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NAME: Date:
Professor: Section: Score:

ACCOUNTING FOR SPECIAL TRANSACTIONS

REMEDIALS 2

1. When property other than cash is invested in a partnership, at what amount should the
noncash property be credited to the contributing partner’s capital account?
a. Fair value at the date of contribution.
b. Contributing partner’s original cost.
c. Assessed valuation for property tax purposes.
d. Contributing partner’s tax basis.

2. Under the bonus method, any increase or decrease in the capital credit of a partner is
a. deducted from or added to the capital credits of the other partners.
b. recognized as goodwill.
c. recognized as expense.
d. deferred and amortized to profit or loss.

3. A and B agreed to form a partnership. The contributions of the partners are as follows:

A B
Cash 600,000
Inventory 20,000
Land 400,000
Equipment 50,000

Additional information:
• Half of the inventory is unpaid. The partnership agreed to assume the related accounts
payable.
• The land has a fair value of ₱700,000 and is subject to a mortgage of ₱100,000. However, B
agreed to settle the mortgage personally.

How much are the adjusted capital contributions of A and B, respectively?

a. 670,000; 690,000
b. 670,000; 700,000
c. 660,000; 700,000
d. 670,000; 600,000

4. Mr. A, a partner in ABC Co., is deciding on whether to accept a salary of ₱16,000 or a salary of
₱10,000 plus a bonus of 10% of profit. The bonus shall be computed on profit after salaries and
bonus. Salaries of the other partners amount to ₱40,000. What amount of profit would be
necessary so that Mr. A would be indifferent between the choices?
a. 60,000
b. 116,000
c. 110,000
d. 106,000

5. The partnership agreement of A, B and C stipulates the following:

• A, the managing partner, shall receive a bonus of 10% of profit.
• Each partner shall receive a 6% interest on average capital investments.
• Any remaining profit or loss shall be shared equally.
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The average capital investments of the partners during the year were ₱80,000 for A, ₱50,000 for
B, and ₱30,000 for C. The partnership incurred loss of ₱20,000 during the period. How much was
A’s share?
a. 3,607
b. 5,067
c. 6,867
d. 8,067

6. A and B formed a partnership on January 1, 20x1. Their contributions were credited to their
respective capital accounts as follows:
Capital accounts

A, Capital 150,000

B, Capital 250,000
400,000

During the year, the partnership earned profit of ₱1,000,000. There was no contractual stipulation
on how profits are to be shared by the partners. How much is the share of B in the profit?
a. 375,000
b. 425,000
c. 565,000
d. 625,000

Use the following information for the next four questions:

The partners’ capital accounts in AB Partnership before the admission of a new partner are as
follows:

Capital accounts P/L ratio

A, Capital 200,000 60%

B, Capital 120,000 40%

320,000

7. C purchases 20% interest in the partnership from A and B for ₱280,000. How much is the total
equity of the partnership after the admission of C?
a. 320,000
b. 240,000
c. 440,000
d. 200,000

8. C invests ₱120,000 cash for a 20% interest in the net assets and profits of the partnership.
Under the bonus method, how much is the initial capital credit of C?
a. 88,000
b. 240,000
c. 264,000
d. 0

9. Before the admission of C, B decides to retire. A acquires B’s interest for ₱180,000. How much
is the capital balance of A after the retirement of B but before the admission of C?
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a. 200,000
b. 280,000
c. 264,000
d. 320,000

10. Before the admission of C, B decides to retire. The partnership pays B ₱180,000 as settlement
of his partnership interest. How much is the capital balance of A after the retirement of B but
before the admission of C?
a. 140,000
b. 200,000
c. 260,000
d. 320,000

11. The partnership of A, B and C is undergoing liquidation. Information on the financial position of
the partnership follows:
Cash 150,000
Other assets 450,000
Total 600,000

Liabilities 225,000
A, capital (40%) 60,000
B, capital (30%) 270,000
C, capital (30%) 45,000
Total 600,000

The other assets were realized at ₱300,000. None of the partners is solvent. How much cash
did the partners receive?
A B C
a. 15,000 205,000 5,000
b. 5,000 225,000 0
c. 25,000 185,000 15,000
d. 0 225,000 0

12. A and B decided to liquidate their partnership. The partnership’s records show the following
information:

Non-cash assets 120,000

Liabilities 15,000
A, capital (50%) 60,000
B, capital (50%) 45,000
Total liabilities and equity 120,000

The assets were sold for ₱32,000 and A received ₱16,000 in the cash distribution to the partners.
How much did B receive?
a. 17,000
b. 16,000
c. 1,000
d. 0

