THEORIES

1. Which of the following is not within the criteria required in ‘Step 1: Identify the contract with the customer’ of PFRS 15?
a. The contract is approved by the contracting parties, either in writing, orally or implied in customary business
practices.
b. The rights of each of the contracting parties and the payment terms are identifiable.
c. The contract has commercial substance.
d. There is a significant uncertainty in the collectability of the consideration in the contract.

2. Which of the following correctly relates to ‘Step 2’ in the recognition or revenue under PFRS 15?
a. The entity shall assess the customer’s ability and intention to pay the consideration in the contract when they
become due.
b. The entity shall determine the transaction price and shall consider whether the transaction price includes,
among other things, a variable consideration or significant financing.
c. The entity shall treat each promise to transfer a distinct good or service as a performance obligation.
d. The entity shall recognize revenue when (or as) a performance obligation is satisfied.

3. According to PFRS 15, A good or service is distinct if

a. the entity regularly sells the good or service separately
b. the customer can benefit from it, either on its own or together with other resources that are readily available
to the customer
c. the good or service is separately identifiable
d. a and b

4. In the liquidation of a partnership it is necessary to (1.) distribute cash to the partners; (2.)sell noncash assets; (3.) allocate any
gain or loss on realization to the partners; (4.) pay liabilities. These steps should be performed in the following order:
a. (2), (3), (4), (1)
b. (2), (3), (1), (4)
c. (3), (2), (1), (4)
d. (3), (2), (4), (1)

5. An enterprise uses a branch accounting system in which it establishes separate formal accounting systems for its home office
operations and its branch office operations. Which of the following statements about this arrangement is false?
a. The home office account on the books of a branch office represents the equity interest of the home office in the net assets of
the branch.
b. The branch office account on the books of the home office represents the equity interest of the branch office in the net assets
of the home office.
c. The home office and branch office accounts are reciprocal accounts that must be eliminated in the preparation of the
enterprise’s financial statements that are presented in accordance with GAAP.
c. The normal balance of home office account on the books of a branch was credit balance.

6. In a liquidation proceeding, if the proceeds on the realization of an asset exceed the lien against that asset, the excess is
assigned to
a. The holder of the lien
b. Other lien holders whose asset will not realize a sufficient amount to cover their liens
c. The shareholders of the corporation
d. Meet the claims the unsecured creditors

7. Saskia Co.’s construction projects extend over several years, and collection of receivables is reasonably certain. Each project
has a firm contract price, reliable estimated of the extent of progress and cost to finish, and a contract that is specific as to the
rights and obligations of all parties. The contractor and the buyer are expected to fulfill their contractual obligations on each
project. The method that the company should use to account for construction revenue is
a. Installment sales. c. Completed-contract.
b. Percentage-of-completion method. d. Point-of-sale.
8. Dilla Construction Company's projects extend over several years and collection of receivables is reasonably certain.
Each project has a contract that specifies a price and the rights and obligations of all parties. Both the contractor and the
customer are expected to fulfill their contractual obligations on each project. Reliable estimates can be made of the extent of
progress and cost to complete each project. The method that the company should use to account for construction revenue is
a. installment sales. c. completed-contract.
b. percentage-of-completion. d. cost recovery.

9. Cerette, Inc. charges an initial franchise fee of P90,000 broken down as follows:
Rights to trade name, market area, and proprietary know-how P40,000
Training services 11,500
Equipment (cost of P10,800) 38,500
Total initial franchise fee P90,000
Upon signing of the agreement, a payment of P40,000 is due. Thereafter, two annual payments of P25,000 are required. The
credit rating of the franchisee is such that it would have to pay interest of 8% to borrow money. The franchise agreement is
signed on August 1, 20X7, and the franchise commences operation on November 1, 20X7. Assuming that no future services are
required by the franchisor once the franchise begins operations, the entry on November 1, 20X7 would include
a. A credit to unearned franchise revenue for P40,000
b. A debit to service revenue for P11,500
c. A debit to sales revenue for P38,500
d. A debit to unearned franchise revenue for P40,000

