, 20x1? Just think of it like Bank Recon.

A. ₱92,336 Home office = Entity
B. ₱111,170 Branch = Bank
therefore, CM and DM coming from branch, behaves similarly to that of the CM and DM
PA

C. ₱98,230 of a bank recon.

D. ₱100,670 then the CM and DM of the Home Office works the other way around

32. REO Cares Company operates retail hobby shops from the main store and a branch
C

store. Merchandise is shipped from the main store and to the branch and billed to
________
the branch at an arbitrary 10% markup on cost. Trial balances of the main store and
branch as of December 31, 20x1 are as follows:
EO

Main Branch
Store
POV of Branch:
Debits: (@110%)
Cash ₱ 1,500 ₱ 1,000
R

Cost Branch AOI O/S

Accounts receivable – net 200 - BI 2,000 2,200 200 300
Inventory, December 31, 20x0 3,500 2,500 Ship. 90,000 99,000 9,000 11,000
GAS 92,000 101,200 9,200 11,300
Building – net 60,000 18,000 EI 1,500 1,650 150 150
Equipment – net 30,000 12,000 CGS 90,500 99,050 9,050 11,150
Branch store 32,300 -
Purchases 240,000 11,000 POV of HO
Beg Inv: 3,500
Shipments from home office - 99,000
+ Purch 240,000
Other expenses 15,000 7,000 -STB 90,000
Total debits ₱ 382,500 ₱ 150,500 - EI 3,000
CGS 150,500
Credits:
Accounts payable ₱ 15,000 ₱ 500
Unrealized inventory profit 9,200 -
Main Store - 30,000
Capital stock 50,000 -
Retained earnings 16,000 -
Sales 200,000 120,000
Shipments to branch 90,000 -
Profit from branch 2,300
Total credits ₱ 382,500 ₱ 150,500
Inventories on hand at December 31, 20x1 at the main store and branch are ₱3,000
and ₱1,800, respectively. The December 31, 20x0 branch inventory includes

REO.CPA.ACADEMICS.F1.02.00
 Page 9 of 17 | Final Preboards

ADVANCED FINANCIAL ACCOUNTING AND REPORTING (AFAR)

MAY 2025 BATCH

merchandise purchased from outsiders of ₱300, and the December 31, 20x1 branch
inventory includes ₱150 of merchandise purchased from outsiders. The combined cost
of goods sold amounted to:
A. ₱261,200
B. ₱243,150
C. ₱252,200
D. ₱252,150

33. _____ _____

Makatea has a 15% holding in the shares of Malanday Co. In addition, one of
Makatea’s subsidiaries, Widwings Inc., which is 60% owned, has a holding of 55% of
the shares in Malanday Co. Makatea’s effective share of Malanday Co. is, therefore,
___________
48% (15% + (60% of 55%)). How should this investment be classified by Makatea?
A. A subsidiary
B. An associate
C. A jointly controlled company
D. None of these categories

34. __________
On January 1, 20x1 Motivational acquired the net assets of License by issuing
_______________
common stocks with fair value of ₱150,000 and par value of ₱100,000. Aside from
that. Motivational is required to pay ₱132,000 cash to the owners of License on
December 31, 20x1. The applicable effective interest rate of this contingent

w
consideration is 10%. On January 1, 20x1, the net assets of License is reported at
a book value of ₱250,000. On the acquisition date, all assets and liabilities of

ie
License are property valued except for the inventory that is undervalued by ₱20,000
and the note payable that is overvalued by ₱30,000. As a result of acquisition,
Motivational incurred and paid the following costs: (1) acquisition related cost of
ev
₱20,000; (2) indirect cost of acquisition of ₱10,000; and (3) stock issuance costs
of ₱30,000. What is the goodwill or gain on bargain purchase arising from business
R

combination to be recognized by Motivational on January 1, 20x1?

