Homework answers / question archive / Michigan State University - ACCOUNTING 201 1)Which is the correct accounting for a finance lease in the accounts of the lessee (assuming fair value is used)? (a)          Dr Asset account Cr Liability account } with fair value   Dr Income statement Cr Asset account } with depreciation of asset   Dr Income statement Cr Liability account } finance charge for period   Dr Liability account Cr Cash } cash paid in period   (b)          Dr Liability account Cr Asset account } with fair value   Dr Income statement Cr Asset account } with depreciation of asset   Dr Liability account Cr Income statement } finance charge for period   Dr Liability account Cr Cash } cash paid in period   (c)           Dr Asset account Cr Liability account } with fair value   Dr Asset account Cr Income statement } with depreciation of asset   Dr Liability account Cr Income statement } finance charge for period   Dr Liability account Cr Cash } cash paid in period   (d)          Dr Asset account                 Cr Liability account } with fair value                   Dr Income statement                 Cr Asset account } with depreciation of asset                   Dr Liability account                 Cr Income statement } finance charge for period                   Dr Liability account                 Cr Cash } cash paid in period   2

Michigan State University - ACCOUNTING 201 1)Which is the correct accounting for a finance lease in the accounts of the lessee (assuming fair value is used)? (a)          Dr Asset account Cr Liability account } with fair value   Dr Income statement Cr Asset account } with depreciation of asset   Dr Income statement Cr Liability account } finance charge for period   Dr Liability account Cr Cash } cash paid in period   (b)          Dr Liability account Cr Asset account } with fair value   Dr Income statement Cr Asset account } with depreciation of asset   Dr Liability account Cr Income statement } finance charge for period   Dr Liability account Cr Cash } cash paid in period   (c)           Dr Asset account Cr Liability account } with fair value   Dr Asset account Cr Income statement } with depreciation of asset   Dr Liability account Cr Income statement } finance charge for period   Dr Liability account Cr Cash } cash paid in period   (d)          Dr Asset account                 Cr Liability account } with fair value                   Dr Income statement                 Cr Asset account } with depreciation of asset                   Dr Liability account                 Cr Income statement } finance charge for period                   Dr Liability account                 Cr Cash } cash paid in period   2

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Michigan State University - ACCOUNTING 201

1)Which is the correct accounting for a finance lease in the accounts of the lessee (assuming fair value is used)?

(a)          Dr Asset account

Cr Liability account } with fair value

 

Dr Income statement

Cr Asset account } with depreciation of asset

 

Dr Income statement

Cr Liability account } finance charge for period

 

Dr Liability account

Cr Cash } cash paid in period

 

(b)          Dr Liability account

Cr Asset account } with fair value

 

Dr Income statement

Cr Asset account } with depreciation of asset

 

Dr Liability account

Cr Income statement } finance charge for period

 

Dr Liability account

Cr Cash } cash paid in period

 

(c)           Dr Asset account

Cr Liability account } with fair value

 

Dr Asset account

Cr Income statement } with depreciation of asset

 

Dr Liability account

Cr Income statement } finance charge for period

 

Dr Liability account

Cr Cash } cash paid in period

 

(d)          Dr Asset account

                Cr Liability account } with fair value

 

                Dr Income statement

                Cr Asset account } with depreciation of asset

 

                Dr Liability account

                Cr Income statement } finance charge for period

 

                Dr Liability account

                Cr Cash } cash paid in period

 

2.            The credit total of a trial balance exceeds the debit total by P700. In investigating the cause of the difference, the following errors were determined: a credit to accounts receivable of P1,100 was not posted; a P10,000 debit to be made to the Purchases account was debited to Accounts payable instead; a P6,000 credit to be made to the Sales account was credited to the Accounts receivable account instead; the Interest payable account balance of P9,000 was included in the trial balance as P10,800. How much is the correct balance of the trial balance?

a. 16,700

b. 17,100

c. 14,900

 

d. 13,500

 

3.            Information on a country’s inflation rate is shown below:

 