13. ABC Partnership decided to liquidate. Information before the start of liquidation is as follows:
Cash 50,000 Liabilities
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375,000
Noncash assets 900,000 B, Loan
80,000
C, Loan
25,000
A, Capital (50%)
312,500
B, Capital (30%)
107,500
C, Capital (20%)
50,000
Total 950,000 Total Liab. & Equity 950,000

The noncash assets were sold for ₱400,000. C is the only solvent partner. How much did B receive
on the cash distribution to the partners?
a. 37,500
b. 28,125
c. 31,675
d. 0

14. The accounts of AB Partnership after its noncash assets were realized are as follows:
Debit Credit
Cash 34,000
Accounts payable 25,000
Loan payable to A 9,000
A, Capital 8,000
B, Capital 8,000

In the settlement of the partners’ interest in the partnership, how much total cash did the two
partners receive?
a. 0
b. 1,000
c. 8,000
d. 9,000

15. A, B and C are partners. Their respective personal assets, personal liabilities and partnership
capital balances are as follows:

A B C
Personal assets 90,000 240,000 180,000
Personal liabilities 75,000 150,000 216,000
Capital balances 150,000 (96,000) 210,000

Which of the partners is personally insolvent?

a. A
b. B
c. C
d. B & C

16. Farewell Partnership is undergoing liquidation. Information on Farewell follows:

Cash 40,000
Accounts receivable 180,000
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Receivable from B 10,000

Inventory 160,000
Equipment 310,000
Total 700,000

Accrued liabilities 250,000

Payable to A 20,000
A, Capital (60%) 240,000
B, Capital (40%) 190,000
Total 700,000

Information on the conversion of non-cash assets is as follows:

• Only 60% of the accounts receivable was collected; the balance is uncollectible.
• ₱50,000 was received for the entire inventory.
• The equipment was sold at its carrying amount.
• ₱10,000 Liquidation expenses were paid.

How much was the loss allocated to B in the determination of cash distributions to the partners?
a. 76,800
b. 87,600
c. 115,200
d. 192,000

17. ABC Co. is undergoing liquidation. Information before the start of the liquidation process is as
follows:
Cash Accounts payable
10,000 80,000
Accounts receivable Payable to B
80,000 20,000
Receivable from A A, Capital (50%)
10,000 250,000
Inventory B, Capital (30%)
180,000 150,000
Equipment, net C, Capital (20%)
320,000 100,000
Total 600,000 Total Liab. & Equity
600,000

Which partner has the highest maximum loss absorption capacity?

a. Partner A
b. Partner B
c. Partner C
d. Partner D

18. These are liabilities that, although not secured by any asset, are mandated by law to be paid
first before any other unsecured liabilities.
a. Unsecured liabilities with priority
b. Fully secured creditors
c. Partially secured creditors
d. Unsecured liabilities without priority

19. Which of the following is excluded when computing for the total free assets?
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a. excess of realizable value of assets pledged to fully secured creditors over the expected net
settlement amount of the fully secured liabilities.
b. total realizable value of assets not pledged as collateral security
c. realizable value of assets pledged to partially secured creditors
d. all of the above items are included

20. “Assets to be realized” is placed on which side of a statement of realization and liquidation?
a. debit side, measured at realizable value
b. credit side, measured at book value
c. debit side, measured at book value
d. no side

21. The statement of affairs of Darrell Putix Co. indicates that unsecured creditors without priority
with total claims of ₱720,000 may expect to recover only ₱288,000 after all the assets were
sold. Among the creditors of Darrell Putix Co. are the following:
• Government – taxes payable of ₱400,000, inclusive of ₱80,000 assessments and
surcharges.
• XYZ bank – loan payable of ₱4,000,000 and accrued interest of ₱200,000, backed by
collateral security with realizable value of ₱4,800,000.
• Alpha Financing Co. – loan payable of ₱3,200,000 backed by collateral security with
realizable value of ₱2,000,000.
• Mr. Bombay – loan payable of ₱1,000,000 and accrued interest of ₱200,000. No collateral
security.