A. ₱30,000 gain on bargain purchase CT: Stocks 150,000
B. ₱20,000 goodwill ELCC@PV 120,000 (132,000 / 1.10)
PA

C. ₱18,000 gain on bargain purchase TOTAL 270,000

Less: FVINA 300,000 (250,000 + UVA 20,000 + OVL 30,000)
D. ₱10,000 gain on bargain purchase Goodwill 30,000

The next two questions are based on the following information:

C

On January 1, 20x1, Fish Company exchanges 15,000 shares of its common stock, for
all of the assets and liabilities of OTG Inc. Each of Fish's shares has a ₱4 par
value and a ₱50 fair value. The fair value of the stock exchanged in the
EO

acquisition was considered equal to OTG's fair value. Fish also paid ₱25,000 in
stock registration and issuance costs in connection with the merger.

Several of OTG's accounts have fair values that differ from their values on this
R

date:

Book Fair Consideration Transferred:

Values Values Common Stock @FV
(15,000 x 50) 750,000
Receivables ₱ 65,000 ₱ 63,000
Less: FVINA* (723,000)
Trademarks 95,000 225,000 Goodwill 27,000
Record music catalog 60,000 180,000
In-process research and development 0 200,000
Notes payable 50,000 45,000

Pre-combination January 1, 20x1, book values for the two companies are as follows:
*FV of Assets
FISH OTG Cash 29,000
Cash ₱ 60,000 ₱ 29,000 Receivable 63,000
Receivables 150,000 65,000 Trademarks 225,000
Trademarks 400,000 95,000 Record Cat. 180,000
In-Proc. R&D 200,000
Record, music catalog 840,000 60,000 Equipment 105,000
Equipment (net) 320,000 105,000 Total = 802,000
Totals ₱1,770,000 ₱ 354,000 Less: FV of Liab
Acc. Payable 34,000
Notes Payable 45,000
Accounts payable ₱ 110,000 ₱ 34,000
=FVINA = 723,000
Notes payable 370,000 50,000
Common stock 400,000 50,000
REO.CPA.ACADEMICS.F1.02.00
 Page 10 of 17 | Final Preboards

ADVANCED FINANCIAL ACCOUNTING AND REPORTING (AFAR)

MAY 2025 BATCH

Additional paid-in capital 30,000 30,000

Retained earnings 860,000 190,000
Totals ₱1,770,000 ₱ 354,000

Assume that this combination is a statutory merger so that OTG's accounts will be
transferred to the records of FISH. OTG will be dissolved and will no longer exist
as a legal entity. Immediately after the business combination using the acquisition
method, determine:
Assets (5)
1. 1,770,000
35. The total assets amounted to: 1. Acquirer @BV
2. 802,000
A. ₱2,599,000 2. Acquiree @FV
3.
B. ₱2,574,000 3. (Cash & NCA CT)
4. (25,000)
4. (ARC Paid)
C. ₱2,547,000 5. Goodwill
5. 27,000
D. ₱2,124,000 = 2,574,000

36. The common stock amounted to: CS (2)

A. ₱460,000 1. Acquirer @BV 1. 400,000
B. ₱450,000 2. CT @Par 2. 60,000 (15,000 x 4)
= 460,000
C. ₱400,000
D. ₱50,000

________ _________

w
37. If the initial accounting for a business combination is incomplete by the end of
the reporting period in which the combination occurs, the acquirer shall report in
________
ie
its financial statements provisional amounts for the items for which the accounting
is incomplete. What is the maximum term or period of the measurement period?
ev
A. 6 months from the acquisition date
B. One year or 12 months from the acquisition date
C. 3 months from the acquisition date
R

D. One year or 12 months from the reporting date

reverse acquisition
38. Parasitic, a private limited company, has arranged for Symbiotic, a public
PA

__________
limited company, to acquire it as a means of obtaining a stock exchange listing.
Symbiotic issues 15 million shares to acquire the whole of the share capital of
Parasitic (6 million shares). The fair value of the net assets of Parasitic and
Symbiotic are ₱30 million and ₱18 million respectively. The fair value of each of
C

the shares of Parasitic is ₱6 and the quoted market price of Symbiotic’ shares is
₱2. The share capital of Symbiotic is 25 million shares after the acquisition.
Calculate the value of goodwill in the above acquisition.
EO

A. ₱16 million.
B. ₱12 million.
C. ₱10 million.
D. ₱6 million.
R

39.
_______
In the separate financial statements, which of the following methods considers
impairment loss (recovery) in determining the carrying value of the investment?
________
I. Cost method
II. Equity method
III. Fair value method