Year       CPI         Change in CPI    Annual inflation rate (a)                                (b)                          % = (b ÷ a) x 100%

Jan. 1, 20x1         400

Dec. 31, 20x1      520         120         30.00%

Dec. 31, 20x2      720         200         38.46%

Dec. 31, 20x3      880         160         22.22%

 

What is the cumulative inflation rate in 20x3 to be used in determining if there is hyperinflation?

a. 100%

b. 120%

c. 133.33%

d. 140%

 

4.            On January 1, 20x1, SPAT QUARREL Co. acquired a biological asset at its fair value of P40,000. Necessary costs incurred on the purchase totaled P8,000. It was estimated that if the biological asset is to be sold currently, costs to sell would amount to P2,000. How much is the loss recognized on January 1, 20x1?

a. 38,000

b. 30,000

c. 10,000

d. 0

 

5.            BLASé BORED Co. expects to earn P400,000 pre-tax profit each quarter. BLASE has tax rates of 20% on the first P800,000 of annual earnings and 30% on all additional earnings. Actual earnings match expectations. How much is the income tax expense recognized in the third quarter interim financial statements?

a. 80,000

b. 100,000

c. 120,000

d. 132,000

 

6.            VENERABLE RESPECTED Co.’s defined benefit plan provides a lump sum retirement benefit of P8,000,000 to all employees

•             who are still employed at the age of 55 after twenty years of service, or

•             who are still employed at the age of 65, regardless of their length of service.

 

Mr. Juan is hired at the age of 33. What is the attribution period for Mr. Juan’s benefit and how much benefit is attributed each year?

Attribution period           Benefit attributed each year

a. age 33 to 55   400,000

b. age 33 to 55   347,826

c. age 35 to 55    400,000

d. age 45 to 65   400,000

 

7.            In September 2006, West Corp. made a dividend distribution of one right for each of its 120,000 shares of outstanding common stock. Each right was exercisable for the purchase of 1/100 of a share of West's P50 variable rate preferred stock at an exercise price of P80 per share. On March 20, 2008, none of the rights had been exercised, and West redeemed them by paying each stockholder P0.10 per right. As a result of this redemption,

West stockholder's equity was reduced by a.      120

b.            2,400

c.             12,000

d.            36,000

 

8.            On January 1, 20x1, ABRIDGE TO SHORTEN Company issued a 4-year, P1,000,000 noninterest bearing note payable due in four equal annual installments. The effective interest rate is 12%. ABRIDGE prepared the following pro- forma amortization table on an electronic spreadsheet:

 

                A             B             C             D             E

 

1             

Date      Cash

paid       Interest

expense             

Amortization     

Present value

2              Jan. 1, 20x1                                                        

3              Dec. 31, 20x1                                                     

4              Dec. 31, 20x2                                                     

5              Dec. 31, 20x3                                                     

6              Dec. 31, 20x4                                                     

 

The current portion of the note payable as of December 31, 20x2 is equal to

a.            D4

b.            D3

 c. D5

d. E5

 

9.            On January 1, 20x1, HEARTEN ENCOURAGE CHEER Company issued a 4-year, P1,000,000, noninterest-bearing note due on December 31, 20x4. The effective interest rate is 12%. HEARTEN prepared the following pro-forma amortization table on an electronic spreadsheet:

A             B             C             D

 

 

1

2

 

3

 

4

 

5

 

6

 

The amount to be placed on cell D2 is computed as

a.            (1M x PV of P1 @12%, n=4) + (1M x PV of ordinary annuity of P1 @ 12%, n=4)

b. (1M x PV of P1 @12%, n=4)

c. (1M x PV of ordinary annuity of P1 @12%, n=4)

d. (1M x PV of P1 @12%, n=4) + (1M x 10% x PV of ordinary annuity of P1 @ 12%, n=4)

 

10.          On January 1, 20x1, SPECULATE THINK Insurance Co. issues a one-year, fire insurance contract for a total premium of P48,000. How much is the earned portion of the premium for the month ended January 31, 20x1? a. 2,000

b. 46,000

c. 4,000

d. 0

 

MODERATE

1.            A and B are co-owners of a parcel land. A donated his share to C. Can B redeem the said share from C?

a.            Yes, because the law looks with disfavor at co-ownership.

b.            No, because legal redemption applies only in case of onerous alienation.

c.             No, but in proportion to his interest in the land as co-owner.

d.            Yes, but in proportion to his interest in the land as co-owner.