10. Cerette, Inc. charges an initial franchise fee of P90,000 broken down as follows:
Rights to trade name, market area, and proprietary know-how P40,000
Training services 11,500
Equipment (cost of P10,800) 38,500
Total initial franchise fee P90,000
Upon signing of the agreement, a payment of P40,000 is due. Thereafter, two annual payments of P30,000 are required. The
credit rating of the franchisee is such that it would have to pay interest of 8% to borrow money. The franchise agreement is
signed on August 1, 20X8, and the franchise commences operation on November 1, 20X8. Assume that the total training fees
includes training services for the period leading up to the franchise opening (P5,500 value) and for 3 months following opening.
The journal entry on August 1, 20X8 would include
a. A credit to unearned service revenue for P11,500
b. A credit to unearned service revenue for P6,000
c. A debit to sales revenue for P38,500
d. A debit to unearned franchise revenue for P40,000

11. Which one of the following situations will involve a decrease in the original partners’ capital accounts?
A. Sale of assets at a loss during the liquidation process.
B. Withdrawal of a partner at less than book value.
C. Admission of a new partner to the partnership at a price less than book value.
D. Both A and C are correct.

12. Liquidation of a partnership includes all of the following:

I. Distribute cash based on the partners’ capital balances.
II. Sell partnership noncash assets and distribute any gain based on partners profit- or loss-sharing ratio.
III. Pay all partnership liabilities.
The correct order of these steps is:
A. III, II, I
B. II, III, I
C. I, III, II
D. II, I, III

13. Which of the following statements about partnership financial statements is true?
A. The owners’ equity section of a partnership balance sheet is similar to that of a corporation.
B. A partnership’s income statement will contain a capital account for each partner.
C. A partnership’s balance sheet will contain a capital account for each partner.
D. The partnership balance sheet will contain a withdrawal account for each partner.
14. A partnership balance sheet includes:
a) a category for assets contributed by each partner
b) a category for liabilities incurred by each partner
c) an ending capital account balance for each partner
d) an ending drawing account balance for each partner

15. A partnership income statement includes:

a) a listing of all of the partners’ capital account balances
b) a listing of all of the partners’ drawing account balances
c) both a and b are correct
d) a section showing the division of net income to the partners

16. To make certain that each partner fully understands how a particular partnership operates, partners should draw up the:
a) articles of liability
b) articles of partnership
c) articles of incorporation
d) articles of business agreement

17. Advantages of a partnership include all of the following except:

a) ease of formation
b) limited liability
c) combined resources
d) combined experience and talent

18. A limited partnership:

a) must have at least two general partners
b) is illegal in most states
c) must have at least one general partner
d) none of the above

19. All of the following are characteristics of a general partnership except:

a) mutual agency
b) limited liability
c) limited life
d) co-ownership of property

20. The characteristic of partnerships that states that every partner can bind the business to a contract within the scope of
the partnership’s regular business operations is called:
a) limited life
b) mutual agency
c) unlimited liability
d) co-ownership of property
PROBLEMS

Questions 1 and 2 are based on the following:

Partners A, B, C, and D have been operating ABCD Partnership for ten years. Due to a significant reduction in the demand for their
product over recent years, the partners have agreed to liquidate the partnership. At the time of liquidation, balance sheet
accounts consisted of cash, P103,500; noncash assets, P300,000; liabilities to outsiders, P60,000; capital credit balances for
partners A, B, and C, P90,000, P150,000, and P120,000, respectively; and a debit capital balance for partner D of P16,500. Partners
share equally in income and loss. It is estimated that the administrative cost of liquidation will total P4,500. While preparing for
liquidation, an unrecorded liability of P7,500 was discovered.

Required:
1. Assuming the available cash of P103,500 was distributed, how much must be the share of partner B?
a. P31,500 b. P30,750 c. P65,167 d. none

2. For how much must the noncash assets be sold for partner D to received at least P5,000?
a. P429,500 b. P501,500 c. P398,000 d. P386,000

Questions 3 and 4 are based on the following:

The Walker, Wilson, and Winston Partnership is being liquidated. All liabilities have been paid. The balance of assets on hand is
being realized gradually. The following are details of partners’ accounts:

Capital Account Drawing Account Loans to P/L

Balances Balances Partnership Ratio
Walker P200,000 P15,000 Cr. P150,000 5
Wilson 250,000 20,000 Dr. - 2
Winston 100,000 30,000 Cr. 50,000 3

Required:
3. If you are to rank the partners from the most vulnerable to the least vulnerable, the ranking will be as follows:
a. Walker, Wilson, and Winston, respectively.
b. Winston, Wilson and Walker, respectively
c. Wilson, Walker, and Winston, respectively.
d. Winston, Walker and Wilson, respectively.