A. I and II only
B. II only
C. I, II and III
D. II and III only
Transaction costs

______
Use the following data to answer the next two questions:
On January 1, 20x1, Pangasinan Co. acquired 90% of outstanding ordinary shares of
_____ ___
Siquijor Co. at a price of ₱2,160,000. Pangasinan Co. paid ₱48,000 costs related to
acquisition of shares. At the acquisition date, the net assets of Siquijor Co. were
_____ __________
reported at ₱2,280,000. All the assets of Siquijor Co. are properly valued except
for a machinery which is undervalued by ₱360,000. The machinery has a remaining
___
useful life of 5 years.

_________________
For the year ended December 31, 20x1, Siquijor Co. reported net income of ₱480,000
and declared dividends of ₱72,000. The fair value of Investment in Siquijor Co. on

REO.CPA.ACADEMICS.F1.02.00
 Page 11 of 17 | Final Preboards

ADVANCED FINANCIAL ACCOUNTING AND REPORTING (AFAR)

MAY 2025 BATCH

ignore lang cost to sell

_____ ____________
December 31, 20x1 is ₱2,400,000 while the cost of disposal is 5% of fair value.
Pangasinan Co. voluntarily prepared its separate financial statements.

40. ________
What amount should be reported as investment income for 20x1 if Pangasinan Co.
_____
elected the cost method to account its Investment in Siquijor Co. in its separate
financial statements? Dividend Income
A. ₱432,000
B. ₱256,800
C. ₱64,800 72,000 x 90%
D. ₱16,800

41. ________
What amount should be reported as investment income for 20x1 if Pangasinan Co.
_______
elected the fair value model to account its Investment in Siquijor Co. in its
separate financial statements? Dividend Income +/- Unrealized Gain/Loss (consider also if maybe it could be net of
A. ₱432,000 Div, Inc 64,800 transaction costs)
B. ₱256,800 + UG 240,000
C. ₱64,800 - TC (48,000)
D. ₱16,800 Inv Inc 256,000

42. _______
What amount should be reported as investment income for 20x1 if Pangasinan Co.
_____
elected the equity model to account its Investment in Siquijor Co. in its separate

w
financial statements? Share in Net Income + GBP if any + Share in OCI
A. ₱535,200
B. ₱432,000 SINI 367,200
C. ₱367,200 +GBP 168,000
D. ₱256,800 total 535,200
Cost + TC = 2,208,000
- FIVNA @90% = 2,376,000
ie
Net Income 480,000
- Amort. UVA (72,000)
ev
Gain from BP = (168,000) x 90% = 367,200

_
Use the following data to answer the next two questions:
R

Professional Corporation purchased 80% of the outstanding voting stock of

_____
Skepticism Corporation for ₱2,500,000 on January 1, 20x1. The non-controlling
_______________
interest is measured at fair value. Skepticism’s stockholders’ equity on this date
______
PA

consisted of the following:

Capital stock - ₱10 par ₱ 1,000,000

Additional paid-in capital 600,000
C

Retained earnings December 31, 20x0 400,000

Total stockholders’ equity ₱ 2,000,000

___
EO

The excess of the consideration transferred and NCI over the net assets of

______ ________________
Skepticism Corp. was allocated 20% to undervalued inventory (sold in 20x1), 30% to
a depreciable plant asset with a remaining use life of ten years, and 50% to
___
___
________
unidentifiable asset.
R

Selected items in the trial balances of Professional Corp. and Skepticism Corp. on
Dec. 31, 20x1 are as follows:

Profession Skepticism CT 2,500,000

NCI 625,000 (2,500,000 / 80% x 20%)
al Corp. Corp. Total 3,125,000
Investment in Skepticism ₱ 2,500,000 FVINA 2,000,000
Other assets - net 3,850,000 ₱ 2,600,000 Excess 1,125,000
Capital stock, ₱10 par 3,000,000 1,000,000
Additional paid-in capital 850,000 600,000 1,125,000 x 50% = 562,500 attributable to
goodwill
Retained earnings, beg 2,000,000 800,000
Dividends paid 500,000 200,000
Sales 4,000,000 1,000,000
Cost of sales 2,150,000 400,000
Expenses 1,000,000 200,000
Dividend income 160,000