 

2.            Which is correct?

 

a.            Tax condonation is a general pardon granted by the government.

b.            BIR has five deputy commissioners

c.             Taxation is the rule; exception is the exemption

d.            The President of the Philippines can change tariff or imposts without necessity of calling Congress to pass a law for that purpose

3.            Which of the following would be considered the most conservative settings for inherent risk and control risk?

Inherent Risk     Control Risk

a. 1.0     1.0

b. 1.0     0.0

c. 0.0      0.0

d. 0.5     0.5

4.            Mr. Chuchu submitted a sworn statement regarding the alleged tax evasion practices of Bad Corporation. This led the BIR to recover P20,000,000 unpaid taxes. How much net tax informer’s reward shall be paid to Mr. Chuchu?

a. P1,800,000

b. P1,600,000

c. P1,000,000

d. d. P900,000

 

5.            Day Co. is a medium-sized manufacturer of lamps. During 2010 a new line called “Twinkle” was made available by Day’s customers. The break-even point in sales of Twinkle is P400,000 with a contribution margin of 40%. Assuming that the operating profit for the Twinkle line for 2010 amounted to P200,000, total sales for 2010 amounted to

a. P600,000

b. P840,000 c. P900,000 d. P950,000

 

6.            PERPETUAL Co. owns 20% of EVERLASTING, Inc. and uses the equity method because it has significant influence. In 20x1, PERPETUAL sells inventory to EVERLASTING for P400,000 with a 60% gross profit on the transaction. The inventory remains unsold during 20x1 and was sold by EVERLASTING to external parties only in 20x2. PERPETUAL’s income tax rate is 30%. EVERLASTING reports profit of P4,000,000 and P4,800,000 on December 31, 20x1 and 20x2, respectively. How much is the share in the profit of associate in 20x1?

a. 560,000

b. 632,000

c. 728,000

d. 800,000

 

7.            Information on QUELL PUT DOWN Co.’s defined benefit plan is shown below:

 

•             Fair value of plan assets, Jan. 1  7,200,000

•             Present value of defined benefit obligation, Jan. 1           8,000,000

•             Vested past service cost               800,000

•             Unvested past service cost (vesting period is 5 yrs.)         1,200,000

•             Current service cost        2,400,000

•             Benefits paid to retirees during the year               1,600,000

•             Net loss on settlement of plan during the year   200,000

•             Actuarial gains during the period               80,000

•             Return on plan assets during the period                480,000

 

 

 

•             Discount rate based on high quality corporate bonds      10%

 

How much is the defined benefit cost? a. 4,840,000

b. 4,680,000

c. 4,360,000

d. 5,000,000

 

8.            ENTITY BEING Co. incurred the following costs in self-generating computer software.

•             Completion of detailed program design P2,000,000

•             Cost incurred for coding and testing to establish

technological feasibility 1,600,000

 

•             Other coding costs after establishment of technological feasibility

•             Other testing costs after establishment of technological feasibility

 

4,000,000

 

3,200,000

 

•             Costs of producing product masters        2,400,000

•             Reproduction and duplication costs from product masters            4,800,000

•             Packaging costs for the reproduced software     1,200,000

 

How much is the cost of computer software recognized as intangible asset? a. 13,200,000

b. 11,200,000

c. 7,200,000

d. 9,600,000

 

9.            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 Account with C  16 Dr.

26 Cr.     -             

26          

Cr.          16 Dr.