How much is the expected recovery of partially secured creditors?

a. 2,480,000
b. 2,160,000
c. 1,280,000
d. 0

Use the following information for the next two questions:

Rex Toothpix Co. is undergoing liquidation. Information on Rex Toothpix Co.’s assets and liabilities
is shown below:

ASSETS Book value Realizable value

Assets pledged to fully secured creditors 360,000 480,000
Assets pledged to partially secured creditors 208,000 192,000
Free assets 600,000 576,000
1,168,000 1,248,000
LIABILITIES
Unsecured liabilities with priority 288,000 288,000
Fully secured creditors 384,000 384,000
Partially secured creditors 240,000 240,000
Unsecured creditors without priority 432,000 432,000
1,344,000 1,344,000

22. If the assets are sold at realizable values, how much cash is available to pay unsecured
creditors without priority?
a. 336,000
b. 384,000
c. 624,000
d. 288,000
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23. How much can the partially secured creditors expect to recover from their claims?
a. 384,000
b. 234,000
c. 230,400
d. 276,000

24. The following information was taken from the statement of realization and liquidation of Jury
and John Bombastix Co. which is undergoing liquidation:
ASSETS:
Assets to be realized 8,000,000
Assets acquired 60,000
Assets realized 4,720,000
Assets not realized 880,000

LIABILITIES:
Liabilities liquidated 8,520,000
Liabilities not liquidated 4,760,000
Liabilities to be liquidated 11,480,000
Liabilities assumed 128,000

SUPPLEMENTARY ITEMS:
Supplementary expenses 100,000
Supplementary income 72,000

How much is the net gain (loss) for the period?

a. (4,132,000)
b. (28,000)
c. 4,160,000
d. (4,160,000)

Use the information below for the next four questions:

Community Co. filed a voluntary bankruptcy petition during the year. Relevant information follows:

ASSETS Carrying amount Realizable value

Assets pledged with fully secured creditors 300,000 370,000
Assets pledged with partially secured creditors 180,000 120,000
Free assets 420,000 320,000
900,000 810,000
LIABILITIES
Liabilities with priority 70,000
Fully secured creditors 260,000
Partially secured creditors 200,000
Unsecured creditors 540,000
1,070,000

The assets are converted to cash at the estimated realizable values and the business is liquidated.

25. What amount of cash will be available to pay unsecured non-priority claims?
a. 360,000
b. 380,000
c. 430,000
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d. 470,000

26. What is the estimated recovery percentage of unsecured creditors without priority?
a. 52.00%
b. 54.08%
c. 56.56%
d. 58.06%

27. How much is the total amount paid to the partially secured creditors?
a. 161,773
b. 163,552
c. 166,448
d. 168,992

28. How much is the total amount paid to the unsecured creditors?
a. 313,524
b. 342,349
c. 294,823
d. 285,231

Use the following information for the next two questions:

A, B and C formed a joint operation for the sale of assorted fruits during the Christmas season.
Their transactions during the two-month period are summarized below:

Joint operation
Nov. 5 Merchandise-A 8,500 Nov. 15 Cash sales-C 20,400
12 Merchandise-B 7,000 18 Cash sales-C 4,200
14 Freight-in-C 200 30 Merchandise-B 1,210
Dec. 10 Purchases-C 3,500 Dec. 25 Unsold mdse. charged to A 540
22 Selling expenses-C 550

The joint arrangement provided for the division of gains and losses among A, B and C in the ratio
of 2:3:5. The joint operation is to close on December 31, 2008.

29. What is the joint operation profit?

a. (6,600)
b. 6,600
c. 6,060
d. (6,060)

30. What is the amount of cash that A will receive on final settlement?
a. 9,280
b. 9,712
c. 8,500
d. 1,212

31. LL, MM and NN formed a joint operation to purchase a piece of lot and to erect an apartment
building for sale. LL is to manage the joint operation; hence, he will receive a bonus of 10% of
the joint operation’s gain before deducting the bonus as an expense. Any remaining gain or
loss is to be divided equally among the participants. The joint operation is completed on August
31, 20x1. On this date, the accounts of MM and NN show the following balances:
Books of
MM NN
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Account with LL 16,000 Cr. 16,000 Cr.

Account with MM 32,000 Cr.
Account with NN 18,000 Dr.

There are unused constructions supplies which LL agreed to take over at its cost of ₱42,000. Final
settlement with the joint operators will require payments as follows:
a. LL pays NN ₱11,200, and MM pays NN ₱14,000.
b. LL pays NN ₱25,600, and MM ₱14,400.
c. LL pays MM ₱14,400, and NN pays LL ₱30,800.
d. LL pays MM ₱35,600, and NN pays LL ₱14,400.