43.
of
____ _________
The amount of goodwill in the consolidated statement of financial position of as
Dec. 31, 20x1 should be
A. ₱250,000
B. ₱562,500
C. ₱450,000
D. ₱200,000
REO.CPA.ACADEMICS.F1.02.00
 Page 12 of 17 | Final Preboards

ADVANCED FINANCIAL ACCOUNTING AND REPORTING (AFAR)

MAY 2025 BATCH

44. _______ __________

The retained earnings in the consolidated statement of financial position on
December 31, 20x1 should be reported at
A. ₱3,330,000
B. ₱2,463,000
C. ₱2,623,000
D. ₱2,963,000

45. ____________
Intercompany gain on sale on plant assets that are realized through depreciation
are adjusted to
I. Combined gain reported by the parent and subsidiary(ies)
II. Depreciation expense

A. The first statement is true and the second statement is false.

B. The first statement is false and the second statement is true.
C. Both statements are true
D. Both statements are false

46. ____ _____

The entry to eliminate dividend from the consolidated subsidiary assuming the
_____
parent uses the equity method in its separate FS will include a debit to
A. Dividend income
B. Retained earnings of Parent

w
C. Retained earnings of Subsidiary
D. Investment in Subsidiary

47.
ie
On 1/3/20x1, Sayet (an 80%-owned subsidiary of Payet) sold equipment costing
₱100,000 to Payet for ₱45,000. At the time of the sale, the equipment had a book
ev
value of ₱20,000 (having been depreciated using the straight-line method, an
original life of 10 years, and no estimated salvage value). Payet continued
R

depreciating the equipment by using the straight-line method but assigned a

remaining life of 5 years.

______________
PA

What are the cost and accumulated depreciation, respectively, of this equipment in
the 12/31/20x2 consolidated statement of financial position?
A. ₱100,000 and ₱88,000.
B. ₱100,000 and ₱20,000.
C

C. ₱100,000 and ₱18,000.

D. None of the choices
EO

48. Madali Hedging, Inc. placed an order for inventory costing 500,000 foreign
currency (FC) with a foreign vendor on April 15 when the spot rate was 1 FC
=₱0.683. Madali Hedging received the goods on May 1 when the spot rate was 1
FC=₱0.687. Also on May 1, Madali Hedging entered into a 90-day forward contract to
R

purchase 500,000 FC at a forward rate of 1 FC=₱0.693. Payment was made to the

foreign vendor on August 1, when the spot rate was 1 FC=₱0.696. Madali Hedging has
a June 30 year-end. On that date, the spot rate was 1 FC=₱0.691, and the forward
rate on the contract was 1 FC=₱0.695. Changes in the current value of the forward
contract are measured as the present value of the changes in the forward rates over
time. The relevant discount rate is 6%.

In relation to the information presented above, evaluate the following statements:

Statement No. 1: The fair value of the hedging instrument (forward contract) on
June 30 is ₱1,000 asset.
Statement No. 2: The net income effect on June 30 amounted to is ₱1,005 positive.
Statement No. 3: If the indirect rates increase, the company will report a gain in
its exposed liability.
Statement No. 4: The journal entry to record the transactions on August 1 will
include a debit to cash in foreign currency of ₱348,000.

A. Only one statement is correct.

B. Only two statements are correct. - statement 3 & 4
C. Only three statements are correct.
D. All of the statements are correct.

REO.CPA.ACADEMICS.F1.02.00
 Page 13 of 17 | Final Preboards

ADVANCED FINANCIAL ACCOUNTING AND REPORTING (AFAR)