 

On the cash settlement between the joint operators,

a.            A receives P26; C pays P16

b.            B pays P10; A pays P16 c. C receives P26; A pays P10

d. None of these

 

10.          During the year, FATUITY FOOLISHNESS Insurance Co. wrote insurance policies covering marine cargo risks. Premiums from these policies are shown below:

 

                  Gross

premiums             Premiums

Ceded

January 240,000 144,000

February              400,000 328,000

March   460,000 280,000

April       432,000 340,000

May       308,000 216,000

June      424,000 332,000

July        280,000 200,000

August  228,000 132,000

September         388,000 304,000

October               380,000 296,000

November          584,000 476,000

December           200,000 136,000

 

 

 

Totals    4,324,000             3,184,000

 

 

How much is the provision for unearned premiums as of December 31, 20x1?

      a. 172,000

b. 127,000

c. 182,000

d. 197,000

 

DIFFICULT

1.            WLETER TURMOIL Co. reported profit after tax of P420,000. WELTER’s income tax rate is 30%. Operating expenses for the year were 15% of sales and 25% of cost of sales. Other expenses were 10% of sales. How much is the sales? a. 4,000,100

b. 3,900,000

c. 4,100,000

d. 4,000,000

 

2.            An entity is the defendant in a patent infringement lawsuit. The entity’s lawyers believe there is a 30% chance that the court will dismiss the case and the entity will incur no outflow of economic benefits. However, if the court rules in favor of the claimant, the lawyers believe that there is a 20% chance that the entity will be required to pay damages of P800,000 (the amount sought by the claimant) and an 80% chance that the entity will be required to pay damages of P400,000 (the amount that was recently awarded by the same judge in a similar case). Other outcomes are unlikely.

The court is expected to rule in late December 20x2. There is no indication that the claimant will settle out of court. A 7% risk adjustment factor to the probability-weighted expected cash flows is considered appropriate to reflect the uncertainties in the cash flow estimates. An appropriate discount rate is 10% per year.

 

How much is the provision for lawsuit at December 31, 20x1? a. 436,360

b. 446,908

c. 326,836

d. 0

 

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

•             A shall receive a salary of P80,000.

•             Interest of 10% shall be computed on the partners’ capital contributions of P80,000, P200,000 and P400,000.

•             Balance is divided among the partners on a 2:3:5 ratio. However, the

minimum amounts that B and C shall receive if the partnership earns profit are P40,000 and P80,000, respectively, inclusive of interest and share in remaining profit.

How much is the level of profit necessary so that A shall receive a total of P100,000, inclusive of salaries, interest and share in remaining profit, and all of the other partners shall receive their minimum allocable amounts?

a. 208,000

b. 220,000

c. 228,000

d. 240,000

 

4.            ASTOUND SURPRISE Co. has several branches. The following information was determined during its reconciliation procedures for its reciprocal account with Ionian Branch.

a.            Utilities expense of P16,000 that is properly allocable to Ionian Branch

was recorded by the home office in Dorian Branch’s account. Ionian Branch made the correct entry.

 

b.            The home office recorded a cash remittance of P64,000 from Ionian Branch as coming from Phrygian Branch.

c.             A debit memo from the home office for P40,000 representing shipment of

merchandise was not recorded by the Ionian Branch.

d.            The debit posting for a cash remittance to the home amounting to P28,000 was not recorded by Ionian Branch.

e.            The credit posting for a credit memo received from the home office

representing collection by home office of the branch’s account receivable amounting to P20,000 was not recorded by Ionian Branch.

How much is the difference between the unadjusted “Investment in Ionian Branch” and “Home office” accounts?

a. 60,000

b. 36,000

c. 48,000

d. 52,000

 

5.            On January 1, 20x1, LITHE Co. paid cash of P6,000,000 in exchange for all of the net assets of FLEXIBLE, Inc. As of this date, the carrying amounts and fair values of the assets and liabilities of FLEXIBLE acquired by LITHE are shown below:

 

 

Assets

 

  Carrying amounts

 

  Fair values

 

Cash      40,000   40,000

Receivables        2,760,000             1,480,000

 

Allowance for probable losses on receivables

 

(400,000)

 