Use the following information for the next two questions:

A, B, and C formed a joint operation. The joint operators shall make initial contributions ₱10 each.
Profit and loss shall be divided equally. The following data relate to the joint operation’s
transactions:

A B C
Joint operation (before closing) 8 Cr. 10 Cr. 12 Cr.
Expenses paid from JO cash 5 2 3
Value of inventory taken 5 6 4

32. How much were the sales of the joint operation?

a. 70
b. 60
c. 40
d. 90

33. How much was A’s share in the settlement?

a. 25 receipt
b. 20 receipt
c. 25 payment
d. 20 payment

Use the following information for the next two questions:

A and B formed a joint operation. The following were the transactions during the year:
A B
Total purchases 400 320
Total sales 480 240
Expenses paid 800
Other income 40

The joint operation was completed at the end of the year. Each joint operator is entitled to a 10%
commission on its purchases and a 20% commission on its sales. Any remaining profit or loss is
divided equally.

34. How much is the profit (loss) of the joint operation?

a. 760
b. (760)
c. 840
d. (840)

35. On the cash settlement between the joint operators,

a. A pays B ₱368.
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b. B pays A ₱368.
c. A pays B ₱428.
d. B pays A ₱428.

36. A, B, and C formed a joint operation which was completed during the year. The accounts of the
joint operators show the following balances:
Books of A Books of B Books of C
Account with A - 10 Dr. 10 Dr.
Account with B 16 Dr. - 16 Dr.
Account with C 26 Cr. 26 Cr.

On the cash settlement between the joint operators,

a. B and C pays A ₱16 and ₱10, respectively, for a total of ₱26 payment to A.

b. A and B pays C ₱10 and ₱16, respectively, for a total of ₱26 payment to C.
c. C pays A and B ₱10 and ₱16, respectively.
d. A, B and C pays D.

37. Cloud Co. acquired an investment in Sky Co., a joint venture, for ₱100,000, incurring
transaction costs of ₱1,000. Cloud Co. determined that it has joint control over Sky. Cloud Co.
uses the PFRS for SMEs and elects the cost model for its investments in joint ventures. The
investment’s fair values were ₱102,000, ₱110,000 and ₱90,000 on December 31, 20x1, 20x2
and 20x3, respectively. Costs to sell were estimated at ₱4,000 throughout. Cloud Co.
recognizes in its profit or loss which of the following amounts? gain (loss)
20x1 20x2 20x3
a. 0 0 0
b. (1,000) 8,000 (20,000)
c. (3,000) 8,000 (20,000)
d. (3,000) 3,000 (15,000)

38. According to PFRS 15, a promised good or service is distinct if

I. The customer can benefit from the good or service either on its own or together with other
resources that are readily available to the customer.
II. The promise to transfer the good or service is separately identifiable from other promises in
the contract.
III. The promise to transfer the good or service is explicitly stated in the contract, the rights of
the parties and payment terms are identifiable, and the collectability of the revenue from the
contract is probable.
a. I and II
b. I and III
c. I, II and III
d. None of these

39. According to PFRS 15, how does an entity account for a promise in the contract to transfer a
good or service that is not distinct?
a. The entity shall not recognize any revenue from the promise to transfer a non-distinct good
or service; any consideration received therefrom is treated as a liability.
b. The entity shall recognize revenue from a promise to transfer a non-distinct good or service
at the earlier of the following events: the entity has no remaining obligation in the contract
and the contract is terminated and the consideration received is non-refundable.
c. The entity shall combine the non-distinct good or service with the other promises in the
contract and treat the combined promises as a single performance obligation.
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d. The entity shall ignore the promise to transfer a non-distinct good or service and shall
account only those promises in the contract to transfer distinct goods or services.

40. Under the “cost-to-cost” method, the percentage of completion may be computed as
a. Total costs incurred to date multiplied by the Estimated total costs to complete
b. Total costs incurred to date divided by the Estimated total costs to complete
c. Total costs incurred to date multiplied by the Estimated total costs to complete
d. Total costs incurred to date divided by the sum of Total costs incurred to date and
Estimated costs to complete

Fact pattern for the next two items:

An entity is developing a multi-unit residential complex. A customer enters into a binding sales
contract with the entity for a specified unit that is under construction. Each unit has a similar floor
plan and is of a similar size, but other attributes of the units are different (for example, the location
of the unit within the complex).

41. The customer pays a deposit upon entering into the contract and the deposit is refundable only
if the entity fails to complete construction of the unit in accordance with the contract. The
remainder of the contract price is payable on completion of the contract when the customer
obtains physical possession of the unit. If the customer defaults on the contract before
completion of the unit, the entity only has the right to retain the deposit. Which of the following
statements is correct?
a. The entity’s performance obligation is satisfied at a point in time because the entity does
not have an enforceable right to payment for performance completed to date.
b. The entity’s performance obligation is satisfied over time because the contract is a
construction contract.
c. The entity’s performance obligation is satisfied at a point in time because it takes a short
period of time to construct just one unit in a multi-unit complex.
d. The entity’s performance obligation is satisfied over time because it takes a long-period of
time to develop all the units in the multi-unit residential complex.