MAY 2025 BATCH

49. ________ ________

Which of the following is not a qualification for hedge accounting?
A. The hedging relationship consists only of eligible hedging instruments and
eligible hedged items.
B. At the inception of the hedging relationship there is formal designation and
documentation of the hedging relationship and the entity’s risk management
objective and strategy for undertaking the hedge.
C. The hedging relationship meets all the hedge effectiveness requirements.
D. The hedging relationship consists only of derivative instruments as the hedging
instruments and eligible hedged items.
50. On November 1, 20x1, an entity anticipated the purchase of equipment on January
___________
31, 20x2 at a price of $30,000. In order to hedge this highly probable forecasted
importation, the entity entered into a forward contract with a bank to purchase
$30,000. The entity is operating in Philippine economy where the functional
currency is Philippine peso. The relevant direct exchange rates are:
November 1, December January 31,
20x1 31, 20x1 20x2
Spot rate ₱55 ₱54 ₱53
90-day forward rate 52 51 53
60-day forward rate 56 55 50
30-day forward rate 58 54 50

w
What amount of unrealized holding gain or loss should be recognized as component of
other comprehensive income for the year ended December 31, 20x1?
A. ₱60,000 gain
B. ₱60,000 loss
(52 - 54) x 30,000
ie
ev
C. ₱90,000 loss
D. ₱90,000 gain
51.
_______
The following “equity” relates to Didaskaleinophobia Co., an entity operating in
R

a hyperinflationary economy (in millions):

Before PAS 29 After restatement
PA

Share capital ₱100 ₱170

Revaluation reserve 20 ?
Retained earnings 30 ?
₱150 ₱270
C

What would be the balances on the revaluation reserve and retained earnings after
the restatement for PAS 29?
A. Revaluation reserve ₱0, retained earnings ₱100.
EO

B. Revaluation reserve ₱100, retained earnings ₱0.

C. Revaluation reserve ₱20, retained earnings ₱80.
D. Revaluation reserve ₱70, retained earnings ₱30.
52. Certain balance sheet accounts of a foreign subsidiary of Excusitis Company at
R

December 31, 20x1, have been restated into pesos as follows:

Restated at
Current Historical
Rates Rates
Cash ₱ 47,500 ₱ 45,000
Accounts receivable 95,000 90,000
Inventory, at NRV 76,000 72,000
Land 57,000 54,000
Equipment (net) 142,500 135,000
Total ₱ 418,000 ₱ 396,000 to the functional = temporal method

____ __________
1) Assuming the functional currency of the subsidiary is the peso; what total
should be included in Excusitis consolidated balance sheet at December 31, 20x1,
for the above items?
_____ ______________
from the functional = closing rate method
2) Assuming the functional currency of the subsidiary is its local currency, what
total should be included in Excusitis’s consolidated balance sheet on December
31, 20x1, for the above items?
A. (1) ₱407,500; (2) ₱418,000 temporal method: monetary = current rate
B. (1) ₱418,000; (2) ₱407,500 nonmonetary = historical
xpt. inventory @NRV, bc as if in it's FV already
C. (1) ₱407,500; (2) ₱407,500
D. (1) ₱403,500; (2) ₱418,000

REO.CPA.ACADEMICS.F1.02.00
 Page 14 of 17 | Final Preboards

ADVANCED FINANCIAL ACCOUNTING AND REPORTING (AFAR)

MAY 2025 BATCH

53. ________
REO US is a subsidiary of REO Philippines. The functional currency of REO US is
__
US$ while its presentation currency is the Philippine Peso. The following items are
translated at
Transaction Closing rate
rate
Accounts receivable ₱ 4M ₱ 6M
Inventory 10M 8M
Sales 20M 30M
Assuming the economy of US is not experiencing hyperinflation, the following items
shall be presented in the consolidated financial statements of REO Philippines at
Accounts Inventory Sales
receivable
A. ₱6M ₱8M ₱30M
B. ₱6M ₱8M ₱20M
C. ₱6M ₱10M ₱20M
D. ₱4M ₱10M ₱20M
54. _________
On January 1, 20x1 You’re Road Co. purchased a tract of vacant land that is
situated overseas for FCU90,000. The entity classified the land as an investment
____ _____
property. The fair value of the land on December 31, 20x1 is FCU100,000. The
entity’s functional currency is the Philippine peso (₱). Spot currency exchange
rates: If fair value is given, then it is a non-monetary asset @ FV, use clossing rate

w
• January 1, 20x1: FCU1 = ₱2
• Weighted average exchange rate in 20x1: FCU1 = ₱2.04
• December 31, 20x1: FCU1 = ₱2.1.
ie
What is the carrying amount of the investment property on December 31, 20x1 and
ev
what amount/s would be presented in profit or loss for the year ended December 31,
20x1?
A. Carrying amount of investment property = ₱210,000. Profit for the year includes
R

₱30,000 increase in the fair value of investment property.