Property, plant and equipment 4,000,000 4,400,000 Computer software                                400,000 - Patent                                                -       200,000

Goodwill                             400,000 80,000

Total assets        7,200,000             6,200,000

                 

Liabilities                                            

 

Bonds payable (w/ face amount of

 

1,600,000             1,800,000

 

P1,600,000)                       

                 

 

In applying the recognition and measurement principles under PFRS 3, LITHE Co. has identified the following unrecorded intangible assets:

Type of intangible asset                Fair value

 

Research and development projects

 

200,000

 

Customer list     160,000

Customer contract #1    120,000

Customer contract #2    80,000

Order (production) backlog         40,000

Internet domain name  60,000

Trademark          100,000

Trade secret processes 140,000

Mask works                       180,000

Total      1,080,000

 

Additional information:

•             The computer software is considered obsolete.

•             The patent has a remaining useful life of 10 years and a remaining legal life of 12 years.

•             FLEXIBLE, Inc. recognized the research and development costs as expenses

when they were incurred.

•             Customer contract #1 refers to an agreement between FLEXIBLE, Inc. and Numbers Co., a customer, wherein FLEXIBLE, Inc. is to supply goods to Numbers Co. for a period of 5 years. As of acquisition date, the remaining period in the agreement is 3 years. LITHE and FLEXIBLE             believe that

 

Numbers Co. will renew the agreement at the end of the current contract. The agreement is not separable.

•             Customer contract #2 refers to FLEXIBLE’s insurance segment’s portfolio of

one-year motor insurance contracts that are cancellable by policyholders.

•             FLEXIBLE, Inc. transacts with its customers solely through purchase and sales orders. As of acquisition date, has a backlog of customer purchase orders from 60% of its customers, all of whom are recurring customers. The other 40% of FLEXIBLE’s customers are also recurring customers. However, as of acquisition date, FLEXIBLE has no open purchase orders or other contracts with those customers.

•             The internet domain name is registered.

 

How much is the goodwill (gain on bargain purchase)? a. 900,000

b. 600,000

c. 420,000

d. 1,680,000

 

6.            On January 1, 20x1, ABC Co. acquired 80% interest in XYZ, Inc. by issuing 5,000 shares with fair value of P60 per share and par value of P40 per share. On acquisition date, ABC Co. elected to measure non-controlling interest as its proportionate share in XYZ, Inc.’s net identifiable assets.

XYZ’s shareholders’ equity as of January 1, 20x1 comprises the following:

                (at          carrying amounts)

Share capital                      200,000

Retained earnings                           96,000

Total equity                        296,000

 

On January 1, 20x1, the fair values of the assets and liabilities of XYZ, Inc. were determined by appraisal, as follows:

 

 

g

 

 

 

 

 

 

 

 

 

The remaining useful life of the equipment is 4 years.

 

During 20x1, no dividends were declared by either ABC or XYZ. There were also no inter-company transactions. The group determined that there is no goodwill impairment.

 

ABC’s and XYZ’s individual financial statements at year-end are shown below:

 

Statements of financial position As at December 31, 20x1

ABC Co.                XYZ, Inc.

ASSETS

 

Cash      92,00

0              228,000

Accounts receivable       300,000 88,000

Inventory            420,000 60,000

Investment in subsidiary              300,000 -

 

 

Equipment          800,000 200,000

Accumulated depreciation           (240,000)             (80,000)

  TOTAL ASSETS                 1,672,000             496,000

LIABILITIES AND EQUITY

Accounts payable            172,000 120,000

 

Bonds  

payable                120,000

-

Total      liabilities               292,000 120,000

Share    capital   680,000 200,000

 

Share   

premium             260,000

-

Retained earnings           440,000 176,000

Total equity        1,380,000             376,000

  TOTAL LIABILITIES AND EQUITY                                1,672,000             496,000

Statements of profit or loss For the year ended December         

31,         

20x1                      

                                                ABC Co.                XYZ, Inc.