4. If partner Walker receives P150,000, how much partner Wilson receives?

a. P144,000 b. P51,000 c. P86,000 d. PP129,000

5. Max, Jones and Waters shared profits and losses 20%, 40%, and 40% respectively and their partnership capital balance is
P10,000, P30,000 and P50,000 respectively. Max has decided to withdraw from the partnership. An appraisal of the business
and its property estimates the fair value to be P 200,000. Land with a book value of P30,000 has a fair value of P45,000. Max has
agreed to receive P20,000 in exchange for her partnership interest. What amount should land be recorded on the partnership
books?
a. P20,000. b. P30,000. c. P50,000 d. P45,000.

Questions 6 through 8 are based on the following:

A, B and C have capital balances of P112,000, P130,000 and P58,000, respectively, and share profits in the ratio 3:2:1. D invest
cash in the partnership for a one-fourth interest.

6. Assume D receives a one-fourth interest in the assets of the partnership, which includes credit for P25,000 due to asset
revaluation that is recognized upon admission. How much cash D invest?
a. P100,000 b. P75,000 c. P125,000 d. P50,000

7. Assume D receives a one-fourth interest in the assets of the partnership and D is credited with P20,000 of the bonus from the
old partners that is recognized upon D’s admission. How much cash D invest?
a. P73,333 b. P100,000 c. P93,333 d. P80,000

8. Assume D receives a one-fourth interest in the assets of the partnership and B is credited with P15,000 of the bonus from D,
how much cash D invest?
a. P115,000 b. P105,000 c. P160,000 d. P120,000

Questions 9 and 10 are based on the following:

Several years ago Killough and Seago formed Hokie Partnership. The partnership agreement states that each partner is to
receive a salary of P10,000 per month and 5% interest on beginning-of-the-year capital balances; any remainder would be
divided between Killough and Seago in the ratio 2:3, respectively. The unadjusted trial balance of Hokie Partnership as of
December 31, 20x6, appears as follows:
Debits Credits
Cash P 500,000 Accounts payable P 350,000
Accounts receivable 300,000 Notes payable 200,000
Inventory, January 1, 20x6 400,000 Killough, capital 750,000
Furniture & fixtures, net 150,000 Seago, capital 620,000
Building, net 300,000 Sales 800,000
Killough, drawing 100,000
Seago, drawing 120,000
Purchases 600,000
Operating expenses 250,000
Total P2,720,000 Total P2,720,000

Additional information:
1. December 31, 20x6, inventory was P550,000. 20x6 purchases of P600,000 were recorded using the periodic
inventory method.
2. Depreciation for 20x6 on furniture and fixtures and building is determined to be 10% and 20% respectively, of
net valuation.
3. On July 1, 20x6, the partnership recorded a P100,000 additional capital contribution by Seago. Killough made no
additional capital contributions during the year.
9. Determine the share of partner Killough on the net income of 20x6.
a. P46,100 b. (P21,100) c. (P19,100) d. P44,100

10. Determine the ending capital balance of partner Seago on December 31, 20x6.
a. P480,100 b. P521,100 c. P478,900 d. P694,100

11. The ELI Corporation is undergoing liquidation and its statement of financial position as of January 2, 2017 is as follows:
ELI Corporation
Statement of Financial Position
As of January 2, 2017

Assets Liabilities and Equity

Cash P 124,200 Accounts Payable P 118,500
Receivables, net 340,800 Salaries Payable 50,000
Inventory 70,000 Bank Loan Payable 222,000
Prepaid Expenses 22,500 Note Payable 80,000
Building, net 360,000 Bonds Payable 450,000
Goodwill 82,000 Ordinary Shares 120,000
Capital Deficit (41,000)
Total Assets P 999,500 Total Liabilities and Equity P 999,500

The inventory has a realizable value of P53,000. Of the accounts payable, P60,000 is secured by 1/4 of the receivable which is
30% not collectible. The balance in the book value of the receivables which has a realizable value of P235,000 is used to secure
the bank loan payable. The bonds payable is secured by the building having a book value of P360,000 and a realizable value of
P375,000.
Unrecognized liabilities as of Jan. 2, 2017 are as follows: accrued interest on bonds payable and taxes amounting to P4,000 each,
and trustee’s salary amounting to P9,500. (Use two decimal places for the recovery percentage)