B. Carrying amount of investment property = ₱210,000. Profit for the year includes
PA

₱20,400 increase in the fair value of investment property and ₱9,600 foreign
exchange gain.
C. Carrying amount of investment property = ₱180,000. Profit for the year includes
no amount in respect of the investment property.
C

D. Carrying amount of investment property = ₱189,000. Profit for the year includes
₱9,000 foreign exchange gain.
__________
EO

55. On January 1, 20x1, Red Cross Inc., a non-profit organization, received ₱10M

_____ ___
cash donation from Mr. MMM who stipulated that the amount should be invested
indefinitely in revenue producing investment. The deed of donation also provides
restricted that the dividend income shall be used for the acquisition of computers of the NPO.
______________
R

On December 31, 20x1, Red Cross Inc. received ₱200,000 cash as dividend income from
the investment of the fund. On January 1, 20x2, Red Cross Inc. acquired a personal
___
computer at a cost of ₱50,000 with useful life of 5 years without residual value.
Evaluate the following statements: released from restriction restricted
Statement No. 1: There shall be decrease in restricted net asset by ₱50,000 and
increase in unrestricted net asset by ₱40,000 in 20x2.
Statement No. 2: The ₱200,000 cash received from dividend income will be reported
as part of financing activities in the statement of cash flows.
A. Only the first statement is true.
B. Only the second statement is true.
C. Both statements are true.
D. Both statements are false.
56. Ellen’s Hospital, a Not for Profit hospital affiliated with a religious group,
reported the following information for the year ended December 31:
Gross patient service revenue net of charity care already ₱2,400,000 2,400,000
Bad debts expense 50,000 - 200,000
- 90,000
Contractual adjustments with third party payors 200,000
= 2,110,000
Charity care 150,000
Allowance for discounts to hospital employees 90,000

Net patient service revenues for Ellen hospital for the year ended December 31 is
A. ₱2,250,000
REO.CPA.ACADEMICS.F1.02.00
 Page 15 of 17 | Final Preboards

ADVANCED FINANCIAL ACCOUNTING AND REPORTING (AFAR)

MAY 2025 BATCH

B. ₱2,110,000
C. ₱1,960,000
D. ₱1,910,000

57. Evaluate the following statements:

Statement No. 1: Under GAM, supplies and materials purchased for inventory purposes
are accounted using the weighted average method only.
Statement No. 2: The second major cycle in the government budget process is budget
authorization.aka, legislation
Statement No. 3: The basis of accounting used by government agencies are modified
accrual basis.
___
Statement No. 4: The receipt of General Appropriation Act (GAA) will be recorded by
posting to RAPAL.

A. Only one statement is correct.

B. Only two statements are correct.
C. Only three statements are correct. statement 1, 2, & 4
D. All of the statements are correct.

58. Agency XX issued a purchase order for the acquisition of office equipment
costing ₱300,000. The equipment was received with the charge invoice and was paid

w
________
by check after withholding tax of 10%. What is the entry of Agency XX to record the
constructive receipt of NCA for the tax withheld?
A. Due to BIR
SING
B. Due to BIR
30,000

30,000
30,000
ie
ev
Cash-TRA 30,000
C. Cash-TRA 30,000
R

SING 30,000
D. Accounts Payable 300,000
Due to BIR 30,000
PA

Cash – MDS 270,000

59. The loan department of a financial corporation makes loans to businesses. The
costs of processing these loans are often several thousand pesos. The costs for
__________
C

_____
each loan, which include labor, telephone, and travel, are significantly different
across loans. Some loans require the use of outside services such as appraisals,
legal services, and consulting services, whereas other loans do not require these
EO

services. The most appropriate cost accumulation method for the loan department of
the corporation is
A. Job-order costing.
B. Process costing.
R

C. Differential costing.
D. Joint product costing.

60. The following information was taken from Crimson Company’s accounting records
for the year ended December 31, 20x1:

_____________
Increase in materials inventory ₱ 15,000
Decrease in finished goods inventory 35,000
Raw materials purchased 430,000
Direct-labor payroll 200,000
Factory overhead 300,000
Freight-out 45,000

________
There was no work-in-process inventory at the beginning or end of the year. The
cost of goods sold is:
A. ₱950,000
B. ₱965,000
C. ₱975,000
D. ₱995,000

61. __________ ______

Assuming the value of scrap sales is material, when is it not necessary to
record the value of scrap in inventory as it is produced?
A. When it is sold regularly, e.g., daily, weekly, etc.