42. The customer pays a non-refundable deposit upon entering into the contract and will make
progress payments during construction of the unit. The contract has substantive terms that
preclude the entity from being able to direct the unit to another customer. In addition, the
customer does not have the right to terminate the contract unless the entity fails to perform as
promised. If the customer defaults on its obligations by failing to make the promised progress
payments as and when they are due, the entity would have a right to all of the consideration
promised in the contract if it completes the construction of the unit. The courts have previously
upheld similar rights that entitle developers to require the customer to perform, subject to the
entity meeting its obligations under the contract. Which of the following statements is correct?
a. The asset (unit) created by the entity’s performance does not have an alternative use to the
entity.
b. The entity has a right to payment for performance completed to date.
c. The entity’s performance obligation is satisfied over time.
d. All of these

43. Which of the following statements is correct?

a. Long-term construction contracts are unique from other contracts with customers.
Therefore, PFRS 15 excludes from its scope the accounting for long-term construction
contracts.
b. Long-term construction contracts are unique from other contracts with customers.
Therefore, PFRS 15 requires an entity to recognize revenue from long-term construction
contracts using either the percentage of completion method or the zero-profit method.
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c. PFRS 15 does not provide a special distinction between long-term construction contracts
from other types of contracts with customers. Therefore, an entity shall apply the same
principles in accounting for long-term construction contracts as those applied to other types
of contracts with customers.
d. PFRS 15 does not exclude long-term construction contracts from its scope. However,
because of the unique nature of long-term construction contracts, PFRS 15 requires an
entity to recognize revenue from a long-term construction contract that is expected to be
completed within 3 years or more using the percentage of completion method. For those
that are expected to be completed within a shorter period, revenue shall be recognized
when construction is complete.

Use the following information for the next three questions:

In 20x1, Chili Peppers Co. started work on three contracts. Information of the contracts is shown
below:
Contract Transaction price Costs incurred Estimated costs to complete
Contract 1 500,000 375,000 -
Contract 2 700,000 100,000 400,000
Contract 3 250,000 100,000 100,000

44. The performance obligations of Chili Peppers Co. in all of the contracts are satisfied over time.
Chili Peppers Co. uses the cost-to-cost method to measure its progress in the contracts. How
much is the total revenue recognized from the contracts 20x1?
a. 865,000
b. 765,000
c. 385,000
d. 265,000

45. The performance obligations of Chili Peppers Co. in all of the contracts are satisfied over time.
However, the outcome of the performance obligations in the contracts cannot be measured
reliably but the costs incurred are recoverable. How much is the total revenue recognized from
the contracts in 20x2?
a. 700,000
b. 575,000
c. 500,000
d. 0

46. The performance obligations of Chili Peppers Co. in all of the contracts are satisfied at a point
in time (i.e., upon completion). How much is the total revenue recognized from the contracts in
20x2?
a. 700,000
b. 575,000
c. 500,000
d. 0

Use the following information for the next three questions:

Information on Sunny Day Construction Firm’s three-year construction contract with a customer is
shown below:
Contract price ₱9,000,000
Estimated costs at contract inception ₱8,000,000

Information on actual costs, billings and collections during construction period:

20x1 20x2 20x3
Actual costs incurred per year 1,944,000 5,232,000 1,844,000
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Estimated costs to complete 6,156,000 2,024,000 -

Billings 1,800,000 4,950,000 2,250,000
Collections 1,620,000 4,455,000 2,925,000

Sunny Day uses the percentage of completion (based on costs) in recognizing revenues and
profits from the contract.

47. How much net profit (loss) is recognized in 20x2?

a. 216,000
b. 200,000
c. (200,000)
d. (416,000)

48. How much is the loss provision recognized in 20x2?

a. 32,000
b. 44,000
c. 56,000
d. 68,000

49. How much net profit (loss) is recognized in 20x3?

a. 180,000
b. (180,000)
c. 20,000
d. (20,000)

Use the following information for the next two questions:

In 20x1, ABC Co. was contracted to build a railroad. The contract price is equal to the construction
costs incurred plus ₱1,200,000. However, if the project is completed within 4 years, ABC will
receive an additional payment of ₱200,000. Information on the project is shown below:
20x1 20x2 20x3
Costs incurred to date 2,400,000 4,575,000 6,125,000
Estimated costs to complete 3,600,000 1,525,000 125,000

In 20x1 and 20x2, it was not highly probable that the project will be completed on time. However, in
20x3, ABC assessed that project will be completed earlier than originally expected and thus it is
now highly probable that the incentive payment will be received.