How much will be paid to the partially secured creditors of ELI corporation?
a. P477,595 b. P479,102 c. P478,349 d. P480,669

12. On November 1, 2017, Goodbye To You (GTY) Inc.’s trustee prepares a Statement of Affairs with the following information:
 P340,000 cash will be received by the unsecured creditors whose claims totaled P1360000

 A received a 12% note of P124,000 from GTY on March 1, 2017, secured with machinery with a market value of P115,000

 GTY issued to B a 12%, 1-year note of P136,000 on January 1, 2017. Nothing has been pledged to this note.

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

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

Which of the following statements about the creditors of Goodbye To You is false?
a. The unsecured creditor without priority will receive P37,400
b. The unsecured creditor with priority will receive P3,055
c. The fully secured creditor will be paid an amount of P144,952
d. The partially secured creditor will be paid an amount of P119,730

13. Port Corporation is a parent, having purchased 80% of Sand Company’s common stock at par value for P800,000. Sand
Company is in financial difficulty. The parent granted an unsecured loan of P400,000 to the subsidiary. An accounting statement
of affairs for Sand Company shows a dividend of 40%. Port Corporation can expect to receive payment for its investment in Sand
Company of approximately:
a. P640,000 b. P160,000 c. P320,000 d. P0

14. MAX Company is in bankruptcy and is being liquidated. The trustee has converted all assets into P120,000 cash and has
prepared the following list of approved claims:
 Customer's deposits (P1,000 from each of two customers that ordered products that were never
delivered) P2,000
 Property taxes payable 4,000
 Accounts payable, unsecured 
30,000
 Trustee's fees and other cost of liquidation 
16,000
 Mortgage payable, secured by property that was sold for P80,000 60,000
 Note payable to bank, secured by all accounts receivable (P40,000) of which P30,000 were
collected and P10,000 were written as uncollectible 40,000
How much will the bank receive on the note payable?
a. P30,000 b. P32,500 c. P32,000 d. P40,000
Questions 15 through 16 are based on the following:

V Construction Company has used the cost-to-cost percentage of completion method of recognizing profits. Michael V assumed
leadership of the business after the recent death of his father, Rudy V. In reviewing the records, Michael V finds the following
information regarding a recently completed building project for which the total contract price was P5,000,000.
Construction in progress account balance 20x2 P1,000,000
Construction cost incurred during 20x4 2,050,000
Gross profit (loss) recognized in 20x2 100,000
Gross profit (loss) recognized in 20x3 350,000
Gross profit (loss) recognized in 20x4 ( 50,000)

15. How much cost was incurred in 20x3?

a. P1,650,000 b. P2,550,000 c. P900,000 d. P4,600,000

16. How much is the estimated cost to complete the project at the end of 20x3?
a. P4,250,000 b. P1,600,000 c. P1,550,000 d. P1,700,000

Questions 17 and 18 are based on the following:

Octopus Retail Company sells goods for cash, on normal credit (2/10, n/30). However, on July 1, 20x4, the company sold a used
computer for P22,000; the inventory carrying value was P4,400. The company collected P2,000 cash and agreed to let the
customer make payments on the P20,000 whenever possible during the next 12 months. The company management stated that
it had no reliable basis for estimating the probability of default. The following additional data are available: (a) collections on the
instalment receivable during 20x4 were P3,000 and during 20x5 were P2,000, and (b) on December 1, 20x5, Octopus Retail
repossessed the computer (estimated net realizable value, P7,000).

17. Determine the realized gross profit on installment sales for the year 20x4.
a. P1,600 b. P4,000 c. P2,400 d. P5,600

18. Determine the gain or loss on repossession recognized in 20x5.

a. P3,000 loss b. P3,000 gain c. P4,000 loss d. P4,000 gain

19. The following selected accounts appeared in the trial balance of Genius Sales as of December 31, 2017:
Installment receivable-2016 sales P 6,000 Repossessions P 1,200
Installment receivable-2017 sales 80,000 Installment sales 170,000
Inventory, December 31, 2016 28,000 Regular sales 154,000
Purchases 222,000 Deferred gross profit – 2016 21,600
Operating Expenses 46,000
Additional information:
Installment receivable – 2016 sales, December 31, 2016 P 57,100
Inventory of new and repossessed merchandise as of December 31, 2017 38,000

Gross Profit percentage on installment sales in 2016 is 10% higher than the gross profit percentage on regular sales in
2017.