REO.CPA.ACADEMICS.F1.02.00
 Page 16 of 17 | Final Preboards

ADVANCED FINANCIAL ACCOUNTING AND REPORTING (AFAR)

MAY 2025 BATCH

B. When the unit value fluctuates.

C. If it is recognized as miscellaneous revenue.
D. When it is kept in a separate place for indefinite periods of time.

62. _______ _______

If the normal spoilage is detected at an inspection point within the process,
the cost of that spoilage should be?
A. Allocated to ending work in process and units transferred out based on their
relative values
B. Included with the cost of the units completed in that department during the
period
C. Included with the cost of the units sold during the period
D. Allocated to the good units that have passed the inspection point

63. Materials are added at the start of the process in Mateo Company’s blending
department, the first stage of the production cycle. The following information is
available for July.

Units
Work in process, July 1 (60% complete as to 60,000
conversion costs)
Started in July 150,000

w
Transferred to the next department 110,000
Lost in production 30,000
Work in process, July 31 (50%
conversion costs)
complete

ie
(as to 70,000
ev
Under Mateo’s cost accounting system, the costs incurred on the lost units are
absorbed by the remaining goods units. What are the equivalent units for the
R

materials unit cost calculation?

FIFO AVERAGE
A. 180,000 120,000
PA

B. 120,000 180,000
C. 180,000 210,000
D. 140,000 210,000
64. _____
What cost accounting system is ideal for just in time production system?
C

A. Actual costing system

B. Normal costing system
EO

C. Standard costing system

D. Flexible costing system
65. Land Cruiser makes two products Z and X. They are initially processed from the
same materials and then after split-off, further processed separately. Additional
R

information is as follows:
Z X Total
Final sales value ₱ 45,000 ₱ 35,000 ₱ 80,000
Sales value at split-off 32,000 28,000 60,000
Cost beyond split-off 5,000 6,000 11,000
Joint cost prior to split-off 18,000
Using the Approximated Net Realizable Value approach, how much is the joint cost
assigned to Z and X?
A. ₱9,918 and ₱8,082
B. ₱10,435 and ₱7,565
C. ₱9,600 and ₱8,400
D. ₱7,500 and ₱7,500
66. The Photocopying Department provides photocopy services for both Departments A
and B and has prepared its total budget using the following information for next
year:
Fixed costs ₱ 100,000
Available capacity 4,000,000pages
Budgeted usage
Department A 1,200,000pages
Department B 2,400,000pages
Variable cost ₱ 0.03per page

REO.CPA.ACADEMICS.F1.02.00
 Page 17 of 17 | Final Preboards

ADVANCED FINANCIAL ACCOUNTING AND REPORTING (AFAR)

MAY 2025 BATCH

Assume that the dual rate cost allocation method is used, and the allocation basis
is budgeted usage for fixed costs and actual usage for variable costs. How much
cost would be allocated to Department A during the year if actual usage for
Department A is 1,400,000 pages and actual usage for Department B is 2,100,000
pages?
A. ₱42,000
B. ₱72,000
C. ₱75,333
D. ₱82,000
67. In contrast to a company that uses a single overhead rate, one that uses
activity-based costing
A. Will have higher product costs than one using a single overhead rate.
B. Cannot compute budget variances.
C. Will incur additional costs for recordkeeping. more detailed, but more costly as well
D. Must have a preponderance of fixed overhead costs.
68. Earl Corporation manufactures a product that gives rise to a by-product X. The
only costs associated with by-product X is selling costs of ₱1 for each unit sold.
Earl accounts for product X sales first by deducting its separable cost from such
sales, and then by deducting this net amount from cost of sales of the major
product. This year, 1,000 units by-product X were sold at ₱4 each.