50. How much revenue is recognized on the contract in 20x3?

a. 2,610,000
b. 2,595,000
c. 2,056,000
d. 2,022,000

51. How much profit is recognized on the contract in 20x3?

a. 506,000
b. 495,000
c. 480,000
d. 472,000

Use the following information for the next two questions:

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On September 1, 20x1, ABC Co. enters into a contract with a customer to remodel a plant’s
electrical wirings and install a new generator for a total consideration of ₱12M. The remodeling and
the installation are treated as a single performance obligation satisfied over time.

The expected contract costs are as follows:

Generator 4,000,000
Other costs 5,000,000
Expected total contract costs 9,000,000

Additional information:
• ABC Co. uses the cost-to-cost method in measuring its progress towards the complete
satisfaction of the performance obligation.
• ABC Co. incurs total costs of ₱6,000,000 in 20x1, including the cost of the generator.
• The customer obtains control of the generator when it is delivered to the site in December
20x1. However, the generator will not be installed until March 20x2.
• ABC Co. regards the cost of the generator as significant in relation to the expected total
contract costs.
• Although ABC Co. acted as a principal in procuring the generator, ABC Co. is not involved in
designing or manufacturing the generator.

52. How much revenue is recognized in 20x1?

a. 7,200,000
b. 3,200,000
c. 4,000,000
d. 5,600,000

53. How much profit is recognized from the contract in 20x1?

a. 1,200,000
b. 1,800,000
c. 2,400,000
d. 5,600,000

54. George Co. enters into a contract to build an apartment for Jungle Co. for a fixed fee of
₱20,000,000. At contract inception, George Co. assesses its performance obligations in the
contract and concludes that it has a single performance obligation that is satisfied over time.
George Co. determines that the measure of progress that best depicts its performance in the
contract is input method based on costs incurred. George estimates that the total contract costs
would amount to ₱16,000,000 over the construction period. George incurs contract costs of
₱2,000,000 during the year. How much gross profit is recognized for the year?
a. 200,000
b. 400,000
c. 500,000
d. 0

55. Flea Co. entered into a ₱10,000,000 contract to construct a multi-purpose recreational facility.
The estimated total costs on completion of the project were ₱8,000,000 and the contract period
was 36 months starting January 1, 20x1. Flea Co. uses the cost-to-cost method to estimate its
progress on the project. On January 1, 20x2, the contract price was reduced to ₱9,500,000 due
to many changes made to the original contract. The accounting records relating to this contract
for the years 20x1 to 20x3 disclosed the following:

Year Actual costs in current year Estd. costs to complete Progress billings
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20x1 3,000,000 5,000,000 2,800,000

20x2 3,500,000 1,600,000 4,000,000
20x3 1,700,000 - 2,700,000

What amount of profit is recognized in 20x3? (Round-off percentages of completion to two decimal
places.)
a. 173,500
b. 176,500
c. 178,200
d. 180,400

56. ABC Co. started work on two separate projects during 20x1. Information on these projects is
shown below:

Estimated costs to Progress

Project Contract price Costs incurred complete billings
A 9,000,000 4,000,000 2,000,000 5,000,000
B 8,000,000 5,000,000 - 8,000,000

What amounts are presented in ABC Co’s. statement of financial position under <List A: Traditional
accounting> and <List B: PFRS 15>?
Gross amount due from (to) cust. Contract asset(liability)
a. 1,000,000 1,000,000
b. (1,00,000) (1,000,000)
c. 4,000,000 4,000,000
d. (4,000,000) (4,000,000)

57. DELETERIOUS Construction Co. entered into a fixed price contract for the construction of a
building for HARMFUL, Inc. DELETERIOUS determines the stage of completion of construction
contracts using the “cost-to-cost” method.