Repossession was made during the year and was recorded correctly. It was a 2016 sales and the corresponding
uncollected account at the time of repossession was P3,100.

Net Income for 2017 is

a. P54,180 b. P6,740 c. P52,940 d. P53,600
20. Abogado Company uses the installment method of reporting for accounting purposes. The following data were obtained.
2015 2016 2017
Installment sales P600,000 P810,000 P990,000
Cost of installment sales _420,000 _486,000 _643,500
Gross profit P180,000 P324,000 P346,500

Installment contract receivables, December 31:

2015 2016 2017
2015 sales P360,000 P270,000 P120,000
2016 sales 600,000 390,000
2017 sales 780,000
In 2017, one of the customers defaulted in his payment and the company repossessed the merchandise with an estimated market
value of P30,000. The sales was in 2015 and the unpaid balance on the date of repossession was P45,000. Compute for 2017 (1)
the gain (loss) on repossession; (2) total realized gross profit, and (3) the deferred gross profit.

(1) (2) (3)

a. P (1,500) P 189,000 P 451,500
b. 750 129,000 465,000
c. (1,500) 189,000 465,000
d. 1,500 73,500 273,000

21. Lea Mae Stores sell appliances for cash and also on the installment plan. Entries to record cost of sales are made monthly.
The following information appears on the trial balance of the company as of December 31, 2018.
Cash P153,000
Installment Accounts Receivable, 2017 48,000
Installment Accounts Receivable, 2018 91,000
Inventory – New Merchandise 123,200
Inventory – Repossessed Merchandise 24,000
Accounts Payable P98,500
Deferred Gross Profit, 2017 45,600
Capital Stock 170,000
Retained Earnings 93,900
Sales 343,000
Installment Sales 200,000
Cost of Sales 255,000
Cost of Installment Sales 128,000
Gain or Loss on Repossession 800
Selling and Administrative Expenses _128,000 _______
P951,000 P951,000

The accounting department has prepared the following analysis of cash receipts for the year:
Cash sales (including repossessed merchandise) P424,000
Installment accounts receivable, 2017 104,000
Installment accounts receivable, 2018 109,000
Other 36,000
Total P673,000
Repossessions recorded during the year are summarized as follows:
2017
Uncollected balance P8,000
Loss on repossession 800
Repossessed merchandise 4,800
How much must be the total realized gross profit net of loss from repossession in 2018?
a. P161,710 b. P157,640 c. P158,440 d. P73,710
22. Artemus Co. operates a branch in Manila City. On December 31, 2017, the Manila branch in the home office books showed
a debit balance of P522,110. The interoffice accounts were in agreement at the beginning of the year. For purposes of reconciling
the interoffice accounts, the following facts were given:
 Shipments from home office to Manila branch costing P72,500 were in transit as of year-end. Manila recorded the said
transfer twice at cost: one on December 31, 2017 and the other on January 1, 2018.
 The home office allocated to the Manila branch ¾ of the rent expenses it paid for the year ended 2017. The rent expense
was P24,000. The home office sent a debit memo to Manila for the allocated amount, but the branch recorded the said
debit memo by debiting the home office – current account and crediting rent payable.
 The branch wrote-off uncollectible accounts amounting to P10,120. The allowance for doubtful accounts is maintained
in the books of the home office. The home office recorded the write-off as a write-off of its own accounts receivable.
 The branch collected accounts receivable from home office’s customers amounting to P52,920, net of 2% cash discount.
The branch treated the said transaction as if it was a collection from its own customers. The home office was not yet
notified of the said collection.