Sales                                      1,200,000             480,000

Cost of goods sold                                           (660,000)             (288,000)

Gross profit                                        540,000 192,000

Depreciation expense                                   (160,000)             (40,000)

Distribution costs                                             (128,000)             (72,000)

 

Interest expense                                             (12,000

)             

-

  Profit for the year                          240,000 80,000

 

 

How much is the consolidated total assets as of December 31, 20x1? a. 1,867,000

b. 1,907,000

c. 1,894,000

d. 1,904,000

 

7.            HOMOLOGOUS MATCHING Co. has pretax income of P400,000. The following information was gathered:

Loss on expropriation of property            140,000 Non-deductible premium on life insurance premium of

key employees 24,000

Interest income received on government securities

subjected to final tax     20,000

Excess of accelerated depreciation used in taxation over

straight line depreciation used in financial reporting        40,000 Warranty expense accrued for financial reporting

purposes but is tax deductible only when actually            paid       60,000

Rent received in advance

Quarterly income tax payments                                32,000

(1st        quarter to           3rd         quarter)               80,000

Tax rate                30%

Beginning balance of taxable temporary difference         48,000

Beginning balance of deductible temporary difference  36,000

How much is the current tax payable?   

a. 163,020

b. 178,800

c. 98,800

d. 86,400

 

8.            On January 1, 20x1, the partners of ABC Co. decided to liquidate their partnership. The following information was made available:

 

Cash      80,000

Accounts receivable       240,000

Inventory            480,000

 

Equipment          1,200,00

 

    Total                  2,000,000

Accounts payable            600,000

A, Capital (20%) 200,000

B, Capital (30%) 400,000

C, Capital (50%) 800,000

    Total                  2,000,000

The net proceeds from the sale of non-cash assets amounted to P160,000. The personal assets and personal liabilities of the partners are as follows:

                A             B             C

Personal assets 1,200,000             1,040,000             800,000

Personal liabilities            (880,000)             (880,000)             (1,280,000)

 

How much did A receive from the settlement of his interest in the partnership?

a. 68,800

b. 64,400

c. 82,600

d. 0

 

9.            On January 1, 20x1, the biological assets of GENTEEL POLITE Co. consist of ten 2-year old animals with fair value less cost to sell of P40,000 each for a total of P400,000.

Transactions during the year include the following:

•             One animal aged 2.5 years was purchased on July 1, 20X1 for P43,200.

•             One animal was born on July 1, 20X1.

•             Two animals from the January 1, 20x1 biological assets were sold for P48,000 each on Sept. 1, 20x1.

•             One animal from the January 1, 20x1 biological assets died of “mad cow”

disease on November 1, 20x1.

 

Per-unit fair values less costs to sell are as follows: Newborn animal at July 1, 20X1           P28,000

2.5 year old animal at July 1, 20X1             43,200

Newborn animal at 31 December 20X1   28,800

0.5 year old animal at 31 December 20X1               32,000

2 year old animal at 31 December 20X1  42,000

2.5 year old animal at 31 December 20X1               44,400

3 year old animal at 31 December 20X1  48,000

 

How much is the gain on change in fair value less costs to sell due to price change?

a. 22,000

b. 94,800

c. 34,800

d. 16,000

 

10.          ABC Co. operates a chain of coffee shops nationally. On October 1, 20x1, ABC Co. entered into a firm commitment to purchase 4,000 kilograms of coffee beans for a contract price of P160 per kilogram on March 31, 20x2.

ABC Co. expects that there is a possible decrease in the price of coffee beans, so on this date, ABC Co. entered into a six-month forward contract with a bank to sell 4,000 kilograms of coffee beans at the current forward rate of P160 per kilogram.

 

Information on fair values is shown below:

 

 

Date      Spot

price

 

Forward price

 

Fair value of forward contract

(asset)

 

Fair value of firm

commitment

 

 

 

 (liability)

 

Oct. 1, 20x1         155         160         -              -

a              (27,727)

b             (52,000)

 

a [(160 – 153) x 4,000] x present value factor using 4%, assumed appropriate rate, for three months (or 0.9902427).

b [(160 – 147) x 4,000.