w
If Earl changes its method of accounting for product X sales by showing the net
amount as additional revenue, Earl’s net income would
A. Be unaffected
B. Decrease by ₱3,000 ie
ev
C. Increase by ₱3,000
D. Increase by ₱4,000
69. Under PFRS 17, when can the simplified Premium Allocation Approach (PAA) model
R

be used?
A. Only for general insurance
________
PA

B. Any contract if result is expected to be materially similar to General

Measurement Model (GMM) or indifferent
C. Only for contracts less than 1 year
D. For any contract regardless only rights are acquired, intangible asset
_____
C

70. To the extent that is receives a right (a license) to charge users of the public
service. A right to charge of the public service is not an unconditional right to
EO

receive cash because the amounts are contingent on the extent that the public uses
the service. The operator recognizes it is
A. A financial asset
B. An intangible asset
C. Property, plant and equipment
R

D. Leasehold rights
Humble yourselves, therefore, under the mighty hand of God so that at the proper time
he may exalt you, casting all your anxieties on him, because he cares for you. (1
Peter 5:6-7)

☺ -- END OF FINAL PREBOARD -- ☺

REO.CPA.ACADEMICS.F1.02.00
#1 Equipment that was expensed 300,000 #18 20x0 20x1
Depreciation of equipment -75,000 Net Income at BV 170,000 210,000
Omitted Supplies 50,000 Less: UV of Patent* 50,000 50,000
Net Adjustment to income 275,000 FV of Net Income 120,000 160,000
Multiply by: share x 40% x % share 20% 20%
Adjustment to capital 110,000 Share in Net Income 24,000 32,000
*100,000 / 20% = 500,000 / 10 yrs
#2 BING (50) CONY (30) WINNIE (20) TOTAL
TITE 340,000 360,000 160,000 860,000 Beginning Balance 700,000 710,000
Less: Total loss & add: Investment Income 24,000 32,000
Expenses -370,000 -222,000 -148,000 -740,000 less: Share in dividends 14,000 14,000
CAFD -30,000 138,000 12,000 120,000 Carrying value, end 710,000 728,000
Absorption (30;20) 30,000 -18,000 -12,000
CAFD 0 120,000 0 120,000 #20 SASP TP Recognized Revenue
Training 10 employees 200,000 160,000 160,000 x 7/10 112,000
#4 A B C TOTAL Construction of building 800,000 640,000 640,000 x 90% 576,000
Interest 7,000 14,000 21,000 42,000 Delivery 1,000 units of RM 600,000 480,000 480,000 x 6/10 288,000
Salaries 20,000 10,000 0 30,000 Access to Franchise 400,000 320,000 320,000 / 10 yrs 32,000
Balance (equally) 3,000 3,000 3,000 9,000 2,000,000 1,600,000 CFF (200,000 x 5%) 10,000
SINI 30,000 27,000 24,000 81,000 1,018,000

#5 Firouzja Grischuk Total #31 IIB-Bamban HO

Beginning Capital 3,000,000 1,500,000 4,500,000 Unadjusted 165,920 111,170 squeezed
Add: SINI 1,354,500 1,645,500 3,000,000 a. Unrecorded Fixed Asset 53,960
Add: Addtl invest. 2,100,000 300,000 2,400,000 b. Erroneous charge of exp. -10,000
Less: Withdrawal 600,000 600,000 1,200,000 c. Double record of DM -75,000
Ending Capital 5,854,500 2,845,500 8,700,000 d. Erroneous debit -65,700
e. No adjustment
f. Erroneous record of DM 90
Adjusted Reciprocal Accs. 90,220 90,220
#44 CNI-Parent CNI-NCI CNI
NI of Parent 850,000
NI of Subs. 320,000 80,000 400,000
Amortization of:
Depreciable Asset -27,000 -6,750 -33,750
Inventory -180,000 -45,000 -225,000
Conso. Net Income 963,000 28,250 991,250

Consolidated RE:
Beg. 2,000,000
add: CNI-Parent 963,000
less: Dividend dec. 500,000
RE, end 2,463,000