It is the policy of the home office to bill its branches at 20% above cost. What is the unadjusted balance of the home office-current
account in the books of Manila branch on December 31, 2017?
a. P475,990 b. P461,490 c. P459,070 d. P463,650

23. On December 31, 2018, the Branch Current in the Home Office books shows a balance of P50,000. The following facts are
ascertained:
 Merchandise billed at P12,500 is in transit on December 31 from the home office to the branch.
 The branch collected a home office accounts receivable for P3,500. The branch did not notify the home office of such
collection.
 On December 30, the home office sent cash of P7,500 to the branch, but this was charged to general expense; the
branch has not received the cash as of December 31.
 Branch profit for December was recorded by the home office at P2,400 instead of P2,040.
 The branch returned supplies of P1,500 to the home office but the home office has not yet recorded the receipt of the
supplies.
Assume all other transactions have been properly recorded. What is the unadjusted balance of the Home Office Current account
on the branch books on December 31, 2018?
a. P64,140 b. P39,140 c. P14,000 d. P13,000

24. The Baguio branch of a home office in Manila is billed for merchandise it receives at 125% of cost. The branch turns around
and sells them 25% of billed price. On March 15, all branch’s merchandise was destroyed by fire. The branch’s records recovered
shows the following:
Inventory, January 1 (at billed price) P165,000
Shipments, January 1 to the date of fire (at billed price) 110,000
Purchases (at cost) from outsiders all resold at markup of 20% 7,500
Sales 169,000
Sales returns and allowances 3,750
Sales discount 3,000
What is the cost of merchandise destroyed by fire?
a. P120,000 b. P120,240 c. P130,000 d. P140,000

25. ABC Construction Company began a construction project on a building for P3,000,000. The project was completed during
20x1. ABC Construction has an unconditional right to payment for performance completed to date. The accounting records
disclosed the following:
20x0 20x1
Progress billing during the year P1,100,000 P1,900,000
Cost incurred during the year 900,000 1,800,000
Collection on billing during the year 700,000 2,300,000
Estimated cost to complete 1,800,000 -

At the contract inception, ABC assesses its performance obligations in the contract and determines that the promised of goods
and services as a single performance obligation satisfied overtime in accordance with PFRS 15. ABC concludes that an input
measure using “cost to cost method” provides the appropriate measure of progress towards complete satisfaction of the
performance obligation.
Which of the following is incorrect under PFRS 15?
a. The total construction in progress in year 20x0 is P1,000,000. Correct
b. The receivable to be debited in year 20x0 is P1,100,000. Incorrect 100K is considered Contract liab
c. The contract asset to be presented in the financial statement in year 20x0 is P100,000. QUESTION
d. The contract liability to be presented in the financial statement in year 20x0 is P100,000. Correct

26. The ABC Construction Builders began work on a contract in 20x0 and completed in the year 20x1. The total contract price
was P4,200,000. ABC has an unconditional right to payment for performance completed to date. Information concerning the
contract in the year 20x0 follows:
Cost incurred during the year P600,000
Estimated cost to complete at end of the year 2,400,000
Billing during the year 720,000
Collection during the year 400,000

At the contract inception, ABC assesses its performance obligations in the contract and determines that the promised of goods
and services as a single performance obligation satisfied overtime in accordance with PFRS 15. ABC concludes that an input
measure using “cost to cost method” provides the appropriate measure of progress towards complete satisfaction of the
performance obligation.

Which of the following statement is incorrect, under PFRS 15?

a. The constructions in progress net of progress billings to be presented in the financial statements in year 20x0 is P0. P120,000
b. The total contract revenue to be credited is P840,000. Correct
c. The total receivable to be debited amounted to P840,000. Correct
d. The contract asset to be presented in the financial statements is P120,000. Correct

Items 27 through 28 are based on the following information:

On December 1, 20x1, CANOROUS Co. granted a 5-year franchise right to MELODIOUS, Inc. for an initial franchise fee of ₱400,000.
The non-refundable initial franchise fee was collected in full upon signing of the contract. As of December 31, 20x1, CANOROUS
has no remaining obligation or intent to refund any of the cash received, all of the services pertaining to pre-opening activities to
set-up the contract have been performed and there are no other material conditions or obligations required of CANOROUS under
the franchise agreement.

Assume: Promise to grant license is distinct

27. If the promise to grant the franchise right is distinct and that the grant of franchise provides the customer the right of use
the entity’s intellectual property, how much revenue shall CANOROUS recognize in December 20x1?
a. 400,000 c. 0
b. 80,000 d. 6,667.67

28. If the promise to grant the franchise right is distinct and that the grant of franchise provides the customer the right of access
the entity’s intellectual property, how much revenue shall CANOROUS recognize in December 20x1?
c. 400,000 c. 0
d. 80,000 d. 6,667.67

The following scenario relates to questions 29–31.