The estimated total contract costs are as follows:

Design directly related to the contract 800,000
Technical assistance not directly related to the contract but properly allocated 200,000
Materials 22,000,000
Labor 11,200,000
Rectification and guarantee work 1,200,000
Reimbursable administrative costs specified in contractual agreement 520,000
Insurance costs 80,000
Other construction overheads 4,000,000
Marketing costs 400,000
Estimated total contract costs 40,400,000

DELETERIOUS incurred the following costs in the first year of the construction:
Design directly related to the contract 400,000
Technical assistance not directly related to the contract but properly allocated 100,000
12,000,00
Materials 0
Labor 6,000,000
Reimbursable administrative costs specified in contractual agreement 480,000
Administrative costs not expected to be reimbursed 120,000
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Research and development costs for which reimbursement is not specified in the
contract 7,200,000
Insurance costs 60,000
Construction overheads 960,000
Marketing costs 800,000
28,120,00
Total costs incurred to date 0

What is the percentage of completion of the contract as of the end of the first year?
a. 42%
b. 45%
c. 50%
d. 51%

58. On Oct. 1, 20x1, ABC Co. enters into a construction contract with a customer. The performance
obligation in the contract will be satisfied over time. ABC Co. uses the “cost-to-cost” method in
measuring its progress. The estimated total contract cost is ₱10M. In 20x1, ABC Co. incurred a
total cost of ₱6M, which includes ₱2M advance payment to a subcontractor (the subcontracted
work is not yet started) and ₱200,000 cost of materials not yet installed. ABC Co. does not
regard the cost of the unused materials as significant in relation to the expected total contract
costs. Moreover, ABC Co. retains control over the unused materials because it can use them in
a contract with another customer. What is the percentage of completion in 20x1?
a. 38%
b. 40%
c. 42%
d. 56%

59. On January 1, 20x1, ABC Co. enters into a contract with a customer for the construction of a
building. The contract price is ₱1,000,000. The following are the transactions in 20x1:
• At contract inception, the customer makes an advance payment of ₱100,000 as facilitation
fee.
• ABC Co. incurs total contract costs of ₱300,000 during the period.
• The estimated costs to complete as of year-end amounts to ₱500,000.
• ABC Co. collects the billing, net of 10% customer-retention as specified in the contract.

ABC uses the input method based on costs incurred to measure its progress on the contract. How
much is the cost of construction that is recognized as expense in 20x1?
a. 175,000
b. 375,000
c. 300,000
d. 285,000

60. Revenue from franchise contracts are accounted for in accordance with which of the following
reporting standards?
a. PAS 18 Part B
b. FAS No. 45 (US GAAP)
c. PFRS 15
d. A combination of (a), (b) and (c) above

61. If an entity’s promise to grant a license is distinct,

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a. the general principles of PFRS 15 are applied to determine whether the performance
obligation is satisfied over time or at a point in time.
b. the specific principles of PFRS 15 are applied to determine whether the performance
obligation is satisfied over time or at a point in time.
c. both the general and specific principles are used to determine whether the performance
obligation is satisfied over time or at a point in time and whether the grant of license
provides the customer with a ‘right to access’ or a ‘right to use.’
d. US GAAP (FAS No. 45) is applied to determine whether there is substantial performance of
the initial services required in the contract.

62. Which of the following does not indicate that the nature of an entity’s promise to transfer a
license is to provide the customer the right to access the entity’s intellectual property as it exists
throughout the license period?
a. The intellectual property to which the customer has rights changes throughout the license
period.
b. The entity continues to be involved with its intellectual property
c. The contract requires, or the customer reasonably expects, that the entity will undertake
activities that significantly affect the intellectual property to which the customer has rights
and the customer is exposed to any positive or negative effects of those activities.
d. The customer can direct the use of, and obtain substantially all of the remaining benefits
from, the license at the point in time at which the license is granted.

63. According to PFRS 15, if the nature of the entity’s promise to grant franchise rights in a
franchise agreement is to provide the franchisee the right to use the entity’s intellectual
property as it exists at the point in time at which the license is granted, the initial franchise fee
is recognized as revenue
a. when there is substantial performance which is indicated by the commencement of the
franchisee’s business.
b. at the point in time when the rights are transferred to the franchisee and the franchisee
obtains the ability to use those rights.
c. over time, throughout the license period, starting from the time the rights are transferred to
the franchisee and the franchisee obtains the ability to use those rights.
d. b or c depending on the substance of the agreement

64. Which of the following statements is incorrect if an entity’s promise to grant a license is not
distinct and that the performance obligation is satisfied at a point in time?
a. Treat all promises in the contract, including the grant of license, as a single performance
obligation.
b. Recognize the fixed consideration as revenue in full when the license is effectively
transferred to the customer.
c. Recognize the sales-based (or usage-based) consideration in the contract in full when the
license is effectively transferred to the customer.
d. Recognize the sales-based (or usage-based) consideration in the contract as the
subsequent sales or usages occur, notwithstanding the fact that the performance obligation
is satisfied at a point in time.