 

The entries on December 31, 20x1 includes a

a.            a debit to loss on firm commitment for P27,728, recognized in profit or loss

b.            a debit to loss on firm commitment for P27,728, recognized in OCI

c.             a credit to gain on firm commitment for P27,728, recognized in profit or loss

d.            a credit to gain on firm commitment for P27,728, recognized in OCI

 

 

CLINCHER

1.            Which of the following computations may properly result to the correct balance of an investment in associate account at year-end?

a.            Beginning balance of investment plus share in associate’s profit minus

share in dividends declared by associate, and minus amortization of share in undervaluation of associate’s asset 

b.            Beginning balance of investment plus share in associate’s profit minus

share in dividends declared by associate, and plus amortization of share in undervaluation of associate’s asset

c.             Beginning balance of investment plus share in associate’s profit plus

share in dividends declared by associate, and minus amortization of share in undervaluation of associate’s asset

d.            Beginning balance of investment plus share in associate’s profit minus

share in dividends declared by associate, minus amortization of share in undervaluation of associate’s asset, and minus separate impairment loss on goodwill included in the carrying amount of the investment

2.            If as part of a business combination, an acquirer reacquires a right that it had previously granted to the acquiree, such reacquired right is

a.            an identifiable intangible asset subsumed in goodwill.

b.            an unidentifiable intangible asset that the acquirer recognizes as a direct adjustment to the consideration transferred.

c.             an identifiable intangible asset that the acquirer recognizes separately

from goodwill.

d.            not accounted for because no consideration is transferred for the reacquired right.

3.            It is a type of sale in which the buyer takes title and accepts billing but delivery of the goods is delayed at the buyer’s request.

a.            buy and hold sale

b.            lay away sale

c.             cash and carry

d.            bill and hold

 

4.            Restructuring provisions

a.            are generally not recognized as part of business combination unless the acquiree has at the acquisition date an existing liability for restructuring that has been recognized in accordance with PAS 37.

b.            that do not meet the definition of a liability at the acquisition date

are recognized as post-combination expenses of the combined entity when the costs are incurred.

 

c.             generally increases goodwill

d.            a and b

 

5.            A contingent liability assumed in a business combination

a.            is not accounted for by the acquirer if the contingent liability has an improbable outflow of economic resources

b.            is recognized even if it has an improbable outflow of economic resources

for as long as there is present obligation and the fair value of the obligation can be measured reliably

c.             is recognized only if there is present obligation, probable outflow of

economic resources, and can be measured reliably

d.            a and c

 

6.            On July 1, 20x1, NUGATORY Co. was contracted by WORTHLESS, Inc. to construct a subway. Information on the contract is shown below:

Estimated duration of the contract          3 years

Date of commencement              September 1, 20x1 Total contract price                  P240M

Estimated total cost        P120M

 

An independent surveyor certified the cumulative value of the work in progress as follows:

•             As of December 31, 20x1              P60M

•             As of December 31, 20x2              P210M

 

Total actual costs incurred to date:

•             As of December 31, 20x1              P32M

•             As of December 31, 20x2 (excluding rectification costs) P90M

 

Progress billings to date:

As of December 31, 20x1              P40M

As of December 31, 20x2              P192M

 

On January 1, 20x2, NUGATORY Co. agreed to a contract variation that involves an additional fee of P40M with associated additional estimated costs of P16M.

 

The costs incurred during 20x2 include P12M costs of rectification work relating to the replacement of electric wires which had been made from material that had been incorrectly specified by the firm of electrical engineers who were subcontracted by NUGATORY to design the subway’s wirings. These costs were not included in the original estimates, and although reimbursement for rectification work is not included in the contract with the subcontractor, NUGATORY is hopeful that these costs will be recovered from the electrical engineers.

 

NUGATORY uses the percentage of completion based on the value of the work certified to date compared to the total contract price.

 

How much is the cost of construction in 20x2?

a.            30M

b.            88M

c. 31.8M

d. 84M