Mighty IT Co provides hardware, software and IT services to small business customers.

Mighty IT Co has developed an accounting software package. The company offers a supply and installation service for P1,000 and
a separate two-year technical support service for P500. Alternatively, it also offers a combined goods and services contract which
includes both of these elements for P1,200. Payment for the combined contract is due one month after the date of installation.

In December 20X5, Mighty IT Co revalued its corporate headquarters. Prior to the revaluation, the carrying amount of the building
was P2,000,000 and it was revalued to P2,500,000.
Mighty IT Co also revalued a sales office on the same date. The office had been purchased for P500,000 earlier in the year, but
subsequent discovery of defects reduced its value to P400,000. No depreciation had been charged on the sales office and any
impairment loss is allowable for tax purposes.

Mighty It Co’s income tax rate is 30%.

Required: Answer the questions at the end of each scenario.

29. In accordance with IFRS 15 Revenue from Contracts with Customers, when should Mighty IT Co recognise revenue from the
combined goods and services contract?
a. Supply and install: on installation // Technical support: over two years
b. Supply and install: when payment is made // Technical support: over two years
c. Supply and install: on installation // Technical support: on installation
d. Supply and install: when payment is made // Technical support: when payment is made

30. For each combined contract sold, what is the amount of revenue which Mighty IT Co should recognise in respect of the supply
and installation service in accordance with IFRS 15?
a. P700 b. P800 c. P1,000 d. P1,200

31. Mighty IT Co sells a combined contract on 1 January 20X6, the first day of its financial year. In accordance with IFRS 15, what
is the total amount for deferred income which will be reported in Mighty IT Co’s statement of financial position as at 31 December
20X6?
a. P400 b. P250 c. P313 d. P200

32. Cavaliers Company established a branch in Cebu to distribute part of the goods purchased by the home office. The home
office prices inventory shipped to the branch at 25% above cost. The following account balances were taken from the ledger
maintained by the home office and the branch:
Home office Branch
Sales P336,000 P144,000
Beginning inventory 69,000 38,400 (1/3 from HO)
Purchases 222,000 40,000
Shipments to branch 66,000
Shipments from HO 82,500
Operating expenses 68,000 11,200
Ending inventory 48,000 21,600 (10% from outsiders)

How much is the combined net income of the home office and the branch?
a. 84,500
b. 83,172
c. 96,972
d. 99,672

33. The home office operates a branch in Makati. On December 31, 2018, the Makati branch account in the home office books
showed a debit balance of P522,760. The interoffice accounts were in agreement at the beginning of the year.
i. Shipments to Makati costing of P92,810 were in transit as of year-end. The home office bills its branches at 20%
above cost. Makati recorded the transfer on January 2, 2017.
ii. On October 31, 2018, the home office paid rent of Makati amounting to P58,860 for the next nine months. Home
office recorded the transaction by debiting Prepaid Rent. Branch was not notified of the said transaction.
iii. The branch wrote off uncollectible accounts of P12,122. The allowance for doubtful accounts is maintained in the
home office books. Home office is not yet notified about the write-off.
iv. Home office collected accounts receivable from Makati’s customers amounting to P91,680, net of 4% discount.
The home office treated the said transaction as if it was a collection from its own customers. Makati was not yet
notified of the collection.
What is the unadjusted balance of the home office current of Makati branch on December 31, 2018?
a. 502,110
b. 462,770
c. 386,486
 d. 444,208

34. The home office bills its branch at 120% above cost during 2017 and 125% of cost during 2018. In 2018, goods billed at
P355,600 were shipped to the branch. The branch returned P119,050 worth of defective merchandise to the home office. The
account Overvaluation of Branch Inventory has a balance of P18,240 at the end of 2017. The branch started to acquire
merchandise from outsiders during 2018 in the amount of P54,000 and returned defective merchandise to the outsiders
amounting to P19,570. How much is the cost of goods available for sale at cost?
a. 314,870
b. 189,308
c. 311,222
d. 300,420
35. Jam Company has consistently used the percentage of completion method. On January 10, 2017, Jam began work on a P6
million construction contract. At the inception date, the estimated cost of construction was P4.5 million. The following data relate
to the progress of the contract:
Income recognized for 2017 P 600,000
Costs incurred to date as of December 31, 2018 3,600,000
Estimated costs to complete as of December 31, 2018 1,200,000