65. If in subsequent periods the franchisee’s ability to pay significantly deteriorates and the
collectability of the consideration in the franchise agreement becomes significantly uncertain,
a. the entity discontinues recognizing further revenues from the franchise contract.
b. the entity assesses any existing receivable or contract asset from the franchise contract for
impairment.
c. the entity shall discontinue its existing accounting policy on revenue recognition and shifts
to either the installment sales method or the cost recovery method of revenue recognition.
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d. a and b

66. If the promise to grant a license is distinct and that the license provides the customer the “right
to use” the entity’s intellectual property, how is revenue recognized from the initial fee in the
contract?
a. in full upon the signing of the contract
b. in full when the customer obtains control of the license
c. deferred and recognized in full at the end of the license period
d. deferred and amortized over the license period

67. On January 1, 20x1, Pongcuter Co. enters into a contract with a customer to grant a software
license for ₱1,000,000. The fee is payable at contract inception. The license has a term of four
years, to reckon from the date the customer can use the software. The customer can determine
how and when to use the right without further performance by Pongcuter Co. and does not
expect that Pongcuter Co. will undertake any activities that significantly affect the intellectual
property to which the customer has rights. The software is transferred to the customer on
February 1, 20x1. However, the code, which is necessary for the customer to use the software,
is transferred only on April 1, 20x1. How should Pongcuter Co. recognize revenue from the
fixed consideration in the contract?
a. in full on February 1, 20x1
b. in full on April 1, 20x1
c. deferred and amortized over four years starting on February 1, 20x1
d. deferred and amortized over four years starting on April 1, 20x1

68. On Jan. 1, 20x1, Hurt Co. entered into a franchise agreement with Hero Co. The franchise
contract gives Hero Co. the right to use Hurt’s trademark and proprietary processes for a period
of 4 years. The franchise requires payment of an upfront fee of ₱1,000,000, payable at contract
inception, and 5% monthly royalty based on sales. Aside from the granting of the license, the
franchise agreement also requires Hurt Co. to undertake pre-opening activities to setup the
contract and post-commencement activities, such as research and development and marketing
campaigns, to support the intellectual property. Although the activities do not result in the direct
transfer of a good or service to Hero Co. as the activities occur, it is expected that Hero Co. will
benefit from them. All the necessary preparations were completed and Hero Co. started
business operations on January 31, 20x1. Hero had total sales of ₱9,000,000 in 20x1. How
much revenue would Hurt Co. recognize in 20x1?
a. 1,450,000
b. 700,000
c. 679,167
d. 489,310

69. On December 31, 20x1, Entity A enters into a contract with Customer X to transfer a license for
a fixed fee of ₱100,000 payable as follows:
• 20% payable upon signing of contract.
• 80% due in four equal annual installments starting December 31, 20x2. The appropriate
discount rate is 12%.

The license provides Customer X rights over Entity A’s patented processes. The agreement
requires Customer X to discontinue using its trade name and instead use Entity A’s trade name.
Customer X is bound by the terms of the contract to abide with Entity A’s policies on the use of the
processes but is given the right to any subsequent modifications to the processes. How much
revenue from the franchise contract will Entity A recognize in 20x1?
a. 80,747
b. 20,187
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c. 20,000
d. 0

70. On January 1, 20x1, an entity grants a franchisee the right to operate a restaurant in a specific
market using the entity’s brand name, concept and menu for a period of ten years. The entity
has granted others similar rights to operate this restaurant concept in other markets. The entity
commonly conducts national advertising campaigns, promoting the brand name, and restaurant
concept generally. The franchisee will also purchase kitchen equipment from the entity. The
entity will receive ₱950,000 upfront (₱50,000 for the kitchen equipment and ₱900,000 for the
franchise right) plus a royalty, paid quarterly, based on 4% of the franchisee’s sales over the
life of the contract. The ₱50,000 amount reflects the stand-alone selling price of the kitchen
equipment. The entity delivers the kitchen equipment to the customer on February 1, 20x1. The
customer commences business operations on April 1, 20x1 and reports total sales of
₱5,000,000 for the year. How much total revenue should the entity recognize from the contract
in 20x1?
a. 117,500
b. 317,500
c. 340,000
d. 1,150,000

BONUS QUESTION:
71. Who created the concept of present value?
a. Jose Rizal and friends
b. Rodrigo Duterte
c. Manny Pacquiao
d. None of these

“In this you greatly rejoice, though now for a little while, if need be, you have been grieved by
various trials, That the genuineness of your faith being much more precious than gold that
perishes, though it is tested by fire, may be found to praise honor, and glory at the revelation of
Jesus Christ.” (Peter 1:6-7)

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