How much income should Jam recognize for 2018?

a. 300,000
b. 525,000
c. 600,000
d. 900,000

36. The Iloilo Company operates a branch in Davao, and the profit and loss data for the home office and the branch for 20X4
follow:
HO Branch
Sales P250,000 P75,000
Purchases from outsiders 200,000 15,000
Shipments to branch:
Cost to home office 30,000
Billing price to branch 37,500
Expenses 40,000 10,000
Inventories, January 1, 20X4
Home office, at cost 80,000
From outsiders, at cost 7,500
From home office at 20% above cost 24,000
Inventories, Dec. 31, 20X4
Home office, at cost 55,000
From outsiders, at cost 5,500
From home office at 20X4 billing 26,000

The combined net income (loss) of the home office and the branch on December 31, 20X4 is
a. P30,800 b. (P33,800) c. P33,800 d. P27,000
37. The SUNNY Trading Co. operates a branch at ATC. At close of business on December 31, 20X2, Branch account in the home
office books showed a debit balance of P378,400. The interoffice accounts were in agreement at the beginning of the year. For
purposes of reconciling the interoffice accounts, the following information obtained:

a. Merchandise shipments of P180,000 made by home office on December 28, 20X2 were received by ATC on January 4, 20X3.
However, only ninety percent of this shipment was charged by the home office to ATC; the balance was debited to the account
FM Branch.

b. Branch collections of P75,000 were deposited for the account of the home office on December 29, 20X2; sixty percent was
credited on the home office bank account as of January 9, 20X3; and the balance was returned to the depositor marked NSF.

c. The branch received a cash transfer amounting to P30,000 from the home office on January 3, 20X3. The home office effected
the fund transfer last December 30, 20X2 but it was inadvertently charged to Advances to Officers Account.

d. The branch reported a net income of P40,000 which was taken up by the home office as P4,000 loss.

The unadjusted balance of the Home Office Current account.

a. P245,000 b. P185,400 c. P425,400 d. P311,400

38. On September 1, 20X2, the RR Company established an agency in SAN JUAN, sending its merchandise samples costing
P168,000 and a working fund of P200,000 to be maintained on the imprest basis. During the month of September, the agency
transmitted to the home office sales orders that cost at P1,440,000. However, the home office was able to fill up only 60% of the
orders. Total cash of P860,800 was collected from the customers. A home office disbursement chargeable to the sales agency
includes the acquisition of furniture and fixtures of SAN JUAN, P360,000 to be depreciated at 25% per annum. The agency paid
expenses of P96,000 and received replenishment thereof from the home office. The agency samples are good until November
30, 20X2. It was estimated that the gross profit on goods shipped to bill agency sales orders averages 25%.

Net income of the agency for the month ended September 30, 20X2.
a. P128,500 b. P392,100 c. P200,500 d. P56,500

39. Information on Red Hot Co.’s construction contracts with customers which commenced during 20x1 is shown below:
Contract 1 Contract 2
Contract Price 420,000 300,000
Costs incurred during the year 240,000 280,000
Estimated costs to complete 120,000 40,000
Progress billings 150,000 270,000
Collections 90,000 250,000
At contract inception, Red Hot Co. assessed that its performance obligation in each of Contract 1 and Contract 2 is satisfied over
time. However, Red Hot Co. determined that the outcome of the performance obligation in each of the contracts cannot be
reasonably measured but Red Hot Co. expects to recover the contract costs incurred. Compute for the total profit (loss)
recognized from the two contracts in 20x1.
a. (P20,000) b. P20,000 c. (P40,000) d. P40,000

40. The Tigers sells new automobiles. A new automobile costing P2,500,000 was sold at the end of 2012 for P3,600,000; an old
automobile was accepted as down payment and an allowance of P1,500,000 was allowed on the trade-in. the company
anticipates reconditioning costs of P150,000 on this automobile and a resale price of P1,400,000. It’s used car sales are expected
to produce a 25% gross profit. Determine the realized gross profit on this installment sale:
a. P275,000 c. P150,000
b. P250,000 d. P265,000